What could be better in privacy for Ethereum and Arbitrum?

Let’s explore the current state of privacy in the Arbitrum ecosystem to understand what measures are being implemented to enhance privacy protections for users. Along the road, we’ll also look for an optimal privacy solution.

Most blockchain networks, including Ethereum, do not offer the privacy guarantees that users might expect in a web3 environment. They offer pseudonymity.

This is also true for L2s in the Ethereum ecosystem because they’ve focused on addressing scalability issues over privacy with their implementations of ZK technologies. They have inherited the same privacy paradigm as the main Ethereum chain. Consequently, every transaction on an L2 is also fully auditable by external parties.

It’s still the case that every financial transaction on popular blockchains is visible on a block explorer, meaning that practices like doxxing can potentially reveal a user’s entire financial history. While transparency is desirable in many use cases for blockchain technology, a healthier paradigm for it would be to offer it to individual users as a prerogative, not a default.

What is Arbitrum?

Arbitrum is an Ethereum Layer 2 scaling solution developed by Offchain Labs. It utilizes Optimistic Rollup technology to offer fast, low-cost, and secure transactions while inheriting Ethereum’s security and decentralization.

The Arbitrum ecosystem has seen significant growth, with various decentralized applications (dApps) and protocols deploying on its network. However, Arbitrum has historically prioritized scalability, and while it is the most decentralized L2 out there, its privacy features have not been a primary focus at the network level.

Privacy solutions on Arbitrum

Privacy on Arbitrum is still in its early stages, but some notable privacy-focused applications and tools are already present:

• Hinkal Protocol: Hinkal is a privacy-focused protocol, known for providing transactional anonymity and a fraud-protection mechanism based on Integrity Checks that involve verifying accounts through CEXs or KYC/AML providers. It conceals wallet addresses and asset details, enabling users to engage with DeFi protocols like lending and trading platforms while keeping their activities private. 
• Tornado Cash: Tornado Cash is a well-known privacy protocol in the crypto space, widely recognized for its privacy features and regulatory scrutiny history for potential misuse by bad actors. Operating as a decentralized mixer, Tornado Cash remains a leading choice for users seeking privacy in crypto.
• zkMe: zkMe is a privacy-preserving identity solution tailored for decentralized applications, particularly in DeFi, decentralized autonomous organizations (DAOs), and gaming. Using zero-knowledge proofs, it enables confidential credential verification without exposing sensitive user data. zkMe is known for its versatility, supporting private authentication for use cases like anonymous voting in DAOs or secure user onboarding in gaming, making it a key player in privacy-focused identity solutions.
• Nillion: Nillion is an innovative privacy-preserving computing platform gaining traction in the DeFi and decentralized application markets. It specializes in secure, off-chain computations using secure multi-party computation (SMPC). Nillion is recognized for enabling private data processing in applications where confidentiality is critical.
• Railgun: Railgun is a privacy-centric smart contract system in the DeFi market, utilizing zk-SNARKs to enable anonymous transactions. It allows users to shield assets without revealing transaction history or wallet balances. Railgun is a popular choice for those seeking privacy.
• Umbra Protocol: Umbra Protocol is a stealth address system designed for private crypto payments, valued for its simplicity in the crypto payments market. It enables users to send and receive funds using unique, one-time addresses, ensuring transactions are untraceable. Umbra has a lightweight, effective approach to discreet peer-to-peer transfers, appealing to users seeking straightforward privacy solutions.
• Renegade: Renegade is a dark pool trading protocol specializing in private peer-to-peer trading. It combines ZK with MPC to conceal order books and trade details, preventing front-running and price manipulation. Renegade is best for enabling large, confidential trades, catering to institutional and high-net-worth traders who prioritize privacy and minimal market impact.

What could be better in privacy for Ethereum and Arbitrum?

As Arbitrum’s ecosystem continues to mature, privacy will become a growing concern. While there are various privacy-enhancing tools available, there is plenty of room for improvement.

Many existing privacy solutions on Arbitrum are fragmented or require additional steps from users to maintain anonymity. For example, mixers such as Tornado Cash or Railgun require users to deposit funds, wait a period of time, and then withdraw to a new address. Similarly, stealth address solutions require specialized wallet interactions, which might not be intuitive for everyday users.

All this might be fine for power users who explore documentation to find out exactly how the protocols they’re using work–– but the vast majority should demand privacy that is seamless for them, protects them in the background, without taking any mental capacity.

For this, we need fast technology underneath, convenient automation in the background that follows privacy best practices for the users, integration with existing DeFi rails, and mechanisms that prevent privacy from being exploited by abusers.

Developers need better tooling, too. This way, they can integrate privacy into existing smart contracts and applications without significantly altering their design or going through a ZK cryptography summer course.

ZK is the way to usable privacy

Aleph Zero focuses on making privacy usable–available wherever the users want it. On multiple chains, in multiple DeFi protocols.

Before we can move to solving robust privacy challenges, such as with powerful decentralized computing, the most pressing issues are:

• How can we use DeFi privately, with its existing liquidity
• How can we have privacy while taking just a bare minimum of extra steps
• How can we have privacy for existing tokens, not their private alternatives
• How can we make it so fast, so it’s barely noticeable for users

This is what we focus on with Aleph Zero and its user-facing app Common. We have optimized the ZK verification process to take less than a second, so it adds almost no time to transactions. Shielder allows for making tokens private, while they remain in their original form, not a private alternative. Common is the app that will automate privacy-enhancing actions for you and will allow you to use DeFi apps privately.

And we’re bringing that to Arbitrum and beyond, as part of the Shielder Network deployment.

Join the Aleph Zero community – and stay tuned for the news about the Common Web and Mobile Apps!