In the real world — the world on which the global economy is based — we don’t expose all aspects of our financial activity in public. We want to be able to select who can access our financial data and under what circumstances, for example, our credit history or banking transactions. The problem with the blockchain world is that this financial privacy doesn’t really exist. This has led to some very 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 is needed is a real improvement in the infrastructure to this problem, because without it, the “Shangri-La” crypto of “DeFi” (decentralized finance) will never have any hope of taking off.
It is therefore significant that some well-known organizations in the field of blockchain finance are investing the equivalent of $11.5 million in SCRT, the native coin of the Secret Network blockchain. The investment was led by Arrington Capital and Blocktower Capital and also includes Spartan Group and Skynet Trading.
Previous Secret investors include Outlier Ventures, Fenbushi Capital and Hashed, as well as Secret Foundation and Enigma MPC, and node operators such as Figment and Staked.
Tor Bair, Founder of Secret Foundation, said: “The addition of these valuable and experienced partners to the Secret ecosystem marks an important inflection point for Secret Network as we focus 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-focused smart contract platform. (The first version of this blockchain was called “Enigma Mainnet”, but this branding was changed to Secret Network via a governance vote in the summer of 2020).
So far in 2021, the Secret Network ecosystem has launched several native applications, including SecretSwap, a “cutting edge resistant” cross-chain AMM with privacy protections. It also develops secret NFTs.
So why is it so important? Why should we care? This is simply because, without privacy, DeFi is very unlikely to go mainstream.
Without privacy in transactions, the traditional economic system will not care about crypto and blockchain, apart from noting whether the price of bitcoin is rising or falling.
Certainly, Secret is not the only player to tackle this area. It plays in the same arena as blockchain projects such as Phala (not yet on the mainnet and built on Polkadot), Oasis, and Aleo, which just raised funds through Andreessen Horowitz.
What these projects all have in common is this race towards what is called the Web3 “application privacy” space. Once again, they attempt to replicate the kind of financial privacy that we all 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 at all the same as the aforementioned projects, which aim for so-called “programmable privacy”.
Bair told me: “Transactional confidentiality [via privacy coins] simply means hiding simple aspects of transactions from other parties – a narrow form of confidentiality. Smart contract privacy – what we call “programmable privacy” – is a much more powerful idea, allowing developers to build complex, decentralized, permissionless applications that also protect data privacy, with big implications for security. and the usability of Web3. By analogy, imagine trying to build a decentralized Facebook. Normal blockchains expose all data by default, a far worse result for user privacy and security. Only the privacy of smart contracts allows you to build these types of complex applications without compromising the user experience and without threatening their security.
Upstream execution is often described as getting a transaction first before a known future transaction occurs. Bair says Secret protects against this at the protocol level because all interactions with smart contracts are encrypted and cannot be viewed even by network validators, “so all DeFi applications built on Secret Network are resilient by default,” he told me.
That said, Secret will still have to compete with the myriad of privacy projects already on – for example – Ethereum, like Automata. The Secret Network is a standalone blockchain and would still require a community of developers to succeed, compared to Ethereum and Polkadot, which are technically ahead of the curve, of sorts. But these blockchains are public by default. So, Secret’s hyper-focus on the privacy issue could still make Secret a major player in this space.
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 allowing traditional institutions to participate securely, with safeguards for sensitive data. Also, blockchains don’t need thousands of developers to be successful in the short term – they need the right developers building the first critical applications.
Additionally, Secret has it in its favor that due to the whole decentralized nature of blockchain, the space isn’t as much of a “win-win” environment as the general internet has become due to the growth of big Big Tech platforms – that would be contrary 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 $100 million in locked assets).”
Secret Network claims that it was one of the first blockchains to offer privacy-preserving smart contracts, which it launched on the mainnet in September 2020. This means that all decentralized applications built on Secret Network have data privacy by default. The Secret Network blockchain itself is based on Cosmos SDK/Tendermint, which gives it its own independent consensus, on-chain governance, and features like slashing and delegation. It is secured by Secret Native Coin (SCRT), which must be staked by network validators and is used for transaction and computational fees as well as governance, the foundation said.
Commenting on the investment, Michael Arrington, Founder of Arrington Capital, said, “Secret is the first blockchain ecosystem to put privacy first. Financial privacy is essential 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 welcome addition to the DeFi ecosystem. (Arrington Capital was created by Arrington, who was also previously the founder of TechCrunch, but has no involvement with the stock these days).
Jamie Burke, founder of Outlier Ventures in the UK and funder Secret, told me, “Privacy will be key to the security and adoption of Web3, from DeFi to NFTs and beyond. Secret Network brings a new and unique privacy feature to the space, and as a result, we believe it will be fundamental to the next generation of successful Web3 apps.
Secret also receives support from DeFi players such as the Sienna network. Monty Munford, Chief Evangelist and Lead Contributor at privacy firm DeFi, told me, “Of all the networks around the world, we chose Secret because it was a yes-yes-yes mastermind. They understand privacy and we understand DeFi; it’s a match made in heaven.