The Layman’s guide for Privacy Enhancing Technologies

A quick journey through the history of privacy, its applications on the current blockchain ecosystem and why DeFi needs to adopt privacy to continue growing.

The Layman’s guide for Privacy Enhancing Technologies

Table of Contents:

Privacy is a neglected luxury in the super-connected 21st Century.

At its core, privacy is the human right to be free from being observed or disturbed by others. This right extends (or should be extended) to every area of life, including our digital identities and personas.

However, in practice, having information or data that you do not want to share with others and achieving to do so is relatively rare. Having control and complete knowledge of the private data trails we create, digitally or otherwise, can feel like a pipedream.

Our bank accounts, social media profiles and communications are constantly under surveillance. On top of this, most websites and internet services collect data from users, ranging from basic online habits to political tendencies, connections to others and personal identity.

As we’ll explore in this article, the decentralization of finance has created many opportunities for accessibility to financial services for everyone to become a reality, but there are major problems that need to be addressed and one of them is privacy.

We currently enjoy a technology renaissance driven by the convergence of exponential technologies and despite its intrinsic shortcomings, blockchain and privacy-enhancing technologies can be used to satisfy the pressing need of people worldwide to gain access to a new financial system while staying protected from the potential consequences of 24/7 scrutiny.

A Brief History Of Cryptography

A Greek scytale.

Cryptography, in a nutshell, is the art and science of creating and solving codes. We can extrapolate this fundamental principle to different areas, two of them being the securing and sending of data in ways that serve a particular goal. Often, the purpose of cryptographically protecting data is to protect it from parties not intended as receivers or users of certain information.

The most commonly used cryptography techniques are often variations of converting text (and therefore, code as well) into illegible characters and vice versa. To be considered cryptographically secure, the result needs to be:

  • Confidential — Not understood by anyone.
  • Unalterable by anyone, including the creator.
  • Non-repudiable: This means that the sender or creator cannot later deny their intentions at later stages.
  • Able to be authenticated by all parties involved.

Although cryptography is an area that has been through many changes prompted by technology, there is evidence to showcase that humans have used it since ancient times.

Early Persians, Greeks, and Romans used variations of it, in particular for protecting militaristic communications. Famous early devices include Julius Caesar’s cipher, as well as the Spartan scytale.

WWII saw more developments in cryptography, with the Enigma and Lorenz ciphers which were famously broken by Alan Turing and others. Had these codes not been broken by Turing, the world would be a drastically different place today. These accomplishments, famously, drove the invention of the first electronic programmable computers.

All of the above, of course, lands us in present times.

The modern use of encryption has made it possible to create encrypted networks that, combined with other technologies, allow for creating scarce digital assets. This is ideal for devising native digital money and, therefore, of networks to transact with it. As you probably know, these principles gave birth to Bitcoin. Cryptocurrencies and cryptography are indissociable.

Cryptocurrency and blockchains in the fight for privacy

Cryptocurrencies, spearheaded by Bitcoin, were conceived as tools to take the issuance of money away from the hands of governments. Ironically, however, in the current state of affairs, oppressive regimes and malicious actors can benefit in many ways from the immutable and public nature of Layer-1 blockchains.

Some examples of the present risks are:

  • Oppressive regimes could deem the use of certain cryptocurrencies as illegal, and target anyone who has ever transacted with them. Specialized companies such as Chainalysis are specialized in finding ways to link wallets to people, and once that link is established, they can link every single transaction and “turn on the lights” for the entire transaction history of a certain user. That level of scrutiny showcase how close we have become to enabling an Orwellian 1984esque society to emerge.
  • Traders in DeFi can have their strategies monitored by competitors, losing their alpha (competitive advantages) much quicker than they would if their transactions were kept private.
  • P2P transactions done between Alice and Bob give both Alice and Bob an entire view into their counterparty’s current balances, and their entire transaction history. Would you buy someone a lemonade if that act gave the other party full access to your wallet’s balances and your entire transaction history? This one still gets people that are new into crypto mind blown.
Illustration of the downsides of non-private data.

These public blockchains, such as Bitcoin and Ethereum, are not private by default, creating room for users’ identities and financial activities to be tracked and exploited.

This has led to the creation of Layer-1 protocols that are inherently private (like Monero) or have privacy as a built-in option (like Zcash). The current privacy protocols, however useful, have received significant backlash due to the possibility of them being used for illegal activities and the lack of interoperability with other, more common blockchains.

The explosive growth of Decentralized Finance (DeFi), along with the lack of privacy within the public blockchains it often relies on, have created a dilemma: On one hand, more and more assets and financial activities have moved (or are expected to) transition into decentralized protocols. On the other hand, these protocols are inherently exposed to nefarious activities.

The solution: Panther, an interoperable privacy protocol with built-in Privacy-Enhancing Technologies (PETs) that allows DeFi users to enjoy the future of financial services while protecting their individual freedoms.

To provide a convenient solution to all the problems detailed above, we envisioned Panther: a decentralized protocol based on privacy-enhancing technologies to restore financial privacy and protect individual freedoms with interoperable zero-knowledge assets.

Panther Protocol provides DeFi users with interoperable, fully collateralized privacy-enhancing digital assets, leveraging zkSNARK technologies.

Well, that was a mouthful, right?
Let’s break it down:

“Interoperable” means that Panther will provide DeFi users with privacy no matter what public blockchain is used by their DeFi application of choice. Panther can be perceived as a private hub that connects all public blockchains, creating a privacy pipe that creates one robust privacy enabled environment.

“Fully collateralized”: What this means is that no matter what asset you decide to make private, the private asset will always be backed by 1:1 of the underlying asset. If you have 1 zBTC (privacy-enhanced BTC), that zBTC is always backed by an entire BTC within a Panther Vault.

“Privacy-enhancing digital assets”: zAssets carry the original value of the underlying assets with added privacy features. Think zUSDT, zETH, zBTC as privacy-enhanced digital assets.

zkSNARK Technology: Also known as “zero-knowledge succinct non-interactive argument of knowledge” (another mouthful, we reckon) — zkSNARK is at the heart of our protocol and is a type of zero-knowledge proof.

Some of the PETs that Panther uses are zero-knowledge proofs, stealth addresses, pseudonymous identities, cryptographic commitments, and several kinds of encryption.

Here’s a simple explanation about some of the PETs that Panther uses or intends to implement in future versions, according to our roadmap:

Zero-knowledge proofs: A real-world (rough) example to showcase how zero-knowledge proof works is the following: If you found a pile of gold and wanted to tell your friends without individually showing it to all of them, you could instead show them a video of you with the said pile. This would also help you showcase that you have it under your possession without directly revealing its location. In this case, the zero-knowledge proof would be the video and the data would be the pile of gold.

In Panther’s case, ‘shielded’ tokens, called zAssets, leverage cryptographic algorithms to validate all the necessary information for transactions and storage without revealing the data that proves it. This means, in very simple terms, that zAssets are ‘regular’ tokens that have been protected by the algorithm to be moved around without showcasing what they are or where they come from. Since the ‘regular’ tokens backing the zAssets would be locked, anyone receiving or shielding a zAsset could unshield it at any time. This ensures that zAsset tokens are correctly collateralized by existing tokens in other networks and are burned when required, without revealing the identities of the users prompting these features.

Mixing: Mixing is the process of pooling together funds originating from multiple inputs for a large and random period of time, and then issuing them back out to destination addresses. One of the most common use cases of mixing is to protect users from the dangers of tainted Bitcoins.

There are simpler and more complex ways of mixing cryptocurrency, and Panther leverages this technology as a part of its PETs array. Within the protocol, mixing is used to break the link between the input and output of a transaction.

Trusted Computing Solutions: These solutions are controversial in the centralized world, as using TC does not only secure hardware for its owner but also against its owner. This, of course, makes TC very desirable in the blockchain paradigm. In basic terms, Trusted Computing refers to the general concept of using isolated computational resources. This helps offer security guarantees on security and integrity even if the main application has been compromised. Software or hardware secured through TC will consistently behave in expected ways, and those behaviours will be enforced by computer hardware and software. TC is enforced by encryption keys that remain inaccessible to the rest of the system.

It is beyond the purposes of this article to showcase in detail how the Panther protocol and all its moving parts work. However, at this stage, it’s essential to drive across the three pillars of the Panther protocol: privacy, trust, and composability.

Combining the multiple technological and game-theoretical components present in the platform, Panther creates incentives for all actors to be informed and incentivized to enrich the network.

The introduction of privacy into the DeFi ecosystem provides a solution for the many challenges of Layer-1 blockchains without stripping them from their benefits. By infusing stablecoins, utility tokens, and NFTs with privacy, institutional DeFi and Web3 projects can fulfil their mission to scale and disrupt legacy systems. The alternative, of course, is an ever-present state of surveillance of all assets, at all times.

In the words of our founders:

Privacy, a key component in democratic life, has been missing in this sector. We are not talking about illicit transactions, but the basic right to private transactions that are both secure and compliant. We are solving this with Panther.

About Panther

Panther is a decentralized protocol that enables interoperable privacy in DeFi using zero-knowledge proofs.

Users can mint fully-collateralized, composable tokens called zAssets, which can be used to execute private, trusted DeFi transactions across multiple blockchains.

Panther helps investors protect their personal financial data and trading strategies, and provides financial institutions with a clear path to compliantly participate in DeFi.

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