In the real world – the world on which the global economy runs – we don’t expose every aspect of our financial activity in public. We want to be able to select which parties can access our financial data and under what circumstances – for example, our credit history or bank transactions. The problem with the blockchain world is that this financial privacy doesn’t really exist. This has led to pretty bad abuses, such as the practice of front-running’ where a nefarious person can take advantage of you immediately after seeing your transaction on a public blockchain. What’s required is a real infrastructure improvement to this problem, for, without it, the Crypto ‘Shangri-la’ of ‘DeFi’ (decentralized finance) will never have a hope of taking off.
It’s therefore significant that some well-known organizations in the realm of blockchain financing are investing the equivalent of $11.5 million into SCRT, the native coin of the Secret Network blockchain. The investment was led by Arrington Capital and Blocktower Capital and also include Spartan Group, and Skynet Trading.
Tor Bair, founder of Secret Foundation said: “The addition of these valuable and experienced partners to the Secret ecosystem marks a significant inflection point for Secret Network as we concentrate on expanding and supporting our fast-growing application layer.”
Secret, which used to be called Enigma before a pivot, claims to have been the first privacy-first smart contract platform. (The first version of this blockchain was called the “Enigma Mainnet,” but this branding was changed to Secret Network via a governance vote in summer 2020).
So far in 2021, the Secret Network ecosystem has launched several native applications, including SecretSwap, a “front-running resistant”, cross-chain AMM with privacy protections. It is also developing Secret NFTs.
So why is this at all significant?
Why should we care? It’s simply because, without privacy, DeFi is highly unlikely to go mainstream.
Without privacy in transactions, the traditional economic system won’t bother taking any notice of crypto and blockchain, outside of noting whether the price of bitcoin goes up or down.
Admittedly, Secret is not the only player tackling this area. It is playing in the same arena as blockchain projects such as Phala (not yet on mainnet, and built on Polkadot), Oasis, and Aleo, which recently just fundraised via Andreessen Horowitz.
What these projects all have in common is this race toward what’s known as the Web3 ‘application privacy’ space. Once again, they are trying to reproduce the kind of financial privacy that we have all come to expect from the traditional financial system, but which remains elusive in the blockchain world.
However, this approach should not be confused with privacy coins like Monero and Zcash. These are coins, and therefore not the same at all as the above-named projects, which are aiming at what’s known as ‘programmable privacy’.
Bair told me: “Transactional privacy [via privacy coins] just means hiding simple aspects of transactions from other parties – a narrow form of privacy. Smart contract privacy – what we call ‘programmable privacy’ – is a much more powerful idea, allowing developers to build complex decentralized and permissionless applications that also protect data privacy, with big consequences for Web3 security and usability. As an analogy – imagine trying to build a decentralized Facebook. Normal blockchains expose all data by default, a much worse outcome for user privacy and security. Only smart contract privacy allows you to build these types of complex applications without compromising the user experience and threatening their safety.”
Front-running is often described as getting a transaction first in line before a known future transaction occurs. Bair claims Secret protects against this at the protocol level because all interactions with smart contracts are encrypted and cannot be viewed even by the network validators, “so all DeFi applications built on Secret network are front running resistant by default” he told me.
That said, Secret will still have to compete with the myriad privacy projects already on – for instance – Ethereum, such as Automata. The Secret Network is a standalone blockchain and would still require a developer community to be successful, versus Ethereum and Polkadot, which technically have a head start, of sorts. But these blockchains are public by default. So Secret’s hyper-focus on the issue of privacy may yet make Secret a major player in this realm.
Bair commented: “Only programmable privacy can give users and developers this level of control in the DeFi world. Without programmable privacy, DeFi will never achieve mass adoption outside of purely speculative activity. Secret Network intends to become the foundation for new types of DeFi applications that better protect users while also allowing traditional institutions to participate securely, with protections for sensitive data. Also, blockchains don’t need thousands of developers to succeed in the short term – they need the right developers who build the early critical applications.”
Furthermore, Secret has in its favor the fact that due to the whole nature of decentralization of the blockchain space isn’t nearly as much a ‘winner-take-all’ environment as the general Internet has become due to the growth of the large BigTech platforms – that would be counter to the point of decentralization. As Bair told me: “Secret’s vision is to become a data privacy hub for all public blockchains, collaborating more than competing with networks like Ethereum (to which we already have a live bridge with over $100M in assets locked).”
Secret Network claims it was one of the first blockchains to feature privacy-preserving smart contracts, which it launched on mainnet in September 2020. It says this means all decentralized applications built on Secret Network have data privacy by default. The Secret Network blockchain itself is based on Cosmos SDK / Tendermint, giving it its own independent consensus, on-chain governance, and features like slashing and delegation. It is secured by the native coin Secret (SCRT), which must be staked by network validators and is used for transaction and computation fees as well as governance, said the foundation.
Commenting on the investment, Michael Arrington, founder of Arrington Capital said: “Secret is the first blockchain ecosystem to prioritize privacy. Financial privacy is critical to individual freedom, and Arrington Capital has long been committed to financial privacy and censorship resistance. The rapid expansion of Decentralized Finance makes solutions like Secret Network a timely addition to the DeFi ecosystem.” (Arrington Capital was established by Arrington, who was also previously the founder of TechCrunch, but who has no involvement in the title these days).
Jamie Burke, founder of Outlier Ventures in the UK and a Secret backer, told me: “Privacy will be essential to the security and adoption of Web3, from DeFi to NFTs and beyond. Secret Network brings new and unique privacy functionality to the space, and as a result we believe it will be foundational to the next generation of successful Web3 applications.”
Secret is also getting support from DeFi players such as the Sienna Network. Monty Munford, Chief Evangelist and Core Contributor to the privacy DeFi company told me: “Of all the networks in all the world, we chose Secret because it was a yes-yes-yes brainer. They understand privacy and we understand DeFi; it’s a match made in heaven.”