The Privacy Spectrum: From Shadows to Standards

Transcript

[Music] And we are going to get ready for our next talk. And for this one, I'd like to bring on Howard from Provable to tell you all about bringing privacy back to onchain transactions. So, please give Howard a big round of applause. >> Thanks, Caric. All right. Hi everybody. Uh my name is Howard. I'm the founder of Alio. And uh today I want to talk about uh the complete spectrum of privacy. And uh before I jump into things, I actually

wanted to start by motivating the the topic which is does privacy matter? And of course uh I wouldn't be here if I didn't think it did. So the short of it is yes. And um you know I think the best way to start by looking at this is actually looking 20 years back to the early web. When we look at the early web you know I think we really take for granted today that every website you go to has a padlock on it meaning that there's HTTPS and everything that you are sending is end encrypted. 20 years ago that was not the case. In fact when you used to go to websites like hilton.com it used to look like a phone book. meaning you'd show up on the website, there'd be a picture of the hotel, the address of the hotel, and like the phone number of the hotel. And

what HTTPS and what encryption for the web really enabled us to do was to be able to securely trans uh transport your credit card numbers across the web and also to create accounts and to have some form of security on the web. um such that you could then make reservations on the website, such that you could create a membership account, then you could go see your status and you could go see your past reservations and all these great things that basically made e-commerce what it is today. Um and I think for many people, especially, you know, on the consumer side of things, we really take for granted these capabilities now. Um but it was very foundational infrastructure that made that possible. And if you look at crypto today, we're actually in a very similar

situation despite the numbers that you may be seeing, which look very impressive. For example, we have 27.6 trillion um dollars worth of stable coin transfers last year. Uh surprisingly, less than 0.01% of that was endtoend encrypted. And to really put that into perspective, this visual is meant to give you an idea of just how little of that traffic is endto-end encrypted. And you may be asking, Howard, why does that matter? And I want to paint for you an example of that. So you look, we've we've been talking for years about how crypto is going to get real world adoption and how mass adoption is coming. And it has yet to come. You know, my mother still doesn't use

crypto. And you you know, people used to say, well, why is that? And for many years it was always this this giant throughput argument TPS debate. You know everyone was making this kind of vanity metric of saying we need higher TPS and you know even if you asked me years ago I would have said TPS was a big problem. Um, but I think that problem is now being solved and in fact many new protocols now have incredibly high TPS and I think that that is a problem that will be solved, no longer the issue. And I really believe that privacy is the final frontier. And to really illustrate this, uh, let me give you an example. If we were using crypto in its current form today, in its public form today, if I were married to you and you wanted

to buy an anniversary gift for me. Well, being your spouse, you probably know my wallet address. You could then just go onto a block explorer and see ah when did Howard when when did when do you remember that our anniversary gift is our anniversary is coming up. Two, where did I buy this anniversary gift? And three, most importantly, how much did I spend on this anniversary gift? And it ruins the element of surprise of an anniversary gift or a birthday gift. Um, you name it. And that is kind of where I'm getting at is that the UIUX, the user journey of money itself is fundamentally broken. To give you a more sinister example, say you want to use crypto in its current form today in the real world, and you want to go to a

local coffee shop and tap to pay with USDC and buy some coffee. Well, what's the problem in that? Well, the minute that you tap the barista, the merchant, the vendor, they're all going to learn your address. And with that, they can now see your entire financial history, past, present, and future. And more so, you just opted in to letting them track you for the rest of time as well. They can track your wallet from from then on. And so, this changes the interaction that you expected. You thought it was going to be a one-off uh expense to just buy a cup of coffee, but you actually opted into a much larger uh consent that you didn't implicitly know. And I think that that is the the crux of the issue

here. The user journey of money is broken in crypto today. And to give you an even more sinister example, um, if we were to take our salaries in crypto in USDC today, one of the main problems is, well, I can just see the wallet that sent me my salary. I can go onto the the explorer and go see how much all of my colleagues makes all of a sudden. And so this would be an HR nightmare for everybody. Imagine leaking to each other how much everyone in the office made. That would be a disaster. And so it's actually a bit of a miracle that we've gotten this far with things like stable coins when we're basically in crypto here wearing no clothes. And I think, you know, that really is meant to illustrate the point that for money to

work in the real world, there are actual user journeys that are not being addressed by the technology right now. And so the question becomes, how do we bring privacy and encryption to crypto? Well, there is an elephant in the room. I think many of you have heard of tornado cache and this is one of the approaches that was taken. Uh actually was it was originally called coin join. It was a paper in 2013 that introduced a way of providing privacy in crypto using a technique called obuscation. The idea there was that users could entrust their coins to a pool and after some amount of time they could retrieve different coins from the pool. And

you know it was a very good first attempt but it had a lot of shortcomings and there's many reasons why tornado cashache doesn't work. I'll call out a few. For one the gas would link you. uh meaning that while the actual tokens in the pool could be quote unquote anonymized, the problem is that you have to deposit the coins in and you have to withdraw the coins out and someone has to pay for that gas and that someone is an address and that address reveals you. Now, some of you who are more technically sophisticated may say, "Well, Howard, we could just build gas stations and use gas station contracts to go obuscate that." But my counter-argument to that is to say, well, now everyone is moving their gas into a gas station contract and pooling

it there to then use this other pool to go hide their ETH. And the question becomes, well, doesn't the gas station contract become the honeypot now? And so it only shifts the liability from the original contract to a new contract. And that is one of the key Achilles heels of that design. I'd say another point with with Tornado Cash was that it wasn't designed with compliance in mind. What I mean by that was anyone and everyone could use it, including the bad guys. And because of that, you had this issue that well, the DOJ sanctioned it and shut it down because there was illicit activities happening with this product.

And so, you know, ultimately, if you want to introduce privacy, you actually need to introduce a component of compliance into it. And so came the next wave of solutions which is privacy coins. Uh I think the two mostu prominent privacy coins that you know are Monero and Zcash. And these use a technique of either encryption or obuscation to achieve the same goals. Um the idea is that the users will shield their coins on a decentralized ledger and then they'll demonstrate ownership of their coins via signing or proving in order to spend their coins. And you know this is a great idea in that it basically took what coin join was in the early days and put it onto a dedicated

blockchain for people to transact fully. So you had this idea that there was privacy implicit in the network itself rather than using a public by default chain and trying to introduce privacy after the fact. So for example that gas linkage problem that I mentioned at the start kind of goes out the window when you design a protocol from the start to try to prevent that. But it doesn't cover the full spectrum of the problem. And namely, you know, for all the good that it does, there are also trade-offs in this design. For one, there is no stable coins and there are no ERC20 tokens on these protocols. Meaning, if I wanted to um if I wanted to accept uh a private coin or if I wanted to spend a

private coin, I have to use a speculative asset that will, you know, uh vary in price. And as a business that is a risk that I have to now add into my my mental calculus of running this business. And you know that is a very uh uh inconvenient way of well doing actual commerce. And so you know having stable coins having custom assets is a very important aspect to making privacy usable. Um imagine if we introduced encryption or HTTPS for a handful of websites and not the rest. Like if you go to google.com you get privacy encryption but you know if you're going to go go to you know your personal blog suddenly you lose all of that out the window like that would not be how we want the web to work right and you know additionally there was no configurable

compliance. So the compliance mechanisms introduced were oneizefits-all and as many of you know well everyone here is coming from a different country. uh we all live in jurisdictions and because of that we all have regulators with different rules and there is no way to design a solution that is truly one-sizefits-all and satisfies everyone and so this leans into the third point which is you actually need configurable compliance and you need smart contracts to be able to do that and so this really hits home at uh what I think is the crux of the issue and there's really two problems and I think there's one solution one way to really approach it the problems namely are that as we've acknowledged Having a fully transparent blockchain overexposes your data. It puts users at risk. But you can't just

fully encrypt the thing and just call it a day because there's no compliance in it and more so there's no configurable compliance in it. And so, you know, the regulators are going to come out, get scared by it, and ban it. And that is not a way to do business either. And so, we built this thing called Alo. Alo is a new blockchain that's private by default. It has what we call private smart contracts and it's meant to allow you to solve for all of these issues at heart. Um, namely what makes it different is that it has programmable privacy and it is a ledger that is permissionless. So, anyone can participate in it. Um, it is programmable so you can write smart contracts and it is privacy preserving.

It hits home at the idea that uh there is encryption for everyone on this system. And the approach with private smart contracts is that users can shield oh there's some interesting coloring there. Users can shield any type of asset on a decentralized ledger and demonstrate ownership via signing and proving to use or spend their assets. And that is the idea behind this this goal. But it's important to call out many of you have seen that there are there's all sorts of discussions about ZK. In fact, there's when you go on crypto Twitter, you may have seen all sorts of protocols touting ZK and privacy and all these features. And I think it's important to

call out that not all ZK and privacy protocols offer true programmable privacy. And this this chart here is meant to illustrate a comparison to demonstrate to you where you need to look to see whether a protocol meets all of your requirements. And my hope and my goal is that in a few years from now I can come back and say every one of these protocols has yes on every single column. That would be the dream. Um but today that is not the case. And if we want to be able to enable crypto in the real world with mass adoption, people like my mother who will trust and use this thing and not leak all their data to everyone that they interact with, we need to introduce these capabilities

into every one of these systems that is out there. And so with that, you know, the the future of payments in my opinion really demands privacy and compliance. And there's many ways to really approach this. So you know at at the very very beginning I think it's important that we design our systems to now abstract from just the private key and introduce a view key in addition to your address. By doing that you already start to create a separation of privilege where there's not just the ability for everyone to see what's going on on chain. You actually need to give consent or give discretion to allow people to see your data by

offering up a view key. And even more so that view key is a form of compliance that makes privacy possible. It makes it possible for everyone to get comfortable with. Um namely you can use that to view specific transaction history. You can also use that to view um all your transaction data. Um you can use that to verify that no transactions um occurred with OFAC sanctioned accounts. And even more so, you can also use that as a way to gate information access, meaning you can threshold it so that X number of people must come together to reveal Y data for them. But it goes beyond that.

Um the point that I want to get at is that for privacy to really really take shape with these smart contracts, you need to use the smart contracts to actually design compliance into your system. And there's several ways to go about it. The first is using compliance and and and rules engines. What I mean is by introducing policy engines into your adaps, you can then actually ensure that you're mitigating risk when you're introducing privacy into your DAPs. And so, for example, Predicate is a great example of this where they're building a policy engine that allows you to define rules for your onchain transactions. And I'll give an example of that in just a moment.

But additionally, this also opens the door to verifiable credentials. And for example, we have this initiative called Zpass. The goal with that is to allow people to KYC one time. And with that, then they can prove properties about themselves without revealing their information every single time on chain. So, for example, I could prove to you that I'm over the age of 18 without revealing to you my date of birth. I could prove to you that I'm not from an OPAC sanctioned country without revealing to you my nationality. If I linked my bank account, I could even prove to you that I'm above a certain net worth, like that I'm an accredited investor, without revealing to you how much money I have. And these are all properties today that are technically feasible but have not been used or introduced out there in the wild. And I

believe that DAPs are going to need to do this especially as we start to look at using these types of DAPs in the real world. And additionally looking at time locks and conditional escros. So going back to that predicate point that I made earlier um if we take this diagram of you know a bridge say you want to move some assets from one chain to another you can then create new policies that wouldn't have existed before I can uh for example provide in zk uh proof that I have reached a threshold to actually uh release an escrow without revealing who are the authorizing parties. I can also prove that I'm transacting under this specific US dollar limit without

revealing the amount that I'm trying to move. And I can also prove that I've satisfied a certain amount of block time uh meaning I've waited a certain amount and I've met the the minimum time lock requirements again without revealing that information publicly to people. And that provides a level of privacy and security that I think people highly value. And of course, the last point is that this is an ongoing conversation. As I mentioned, compliance is not a one-sizefits-all thing. And if you want privacy to enable these user journeys that we discussed earlier in this talk, um you really need to engage with policy makers. And there's many advocacy groups that are out there. For example, like Crypto Isac, Blockchain Association, Coin Center that are advocating and pushing for this type of agenda to help

inform and educate policy makers and regulators on the use cases and and the user journeys that are missing in crypto today and more so engaging with them to define what those policies can look like to enable those user journeys for the good guys and keep them out from the bad guys. And so with that, you know, I hope that you guys will see that the future here requires privacy and requires compliance. And I ask and implore all of you guys that we should all bring privacy to crypto together. Um, this this concludes my talk. Uh, you can find me on on on X. My username is oneh Howard Woo. And with that, thank you for your time.

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