Zano Confidential Assets—The Missing Security Layer for DeFi
With Zano Confidential Assets, anyone can easily issue their own currencies and digital tokens on the Zano chain; assets secured by the same mechanisms that make Zano itself so much more secure than first-generation cryptocurrencies, namely hidden addresses, hidden amounts and IP obfuscation...
Hello everyone! As you have probably inferred from the title, we have big news to share. While working to implement Zarcanum (ZPoS), the first truly private Proof of Stake consensus scheme, we made a further breakthrough that will pave the way for a massively expanded Zano universe. The hard fork to activate ZPoS will now bring additional utility to Zano by way of a framework for the creation and management of Zano Confidential Assets.
With Zano Confidential Assets, anyone can easily issue their own currencies and digital tokens on the Zano chain; assets secured by the same mechanisms that make Zano itself so much more secure than first-generation cryptocurrencies, namely hidden addresses, hidden amounts and IP obfuscation—all underpinned by our custom PoW/PoS hybrid consensus system. Aside from the obvious security benefits, it will give dApp developers a powerful new weapon in their arsenal and put us well on our way to achieving our goal of creating a secure, self-contained, universally accessible, decentralized peer-to-peer economy.
To understand the what, how and the why of it all, read on!
A Little History
Experiments with blockchain tokenization began way back in 2012-2013 with Mastercoin’s “colored coins” [link], but it took Ethereum and its Turing-complete scripting language to unleash tokenization’s true potential.
The ability for developers to issue custom assets without the burden of maintaining an entire blockchain infrastructure was a revelation. To date, nearly 650,000 token contracts have been deployed on Ethereum mainnet alone. [link] As Ethereum’s market cap grew, the combined market cap of ERC-20 tokens grew with it; and twice in 2020 it overtook it. Digital tokens had become big business.
WARNING: Contains On-chain Nudity!
So while they have established themselves as a fundamental part of the industry, tokenized digital assets have not changed much since their inception. In particular, there has been very little innovation in the realm in which the Zano team excels: security.
To our knowledge, all first generation token standards suffer from the same weakness as first generation cryptocurrencies: complete, non-optional, naked transparency. Like a cookie consent popup with no opt-out button. Transaction data is detailed, potentially compromising, and available to anyone via the relevant block explorer.
Although “Confidential Assets” has become the established name, it’s perhaps not the one we would have chosen. It’s not like we call websites secured by SSL “Confidential” websites. They’re simply websites secured using the most robust, up-to-date techniques. The same goes for Zano Confidential Assets, and there are powerful reasons to choose them over first-generation digital assets. They’re the same reasons you’d choose one bank over all others if they were the only one that didn’t insist on making your personal account activity available to the general public.
Simply put, non-optional exposure of your financial activity can make you a target for extortion, hacks, or discrimination based on your level of wealth, your political affiliations, sexual orientation... basically anything that can be ascertained through the use of transparent chains. And the benefits of Confidential Assets are just as significant to enterprise clients for whom non-optional transparency can severely undermine competitive advantage.
The indiscriminate publication of detailed transaction data would never be accepted in the world of traditional finance, why in the world would we accept it with Decentralized Finance? Well, there wasn’t really any other option. Until now…
Zano Confidential Assets
With our upcoming hard fork, Zano, as Ethereum did, will give users and organizations the ability to easily create custom tokenized assets that meet your specific needs. And crucially, all transactions involving these assets will be secured by the following properties:
Untraceability: it is not possible to determine the sender of a transaction.
Unlinkability: it is not possible to determine if more than one transaction was sent to the same recipient.
Asset Indistinguishability: It is not possible to determine which asset(s) were involved in a transaction.
Amount Privacy: It is not possible to determine the amount of a Confidential Asset transacted.
IP Obfuscation: it is infeasible to trace the IP (and hence geographical location) of the transaction originator.
Consequently, wallet balances are not public unless you choose them to be (by using an Auditable Wallet). Essentially, Zano Confidential Assets will inherit all the things from the Zarcanum upgrade that will make Zano itself one of the most secure and technologically advanced crypto assets in existence.
Confidential Asset Implementation
So how is this being achieved on a technical level? Well, the security of Zano Confidential Asset transactions is accomplished through a combination of existing and new features. Unlinkability and untraceability are baked into Zano's CryptoNote core, IP Obfuscation comes courtesy of our recent Tor integration, and Amount Privacy and Asset Indistinguishability (achieved through Ring Confidential Transactions) will come via the hard fork to activate Zarcanum. In combination, they will allow for tokenized crypto assets to be transacted with previously unseen levels of security.
And the Zano Confidential Assets themselves? Perhaps surprisingly, Zano has featured what can be thought of as the prototypical Confidential Asset since launch in the form of our Non-fungible Identity Tokens, or Aliases [link]. Zano Confidential Assets are simply an extension of the techniques used for Aliases, with the added benefit of the security enhancements that Zarcanum brings.
To reiterate, to an outside observer, whether it's Zano itself, zcETH, zcBTC, zcUSD, or any other Zano Confidential Asset, it's simply impossible to determine which specific assets are involved in a transaction. With regard to transaction analysis, they're completely indistinguishable. The token identifying information is blinded with commitments in the same way as transaction amounts are.
A full explanation of the cryptographic techniques employed and the underlying math can be found in the documents, and for developers, there’s the rapidly evolving source code [all available on Github: link].
With Zarcanum, we will have put in place one of the most sophisticated and secure foundations to a modern blockchain, one which redefines Proof of Stake and digital asset security. While we will continue to improve the technology at the most fundamental levels, the Zarcanum fork marks something of a turning point for Zano. We are entering a new phase in the project's evolution, where part of the focus will shift to building, and encouraging others to build, upon the foundation we have put in place... to use the innovations and unmatched security of Zarcanum to create whole new classes of dApps and digital assets.
With much-improved security at the base layer, Zano will offer a compelling option for individuals and organizations with use cases that require transacting digital assets with the utmost security. And given the enormous values transacted daily across DeFi, the potential user base is immense. In a sense it can be thought of as the security layer that DeFi currently sorely lacks. DeFi with enterprise-level security.
In the next blog post we’ll explore a number of potential Zano Confidential Asset use cases and applications, including one already being actively explored by an outside team. Any other parties wishing to issue a Confidential Asset or build on the Zano chain are encouraged to contact a team member.
As always, a very big thank you to everyone for your continued encouragement and support.