One of the aspects of crypto I have always found the most fascinating is the public nature of the blockchain. The ability to track funds shifting around the world is completely unique. Jump onto Etherscan, and within seconds you will know the balance of any wallet.
Of course, there are downsides to this as well, and many a fervent debate occurs within crypto circles (and indeed wider mainstream media) about the proponents and downsides to both the anonymity that crypto offers, but also this publicly trackable ledger that we call the blockchain. Should you really be able to see exactly how much my wallet contains when I send you some ETH?
RAILGUN is a decentralised smart contract project which works amongst this sector – dealing with anonymity and privacy on the blockchain. Today, they have announced the launch of RAILGUN Privacy System 1.0, which they advertise as the first crypto wallet to offer privacy and an anonymity shield, which is built on-chain on Ethereum.
“Imagine, for a moment, if everyone at a pharmacy knew what medicine you were buying, and how often, the moment you purchased it – along with your entire medical purchase history”, their press release states, “Or, if a corporation’s supply chain payments could be seen at any time, by anyone, including competitors. If these transactions were on a blockchain, they would all be public. With RAILGUN’s Privacy System, this problem is solved”.
It’s an intriguing concept, but as we hinted at above, there are lots of interesting questions around this. I interviewed Kieran Mesquita, RAILGUN’s Chief Scientist, to get his thoughts on some things I was wondering on the topic, as well as Ethereum and the world of cryptocurrency at large.
CT: Did you ever consider building RAILGUN on other Layer-1s, or was it always Ethereum?
KM: RAILGUN is already deployed on three chains currently in beta: Ethereum, BSC, and Polygon. The DAO has already established that RAILGUN will be deploying on Metis Layer-2, Solana, and Polkadot as well.
The core contributors to the RAILGUN Privacy Project were very intentional in how they developed RAILGUN. Any smart contract chains with the ability to do alt_bn128 calculations are compatible with the Railgun protocol. EIP196 and EIP197 are the 2 EIPs that added alt_bn128 operations to Ethereum. The current smart contract code is EVM based, but can be ported to other languages.
The goal for RAILGUN isn’t to try and predict where DeFi is going, but rather to build everywhere feasible and let the market decide where and what transactions they want to make private.
CT: Do you think the privacy that RAIILGUN offers could potentially have disadvantages with regards to making it easier to conceal illicit activity?
KM: I think this is the biggest strawman against privacy frequented by those who attempt to deny people financial privacy. If you ever need to be transparent about your RAILGUN activity, you can generate a verifiable report of your actions and balances. The goal of RAILGUN isn’t to strip away third-party verifiability of actions taken on-chain but rather to give users the power to choose who sees what, when, and why.
In my opinion, this has the same net effect of cash. If I spend money at “Bob’s Sweetshop,” Bob doesn’t need to know how much money I have in my bank account. He doesn’t need to know where else I shop and what else I buy and for any reason. It is none of Bob’s business.
Cryptocurrency doesn’t change this – the fact remains: Bob does not have the right to this information. If I use cash as a privacy solution, it is still up to me to go and report the relevant activity to the appropriate parties at the tax office, etc. However, this is not something that should be known to the general public.
In traditional financial systems, if the IRS wants to know where I’m spending my cash, or where I made it, they have to ask. It is then up to me to provide documentation for this. This doesn’t mean that I should have to share this with every human on planet earth – just the IRS.
Also, to be fair, there are plenty of regulatory bodies that support digital privacy regulations. GDPR in the EU and similar sorts of regulations exist in a number of other places. The issue is not that digital privacy is unheard of, but that people don’t generally have an understanding of crypto.
Cointext (CT): How do you think the imminent merge will affect Ethereum, and RAILGUN?
Kieran Mesquita (KM): The whole DeFi ecosystem has been following the merge closely: the shift from proof-of-work to proof-of-stake along with all the other interconnected upgrades associated with Ethereum 2.0. Between the merge and “shard chains,” the reduction in gas fees could be significant. Further, throughput in a proof-of-stake consensus model should be greater, since validator-based transaction selection algorithms are significantly faster than proof-of-work.
Another interesting thing to think about is the energy consumption associated with proof-of-work. Unlike PoW, PoS requires a lot less energy and physical footprint. To me, this adds to the censorship resistance of the Ethereum network as a validator that can operate somewhere discretely instead of a massive warehouse.
Added censorship resistance aside, the lowering of gas fees will help all dApps in the Ethereum network, and this includes RAILGUN. Lower gas fees will mean users can use the privacy preserving capabilities of RAILGUN at a lower cost. Lowering the barrier for privacy will be amazing.
CT: What would you say RAILGUN offer that other projects in this area don’t?
KM: RAILGUN is a trustless and permissionless system on Layer-1 and has direct access to the richness and liquidity available in DeFi. Many privacy solutions for DeFi are lacking in functionality, built on Layer-2s, or can’t interact directly with DeFi. This means they not only have limited functionality but very limited privacy for users. With RAILGUN, users can privatize any ERC token, including NFTs. No privacy solution to date has had the versatility and utility that RAILGUN brings to DeFi.
CT: What does RAILGUN offer that mixers don’t, and do you think you can pull capital away from mixers if you grow?
KM: The biggest difference between RAILGUN and non-custodial mixers is that RAILGUN allows you to build a shielded balance. Also, RAILGUN will allow you to interact directly with others and DeFi protocols, whereas with mixer protocols, you typically have to be the sender and receiver. Mixers, even on a Layer-1, don’t allow users to privately use DeFi. With RAILGUN, users can hold a shielded balance of a variety of tokens (ETH, renBTC, USDT, etc.) and can directly interact with DeFi protocols.
Put another way, a non-custodial mixer only places a break in the chain-of-custody. Before each transaction reaches its intended destination, a transaction mixer scrambles funds from across different wallets making it difficult to track whose money went where and in what amount. Once mixed, only you can withdraw your balance to a totally new address. Applicability with mixers is limited, because it doesn’t give you the ability to transact with other users or with DeFi protocols directly.
Non-custodial mixers also work in fixed denominations. To send ETH, for example, users can choose between 0.1, 1, 10, or 100. This means if you don’t have these exact amounts of ETH in your wallet, you’re effectively leaving behind the change creating an extra cost of using these systems above and beyond the cost of gas. Further, because of the 0.1/1/10/100 denomination issue, composing a token amount of, for example, 365.6 to transact can cost a fair bit of gas since the user has to compose 6 x 0.1 + 5 x 1 + 6 x 10 + 3 x 100, which increases the transaction cost significantly.
Mixers are an enhancement to privacy but not an ultimate solution. I think RAILGUN, given its ability to directly interact with DeFi and with any ERC token, stands a strong chance of being the next big thing in privacy.
CT: I notice your founder, Emmanuel Goldstein, formerly worked as a government cyber security contractor. Did this experience inspire him to create RAILGUN, or affect him in a significant way?
KM: Emmanuel has always been a staunch privacy activist and is highly knowledgeable about data security. I believe that naturally attracted him to certain areas of expertise. I don’t believe any one role or project was especially significant. The fact is that individuals’ access to private interactions has been decreasing worldwide, and we all urgently need tools as individuals to regain our ability to privately interact, both in communication and in exchange of value.
CT: I’m thinking out loud a bit here, but could there be an argument that RAILGUN could actually have a positive effect on reducing fraud, if it’s harder for scammers to see the contents of a wallet? Or am I being overly ambitious?
KM: Totally. Scammers will always target wallets to take advantage of based on what’s in the wallet or who owns it. With RAILGUN, your balance is encrypted, so there’s no way for scammers and fraudsters to target you for your wallet.
CT: Did you ever consider not using a governance token for each chain, and instead accepting the greater centralisation of other cross-chain protocols as a means to an end, where a centralised entity typically transfers tokens from one chain to another?
KM: RAILGUN Governance is fully decentralized. As a DAO, we do not use off-chain voting or use any centralized governance systems. Having separate governance tokens for each blockchain is ultimately necessary for a trustless and FULLY decentralized system. While some dApps and cross-chain protocols may have consolidated governance, these are NOT trustless nor decentralized. These are typically manually transferred by a centralized team by way of multisig, and this is a weak point on which we weren’t willing to compromise.
CT: Would you ever expect regulatory issues with regards to the extreme privacy that RAILGUN are seeking, which typically governments are not eager to encourage?
KM: Regulators don’t ultimately and unilaterally control market demand or consumer choice. Privacy is a fundamental human right and this particular right is appreciated en masse. This is why we’re seeing so much money pour into privacy preserving tech like zero knowledge. As the market starts to see more adoption, I believe market demand and competitive pressures will push DeFi dApps to adopt privacy preserving primitives like RAILGUN.
This isn’t in spite of regulators. There are plenty of regulations in support of consumer privacy and digital privacy. GDPR in the EU, HIPAA in the US, and similar sort of regulations exist in a number of other places so digital privacy is not unheard of. Like I mentioned earlier, perhaps it’s that people don’t generally have an understanding of crypto. The public are perhaps more cognizant of the fact that posting a picture on social media and what the associated company is doing with that data could potentially harm users. People at least have that notion in other areas of the digital sphere. In my opinion, the same principles apply when it comes to cryptocurrencies.
Every time I see crypto and privacy advocates up in arms and upset about legislation and new bills I’m reminded of the “Crypto Wars” and the fight against public access to strong cryptography with the ability to thwart decryption by national intelligence agencies. However, a sustained, coordinated effort among industry groups, privacy advocates, and technology experts from across the political spectrum must continue to push back against government policies that threaten online innovation and fundamental human rights. The fight for strong cryptography and anti-surveillance is STILL ongoing. This is our fight against a new spin on Clipper chips. Many builders build strong, censorship-resistant systems to protect our fundamental human rights – and it’s up to us to look out for them.
CT: A final question (a fun one!): I note on our website that one use of RAILGUN is “Avoiding awkward situations where acquaintances, employers or even potential dates look into your DeFi holdings to make personal judgements about you”. Have you ever actually met anyone in crypto who has gone on a date?
KM: Well actually… I nearly went on a date once. You don’t know her, she’s in another DAO….but I hear Vitalik Buterin is quite the ladies’ man!