Privacy-Preserving Cryptography Paves The Way For New Blockchain Applications 

Blockchain might have been designed for financial transactions, but the immutable ledger technology can also support dozens of other kinds of applications, ranging from tamper-proof voting systems to managing healthcare records. However, there’s one major challenge that’s preventing its widespread use in these scenarios – the total lack of privacy it provides.  

For instance, blockchain can help to make medical records more secure by eliminating single points of failure, but this will never happen if it’s not possible to safeguard each patient’s sensitive data. Blockchain-based voting is also said to be superior because it’s more resistant to fraud, but this doesn’t do much good if it means that no one can vote anonymously, in-line with democratic principles.

That explains why there’s a lot of buzz and excitement around the emergence of privacy-preserving blockchain projects such as COTI, Zama and Midnight. They’re the pioneers of innovative cryptographic techniques that enable blockchain transactions to be obscured, yet remain fully verifiable. If these techniques take off, they could pave the way for a new wave of private blockchain applications spanning everything from payroll to voting to investing and more.

How Privacy Brings Blockchain To Life

When blockchains are able to maintain transaction privacy, they suddenly become extremely useful in a wide range of applications that have traditionally relied on centralized systems. In fact, almost any kind of transaction-related process can benefit from cutting out the middleman, and if privacy can be guaranteed, there’s every reason to consider using blockchain rather than legacy systems. To prove this point, let’s look at a few examples of privacy-preserving blockchains in action.

1: Confidential Compensation

Payroll systems are a sensitive thing for most companies. In almost every industry there’s a need to ensure employees’ payments and salaries are processed efficiently and securely in a system that allows every payment to be recorded and tracked. Blockchain is perfect for this, of course, but the challenge it faces is that most salaries are confidential, and workers will not accept that everyone in the world can look and see how much they’re being paid.

That’s why very few companies in the world are ever likely to start paying employees’ wages in Bitcoin. But there’s no reason that they can’t use a network like COTI instead. COTI has developed a privacy-preserving payments network that utilizes Garbled Circuits, which is a cryptographic mechanism that enables two parties to compute transactions, even though each one only has access to part of the data. This ensures that transaction details remain confidential.

Payroll systems do require some transparency, though, so that companies can keep track of payments and ensure salaries were paid on time. Fortunately, COTI supports this because it allows for “selective disclosure” of some data, where users can choose to share it with select parties.

While COTI is far from exclusively focused on payroll, its architecture is perfectly capable of facilitating enterprise-grade payments that remain hidden from public view, yet auditable by the company itself. By using COTI’s infrastructure to process salary payments on-chain, enterprises can ensure that every employee is paid quickly and efficiently, with lower costs and full auditability.

2: Securing Medial Records

Few industries have stricter privacy requirements than healthcare. Organizations have a legal obligation to ensure that medical records remain private, and this is the foundation of trust between patients and doctors. Blockchain can provide many advantages in terms of managing healthcare records. Its decentralization reduces the risk of data breaches, and supports interoperability between different healthcare systems, but the need for privacy has so far prevented its widespread adoption.

One very compelling solution to this challenge is Midnight’s Layer-2 blockchain network, which is focused on the idea of “rational privacy”. Built on Cardano, Midnight utilizes a technique known as zero knowledge-proofs to protect sensitive information. With ZK-proofs, one party can  show proof that they know the validity of a statement or transaction, without revealing the specific details of that statement or transaction. This means ZK-proofs can be used to demonstrate the validity of transactions without exposing the details.

In the context of healthcare, Midnight’s blockchain can be used to tokenize medical records and store them securely on its public ledger. Other users will be able to see that the records exist and have been verified, but they cannot know the details of those records. Access to the tokenized records is managed by smart contracts, which means that only authorized users, such as a doctor, can view them. Alternatively, Midnight would allow for patients to verify their eligibility for a specific medical treatment, without having to reveal their full medical histories.

It also opens up the possibility for hospitals to share anonymized data. That means researchers would be able to query aggregated and encrypted medical datasets and analyze them, without being able to access patient’s identities, ensuring that strict privacy regulations aren’t breached.

3: Tamper-Proof Voting

Anonymous, free and fair elections are the foundation of any democracy, yet there have been concerns raised about the potential for manipulation using paper-based and electronic voting systems. A transparent, blockchain-based ledger is the perfect countermeasure to vote rigging and tampering, but only if it supports voting in secret.

By combining blockchain transparency with Fully Homomorphic Encryption, it’s possible to satisfy all of these democratic requirements. Zama is a company that’s building FHE systems that can be utilized by any blockchain. With FHE, it becomes possible to perform computations directly on encrypted information, without needing to decrypt it first, and this has useful implications for voting.

In blockchain-based voting systems, the electorate can cast its votes privately and encrypt them prior to submitting them, so that no one knows who they voted for. Then, the votes can be tallied while remaining fully encrypted. The system would be able to identify exactly how many votes were received by each candidate, but it wouldn’t be able to tell you which one a particular individual voted for. As such, the outcome of the election can be determined fairly, without any risk of manipulation, while every vote remains secret.

The main advantage of such a system is that it eliminates the need for trusted third parties to count up the votes at polling stations. With Zama’s technology, it’s possible to create a blockchain voting system that’s encrypted at all times, with only the final vote count being revealed once all ballots have been cast.

4: Private DeFi Lending

Decentralized finance built on the blockchain is a gamechanger, enabling new kinds of financial applications such as peer-to-peer lending that doesn’t rely on credit scoring. DeFi, as it’s also called, has gotten a lot of interest from businesses and financial institutions looking to diversify their investments, but many of them are highly regulated and have closely guarded secrets that they cannot afford to disclose due to competitive concerns.

Privacy-preserving blockchains like COTI and Midnight provide different ways for DeFi transactions to be obscured while verifying that they are valid, creating opportunities for businesses to engage in confidential on-chain activities such as borrowing, lending and trading.

For instance, COTI’s confidential payment rails can be used by businesses to engage with DeFi protocols without worrying about revealing their financial strategies. At the same time, COTI’s selective disclosure features mean those organizations can remain compliant while doing so. This makes DeFi far more accessible to big businesses, so they can deposit capital in liquidity pools to earn DeFi yield, lend funds for the interest repayments, or engage in complex leveraged trading strategies without their competitors knowing.

Privacy Removes A Key Barrier To Adoption

Advocates of blockchain will accept nothing less than total domination of the world’s financial ecosystem, and the emergence of privacy-preserving cryptographic techniques makes that dream much more realistic than it was just a few years ago.

With private transactions, blockchain is now viable in dozens of industries that would have previously rejected it out of hand. This shows that privacy is not just something that’s nice to have. In fact, it’s an absolute necessity if the technology is to achieve the widespread adoption its proponents yearn for. Blockchain still has a long way to go before it achieves that, but the ability to transact in private removes one of the major obstacles in its path to global supremacy.