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Blockchains aren’t as private as you think
Blockchain technology was introduced to the world in 2009 when Bitcoin burst onto the scene. This technology has been revolutionary for securely transferring value peer-to-peer without the need for intermediaries. The technology operates as a distributed ledger that anyone can examine through block explorers. Personal information is disguised through alphanumerical public key addresses. However, with growing adoption, these addresses can often be easily connected with particular individuals via AI forensic projects like Chainalysis.
While it is possible to create private blockchains where personal information can be shielded or permission-based, many chains capable of running smart contracts, including Ethereum, remain open-ledger. This means anyone can view any wallet address or transaction that has occurred on these blockchains. Furthermore, wallet addresses can be tracked and large traders and holders of digital assets can be easily identified. There is a growing demand for these transactions to shield both the private information and the value in the transactions to enhance financial privacy.
Railgun is the most advanced privacy-preserving solution for people who are transacting with ERC-20 tokens in DeFi and wish to keep their transactions private and anonymous.
Ways to Protect Your Financial Privacy on the Blockchain
There are currently multiple ways to protect an individual’s financial privacy, even on these open publicly distributed blockchains. Most of the privacy solutions are created through mixing (tumbler) services. These services act as a third-party extension that either perform as a wallet-generating service or a similar dark liquidity pool for users.
Wallet generating services
Wallet generating services like blender.io allow for a user to send cryptocurrency from a public blockchain, like Bitcoin, from one wallet to another untraced. The tumbler service disguises the end destination for the crypto by providing a middle relay address.
Dark liquidity pools
Dark liquidity pools operate as private exchanges for trading crypto. They traditionally facilitate block trading by institutional investors without impacting the markets with their large orders. The concern for using these pools is their centralized and custodial nature where users forfeit direct control over their crypto assets.
Railgun’s Solutions
Railgun’s privacy-preserving protocol allows users to engage in DeFi anonymously. It is run through the Railgun smart contract which enables users to remain in full custody of their cryptocurrency while all identifying information is removed from transaction data.
How it works
Users deposit their crypto funds into a private wallet through the Railgun smart contract. From there, users can engage with the Railgun balance in the same way as they would any other wallet address. Transactions made out of the Railgun smart contract are obfuscated through zk-SNARK cryptography. This privacy system shields the identity and the value of the transaction being made through the smart contract.
Anyone using the Railgun protocol can send digital assets to another Railgun account anonymously. The receiver will only see the deposited assets and no other information on the sender’s wallet address. This creates an additional layer of anonymity for the whole protocol as any user can theoretically own any amount of any digital assets that have been added. Using relayers, this same anonymity can be extended to the full world of DeFi.
When engaging in DeFi projects, the blockchain will record that there was a transaction between the Railgun smart contract and the DeFi protocol, and record the relayer’s address as the gas payer, but no identifying information about the Railgun user will be revealed. Privacy is fully protected.
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