Why Multiple Chains Are Racing to Solve Crypto's Privacy Problem. Which Will Win?

Transcript

I don't consider it a leader in the privacy space any more than I would consider JP Morgan a leader in the privacy space which is to say that those guarantees in terms of privacy that you would get which is just trusting your counterparty are totally achievable without using crypto in the way that they've done it. And so I don't see any reason why I would want to expose myself to that. I like why I would want bank level guarantees. I would just use a bank. >> Hi everyone, welcome to Unchained, your no hype resource for all things crypto. I'm your host, Laura Shen. Thanks for joining this live stream and we will first take a quick word from the sponsors who make the show possible.

This episode is brought to you by Cape, America's privacy first mobile carrier. Same premium service you'd expect from any other carrier, but designed so your number, your location, and your data actually stay yours. Get 33% off 6 months at cape.co/chained. Today's topic is privacy. Here to discuss are Joe Andrews, CEO of Aztec Labs, Jared Hope, founder of Logos, and Mer Mert Mumas, co-founder and CEO of Helas. Welcome, Joe. Jared and Mert.

>> Good to be here. >> Hi, thanks Baros. >> Hey. Thanks. Thanks for having us. >> We're facing a moment in crypto when it just feels like privacy is going to start mattering a lot more. It's already starting to matter a lot more and more chains are going to be adopting it in various ways and they already are working on that. Obviously Zcash saw a huge renaissance in the last year. Monero also got a boost. Ethereum announced this privacy roadmap. Near had or has confidential transactions. Canton is drawing institutions to its private chain and more. Um, but before we get into all the details on that, let's just start with each of you explaining your interest in privacy and why you think

this is the moment that this direction is gaining momentum now. Um, why don't we start with Jared? >> Um, sure. I I guess like um uh you know I got into like the space through the sort of BBS and piracy scene and found cipher punks and and like crypto anarchy. Uh so in the '90s I was already pretty naturally inclined uh towards the these ideas. Um but uh and I've argued um you know for uh privacy on a civil liberty standpoint uh as well as you know against the sort of surveillance state particularly after 9/11. Um but I think what's interesting to me about it

now is like how my thoughts have developed um a lot more and I I started to realize that it's privacy is actually a property um that's required to unblock new market activity uh as well as um creating stronger institutional quality. Um I don't know if you want me to go into that in more detail now. Uh but uh it requires a little bit of understanding of token um sorry transaction cost economics and institutional e economics. Um >> sure go ahead.

>> Maybe the other Oh yeah. Okay. Um so I guess like it's when you think about like um like what a blockchain is actually selling, right? Um it's it's not really selling just block space, right? um we have all of these mechanisms in place to effectively create um what's called credible commitments. Uh credible commitments is like this notion behind um an institution and what makes an institution like uh pretty high quality. Um so for example like a state uh can be very powerful but um he who giveth can taketh away right? Um so what actually matters in terms of an institution is its ability to be able to hold its

promises right uh hold in s in such a way uh so these promises are effectively called credible commitments and there's two two types right there's motivational commitments uh this is like trust me bro um I've got it don't worry about it I'll honor my my agreement uh and then there's imperative commitments which are a lot stronger and we started to see Like or an example of this is like in medieval times, right? A king might have some kind of deal with another king and leave their firstborn son with the other king as kind of collateral. Um Williamson basically um talks about the sort of ideal version of this which is

the ugly princess, right? It's a lot of high value to the father, maybe not so much value to the to the other king. Um but if the other king does not um honor his agreement then you know may maybe there's a beheading involved right so this is an example of an imperative commitment uh so in blockchains you know we we do this with you know cryptography we do this with um you know uh game theory uh mechanism design uh and even decentralization these are all things that uh basically make the commitments um that are made on chain much much stronger Um now the other side of this is like uh a lot of people think of a transaction

when it happens on chain uh is like um and that that's basically the only thing that's happening on a transaction right but in transaction cost economics there's like seven steps that are involved in a transaction. You can view this as a life cycle or a process or even a supply chain. And the blockchain is really only doing the settlement and some of the other ones, right? Um so think about it like when you do a transaction you actually have to discover your counterparty. You have to communicate with them. Uh you then have to um you know negotiate or come into contract with them. And there's a few things that happen after the fact as well. Um now the problem is is like pretty much the reason why crypto you know has kind

of a bad reputation these days is because a lot of people are making these motivational commitments outside of the chain itself right um whether it's a centralized exchange that goes bad or you know a scam uh and so on. Um and each one of these steps uh effectively has a sort of hazard quality to it, right? Um you have basically two people who can prevent you from doing a transaction any of these steps, right? One is your counterparty, right? They might uh have some self-interest uh and try to undermine the transaction or you know scam you in some sense. Uh but then there's also the class of um actors who are not directly involved in the transaction. So this might be you know

um you know a hacker, this might be the state, it might be a competitor uh and so on. Um and their capacity to influence the transaction that you're making um is really determined by let's say three things, right? Its capacity for coercion um both you and the and your counterparty. um its uh impunity like what its estimate of its recourse is um as well as the information of that transaction, right? Um and that information is really important because we can't really modify its u this predators or this um this other actor's ability to um

uh we can't change the coercion really easily unless you know maybe we you know get violent in some sense. uh we can't really do much about impunity unless you know we're relying on a very strong legal system. Um you know as a as an example uh but we can control information within the within these systems. Uh and if we can reduce that um information down to zero uh then the capacity for influencing a transaction also drops. Um and so this is kind of where privacy comes into play right? If you can secure privacy at each of these steps in the transaction and provide not only privacy but also like integrity to those steps in the transaction, you start to understand why like we cared

about decentralized file storage systems. Um you know for example you know uh the bybit hack uh could have um maybe been prevented by having um um a higher sort of integrity uh over the content hash over accessing its front end for example uh rather than being served through the motivational commitment of running a server on Amazon or or wherever it was. Um so that's that's what I really care about because as you do this um you reduce the hazards that are involved in any kind of contracting which then uh allows or unblocks market behavior. Uh and this means like institutions can come on uh it means that uh you know people who are

not uh transacting because they got hurt by some other system uh or actor uh can come on. um you can quantify this right you could even look at like blockchain forensics as a um uh can't how many billion dollar industry it is right but they are looking at this information uh and that's preventing a lot of other market activity from happening on chain u so that's a nutshell of why I mean these days like the what comes to mind is almost um I know it's like a funny analogy but when there's a party and let's say it's a more formalish party and the music starts and the dance floor is empty. It's like who will go on the

dance floor first? And it's sort of like that when you have these public transactions, right, that everybody can see, everybody can watch it like just exposes you in different ways. So that makes a lot of sense. Um my do you want to uh explain, you know, what your interest is in privacy and why you think this is the moment it's gaining traction? >> Sure. So I have two main interests in privacy in crypto specifically. Obviously there's privacy interest outside of crypto but I'll reduce the scope. one is in the frame of Zcash and there what I'm interested in is the original ethos and idea of Bitcoin which is to say an

alternative monetary currency that has a shot at being a safe haven or being able to separate money from the state in some capacity for some segment of the market. Right? I think that's primarily why a lot of people at least back in the day got into crypto and why it's still clearly the number one asset in crypto by several orders of magnitude. And there's a lot of problems. There's a lot of unfinished sort of paths that the that Bitcoin sort of left in my view. Right? So the way I tell the story

is generally something like first we had to prove that cryptographic money could work and that was Bitcoin and it had to gain legitimacy and traction and we had to just prove out the concept and then Vitala came and said well actually it's sort of weird that this isn't programmable and then Ethereum came and then perhaps Salana came and said this also has to be scalable but then the concept of privacy which ironically is implicitly assumed when we were talking about Bitcoin to anybody outside of the industry, right? So, for example, if you ever watch a TV show, something like a blacklist and the the context in which Bitcoin comes around is generally some

criminal iss like that, I'm like, what are you doing? That is way more traceable than cash. It makes absolutely no sense. And so it's it's this deep sort of belief that you think, oh, it's cryptographic money. Obviously, it must be private, right? And so it's not even really understood that actually no, it is traceable digital gold as their as the official Bitcoin account, which I'm not even sure who owns that on Twitter literally says in their bio, right? And there's all sorts of supporting anecdotes here. So, for example, when Halifin was alive, he would tweet about wanting to add an animity to Bitcoin.

And you can see the early Bitcoin uh forums where Satoshi himself says something like, "If this was possible," referring to uh using ZK. This would make for a better, more efficient uh implementation of Bitcoin, but I don't know how to solve a double double spend problem. And naturally, that was because ZK was super early in its I mean, Zcash didn't exist. There was no production deployment of ZK Snarks at that time but now we have the tech right and so now it feels like especially at a time where all sorts of liberties and let's say things that you took for granted are being attacked whether it's age verification whether it's AI being

able to make sense of unstructured data um or whether it's the institutionalization of crypto there remains that last branch which is or the last frontier in my view which is not only in terms of market cap and price but also in terms of impact and clear market gap right which is uh adding privacy to this internet currency. The second part is, let's say, slightly more boring, but it is sort of a prerequisite for being able to do finance at scale, right? Nobody really thinks of privacy as a scaling technology, but it actually is a scaling technology because without it, a very large group of actors physically cannot

come on chain. Right? So, what's been most ironic in this past cycle since we've had Trump as president and perhaps there's been some regulatory clarity is that while your average user might not care too much perhaps due to a lack of education or some other thing, the institutions that are coming on chain absolutely care for OBSAC reasons, regulatory reasons, legal reasons, all sorts of other reasons, right? like they if they physically cannot come unchained in a meaningful capacity beyond some newspaper headline for a very basic P it's very hard for them to actually move a significant portion of their business when you can see well here's all the people who have this token here are all

the loan parameters and it so within the context of privacy and security that's a complete non-starter for any serious financial institution and so on the other side of this where I'm building on Salana with Helius. We're building a ZK privacy protocol to help alleviate a lot of those gaps. So to basically to answer your question, twofold. One is the currency and then two is the scaling of finance. >> I love it. So interesting. All right, Joe, what about you? Why are you interested in privacy and why do you think it's gaining momentum now?

>> Yeah, I think maybe again two parts. Um the first part I think just following on from what what Mer said um we got into this with Aztec for exactly that reason of trying to bring institutions on chain. um ASDAC was actually created 2017 2018 um to try and put uh bank grade loans on Ethereum and we we kind of ran into that you know scaling problem of institutions can't move onto these chains uh without at least the level of privacy that they get from the intermediaries that they they transact with um in in web 2. And so we kind of were trying to build these these loan origination products and loan trading products. And we we realized that

Ethereum as it stood was not like uh kind of the right tool for the job. And we had to go down uh a many year rabbit hole to to build out um a lot of the underlying zero knowledge proof technology um to make that possible which has culminated in um Aztec which is a layer 2 on Ethereum. And yeah, I agree with a lot of what's been said previously. Like now having privacy on on on these layers um means you can build much stronger um commitments about who you are. Um whether it's that's in the real world. um tying into kind of like existing trust anchors or kind of uh just putting information that you don't want to be broadcast publicly inside a transaction and getting a

blockchain to attest to it which has been our mission for the last kind of um 8 years or so. So I think that that side of things just excites me seeing blockchains reach more into the real world uh with this with this new kind of capability and I think that's why a lot of traction is happening uh at the moment because the tech has kind of met use cases um at a really interesting kind of intersection. The second kind of reason that I I'm interested is is is just about kind of thinking about impact on the world and where the world's going to going to be. And people talk a lot about um know leveling the playing field or financial playing field. And if you look at the current public blockchains, um I just think we have a moral

obligation to not let people use those because it's it's a worse um it's a worse form of money than most people on on on this podcast deal with in their daily lives. And so we are going to on board lots and lots of people to these new new layers. I think we have a an obligation to at least give people the level of privacy we have in our bank accounts. And I think we can do a lot better than that um with with kind of ZKPs and and other tools. So those two kind of things kind of are a bit ying and yang but they keep me motivated um to kind of work on this and I think uh the kind of end end human at the end of the day uh has a right to this privacy.

Um and also it's very cool to see what uh we can do now with institutions on chain because we have privacy. All right, so in a moment we're going to talk a little bit more about who benefits from privacy on chain. But first, we'll take a quick word from the sponsors who make the show possible. If you hold crypto on your phone, your biggest vulnerability isn't your wallet, it's your carrier. AT&T, Verizon, and T-Mobile have been breached again and again, and SIM swaps are still one of the easiest ways for attackers to drain accounts. That's where Cape comes in, America's privacy first mobile carrier.

Same premium service, but Cape rotates the identifier on your SIM every 24 hours, deletes your call and text metadata after a day, and protects against SIM swaps with a 24word recovery phrase that only you control. You also get two middle toend encrypted secondary numbers for banking and signups, so you stop handing your real number to every app that asks. Go to cape.co/chained co/chained and use code unchained for 33% off your first 6 months. Back to my conversation with Joe, Jared, and Mert. So, let's talk about like different constituencies who would benefit from privacy on chain

like you know what are some of the reasons that people would want this and like who do you feel would benefit most? And any one of you can talk. Maybe just to start, I think it's helpful to to lay out the different types of privacy on chain because there are there are two very clear camps and I think maybe this uh call has is more in one camp but there's there's a lot of people trying to get privacy on chain through intermediaries um which is kind of replicating what we had in web two which is kind of you know you have a permission blockchain or or or a blockchain where um not everyone is a node so that you get some kind of like privacy because there's a lack of um like global consensus and to me that's kind of um not a very good form of

privacy. The the the very interesting form of privacy is privacy through cryptography. Um and so I think yeah when thinking about who benefits from from that it's important to to look at the different types because some types of privacy um uh are kind of just institutions trying to fit their way into uh kind of a crypto world by replicating what they have. But that's not that that interesting because I don't think it breaks down the barriers and it doesn't let us live up to the promise of this technology. So I'm much more interested in the cryptographic type of privacy. But maybe just to say that to start >> I would say to yeah to answer your question of who would benefit.

So the obvious answer is everybody. And the way to frame that is to think of privacy as having an option. Right? So I I believe the very first line of the cipher punk manifesto by Eric Hughes is that privacy is not secrecy rather it is the ability to selectively disclose oneself. And the the frame to think about here is something like your thoughts by default are private and then you can choose to publish your thoughts on through secure messaging, through social media, through writing a book, whatever it might be. Same with your photos on Instagram. Same with your

files, right? You always in most things in life, you have a choice in what you publish publicly versus privately. versus in crypto today you physically do not have that choice depending obviously on which system you use but for example on Bitcoin you don't actually have that choice and so there is nothing iron besides ironing out some technical details of course because the tech does need to improve somewhat from here and I believe it certainly will but besides that there's basically no benefit to be gained by not having the option right so it's something that must be built in similar to the structural integrity of a

bridge so to speak that is taken for granted but that you only notice when it's not there right and so basically the answer in my view the only correct answer is that everybody >> I love it Jared >> uh I mean I don't don't have much more to add other than everybody of course um it's a little hard to do that I mean there's spicier takes in in there of course um you know I'm certainly concerned of you know people who are under you know tyrannical regimes for example um you know their ability to uh to transact economically I I feel is a right you know a lot of civil liberties sort of arguments come up here uh right

to associate um freedom of speech and so on so um that's definitely one case um I I think you know just to to kind be a little bit spicy. Um perhaps another way to say everybody as well is um when you start to understand like the compli costs of compliance around KYC and AML or or more more broadly like follow the money methods, right? And I I think that when we start implementing uh these kind of tools, it's going to require smarter approaches uh to those regulatory challenges. Um, but the reason why I say that is because those compliance costs, they don't get paid by like a bank. That gets paid down to the individuals,

right? Like the general public. Um, and the the main sort of uh per perpetrators or people who benefit um from avoiding KYC are typically are the sort of political and financial elite, right? uh and they don't need the privacy in the same way they do because they're they're effectively writing the rules. Um so there's a power issue here and like this kind of goes back to the sort of cipher punk motto, you know, privacy for the weak and transparency for the powerful. So I think that our public institutions should be, you know, public uh and everyone else should be able to selectively reveal themselves. Um >> yeah. Yeah, that makes a lot of sense.

It feels like um anybody who's in some kind of situation where they cannot enact their own agency like they um you know have some sort of restriction on what they want to do with their life that they would benefit from privacy. And you know there's so many examples throughout history of uh people being in that situation. and um you know, you could imagine that being able to have your own private money um would be super helpful. All right, so now let's get into the nitty-gritty part about what's actually happening on chain, which is I'm sure going to be a little bit contentious. I'd love to hear you guys

argue a little bit, but um so let's actually so let's break this down. Let's talk about all the different ways privacy can come on chain. I'm going to just list a few um based on uh you know how Ethereum kind of described its privacy roadmap but reads and writes proving identities experience like the user experience and then wallets um things like that. I don't know if there's anything else you would want to mention, but feel free to do so. But just generally um you know talk about like the different methods or applications you're seeing for privacy um you know that are coming on chain or that are being uh rolled out soon that you're most excited about.

>> I think a lot of the the fundamental kind of tech behind privacy is obviously zero knowledge proofs. there there are new technologies coming out that you know may may kind of um improve on that baseline. But the the most exciting thing um that that I feel that all of these technologies are trying to to do and especially in the Ethereum road map is you have a program um and you prove that program locally on your device and as a result of that program being verified successfully some encrypted state is updated somewhere. Um, and you know, you can take the basic kind of Zcash program, which is like UTO is UTXO in, UTXO is in, UTXO is out. Um, and you

know, you verify that no money's not been double spent. And you can kind of extend that in in lots of different ways to make things much more complicated. But the the basic way that this is kind of happening at the moment is two things have changed that have made this possible. One is we can prove a lot more in a program. So um there's very exciting use cases that can now be built that just weren't possible before because they couldn't be proven on consumer devices. Uh and the second is you know the capacity to kind of like do state reads and state state rights uh is growing just based on on mos law like the amount of kind of scaling we have in in these systems and the different um data structures that exist to store

private state um there's a lot uh lot more technology there. I think when whether you're talking about on Ethereum or on Zcash or or any of these layers, the the I think the basic tenant is still the same. It's there's a program that's proven usually in a zero knowledge proof and then some state is written as a result. And >> uh yeah, I think that the possibilities that enables are pretty pretty vast. Where it gets kind of interesting is um how do these things talk to each other like um you know is there a universal language for privacy? Can you know Zcash talk to Ethereum? Can a privacy network on Salana talk to talk to one on Ethereum? And there's some like tools that have been developed um there to

make that easier kind of like shared languages um shared libraries, but that's kind of where we are today. So, um I think the Ethereum road map is is a huge step in the right direction because it's it's trying to create a lot more of those standards. Um, and maybe it's a it's a force that helps actually get people to adopt them, >> Jared or Mert. >> The privacy technologies or applications you're excited about. >> Sure, I'll talk my own book. Well, I'm pretty excited about obviously timely topic of formal verification applied to ZK circuits to so one let's

reduce scope to talk only about Zcash for example one tradeoff historically speaking in privacy has been in the case of a monetary asset it's been about the supply of that asset right so for example If you have perfect privacy, then you technically have to make some tradeoffs in terms of the auditability of that supply, right? And we saw this when there was a counterfeit vulnerability discovered uh a few months ago at this point in Zcash's orchard pool. And a lot of people weren't aware of this that if you are using ZK to encrypt literally

everything then there has to be some trade-off in observability of for example who holds what and the summation of those to add up to the total supply. And so you'll have things like turn styles that limit the total supply or or ensure the total integrity of the supply but you'll still have some trade-offs. for example, if one of the pools is insolvent. And I think a lot of this comes from I wrote a piece on this called cryptos entering the space age. But a lot of this comes from crypto oriented code being written in a very floppy sort of Facebookish way where for example in centralized systems if you

write code and it's a given that all software engineers will write bugs or cause bugs they didn't intend you can generally speaking just release a patch right away and everything is fine again. Right? But in the case of crypto, when you were securing billions uh in assets, it's more akin to like a pacemaker or a spaceship in that first of all, you can't really roll it back in most cases. And if it blows up, then there's a catastrophic event of billions of dollars lost, right? And so, and obviously a lot of this is due to the new cyber capabilities of AI in being able to really break security of many things

that we took for granted before. And but the flip side of that, of course, is that AI also helps one perform formal verification easier and and and more scalably without requiring many months and years to actually be able to translate the spec into code. and then mathematically verified that it does everything you thought it would do. And so what I'm most excited about in in the case of ZK and and privacy specifically is the formal verification of the ZK circuits such that this tradeoff that we always treated as some fundamental thing. It'll always still be there to be clear, but the risk will be reduced by orders of magnitude, right?

as you get the ZK circuits simpler in what they do and what they claim to do and you have all these machines literally writing out theorems and and and formally verifying the actual properties of it and ensuring integrity then basically I believe that you're going to get a 10x improvement in the risk reduction that is required for people to actually feel comfortable encrypting their money so to speak. So that's what I'm most interested in these days.

>> I would just second that. I think yeah just especially with AI and um the rate of progress like people people see kind of I guess the negative externalities here where there's a crypto hack or crypto bug but the for a system that's fixed and the code is not changing um with a ever advancing kind of like level of like AI intelligence the the capacity to find all the bugs in that system is getting much much better which means that we we can kind of pull from the future, a state of security that we kind of could only dream of a few years ago.

And I think whether that's fuzzing or more verification or just AI audits, the the kind of security of these systems is is getting much much much more secure um even though bugs are being discovered in that process, but it's much better that that happens today um than uh kind of in in a few years time. So I think I'm just excited that the hardening of the technology is getting to a point where um it's it can actually power the world's financial rails because of the advancements in AI. >> Jared, do you want to name some of the um either technologies or apps you're most excited about?

>> Yeah, I mean I I think uh I'm still concern I'm still living in the past, right? I'm still concerned about the fallout after uh Tornado Cash, right? Like if you go to like mewatch.info, you know, it's we're having, you know, block relay issensoring at like 43.7% as of today, right? That's a huge threat to everything that happens on chain, right? Like if the if the blockchain is not able to maintain its integrity, uh then it basically loses all value, right? Um and so like you can kind of break so just accessing these networks is important, right? Um and so this is like where anonymous communication

protocols come into play. Um and really we need to do two things here, right? We need to protect uh users who want to transact with a network. We also need to protect people uh the validators or miners, people who are actually securing the nodes that are securing the network. Um and that's not quite a trivial thing to do, right? Like what I see a lot of is people think you can just sort of slap um tour or maybe a mixet uh onto it and you know you're done. Um the thing is that doesn't really work. That might work for for users um but it doesn't really work for validators or miners. Uh and the reason for that is because of the nature of the traffic saying like when you're participating in consensus

uh what you're actually doing is creating this sort of deterministic wall of traffic right and it's hitting on a regular heartbeat right everyone's basically communicating you know every time there's a new block being produced or proposed um and that's a huge challenge uh so in loopic style mixnets they effectively get their anonyot through uh delays you could you can say Um and if you start getting so many people do like so many uh nodes doing this uh you will actually start blowing out those delays so you can't actually uh progress the the chain. Um if you know you need to have a block coming out every 30 seconds or or whatever, right?

Um and uh the same thing is similar with onion routing, right? Like this deterministic wall of traffic can be identified really easily. Um, so we've had to work uh uh at Logos on effectively a hybrid between a mixed net and a flooding um uh flooding flooding routing um sort of network. It's it's a bit weird, right? But um what's great about it is that we can guarantee um you know a certain amount of like basically everyone who's participating uh will get the messages. um you know they're doing nixnet like um pass the parcel of the envelopes around um and we're treating that as a form of routing u within it.

Uh but we can guarantee that um we can get the uh the block proposal unlin um and under an act active adversary threat model we can kind of raise the cost to about seven years to try and figure out who actually did that which is plenty of time for you to take your bags and put it into another account right um and uh that's what I'm really excited about because that allows us to really strengthen these uh these systems and maintain their autonomy. Okay. >> All right. So, let's actually now talk a little bit more about Zcash. Like Merrt kind of started this, but um I have a few questions about this. Um so, first of all, this is, you know, a coin that

is focused on being either private digital gold or some form of some form of currency, however you, you know, want to look at it. Um, and yet like I am not really sure how it achieves either of those places in the world. You know, Bitcoin kind of is claiming the digital gold. I'm not sure how we see a transition from Bitcoin having that spot to Zcash having it. And then Bitcoin's original purpose or whatever you want to call it uh based on the white paper was peer-to-peer electronic cash system. So

I'm not sure if Zcash is going for that, but I'm just wondering if you guys see a way for it to achieve either of those routes or or something completely different. Well, certainly I'll kick it off, but uh so well, so let's look at the facts, right? Um so you actually I think the first question you asked a few questions ago was what kicked off this sudden interest in privacy so to speak. And certainly Zcash going from the top 100 to top 10 I think played a quite a large role in that. Uh because again it is crypto attention liquidity

equals uh you know price action which then uh leads to opportunities and more people sort of trying to use that attention but also it helps teams who were always kind of sort of doing that to begin with and so that's why I call it the last PVE. It's obviously a meme, but it is one of the things left in finance that is player versus environment, so to speak, rather than player versus player, right? Because if I have privacy and Lori, you have privacy, that's good for both of us. And we don't necessarily have to cannibalize each other against that, right? And so that's sort of how I would say even how we ended up on

this podcast today. I'm not sure if we would have uh if if Zcash hadn't sort of really um gotten attention back to the sector starting last year. So in terms of whether so you mentioned well can it be Bitcoin? Can it be digital gold? Can it be a currency? So f first of all I don't think there's room I don't think it's a winner takes all and there's all sorts of anecdotes I might give for this from traditional analogies from for example there never just being one store of value in the world to never one market being 100% dominated by any single player right and so there will always be certain people

who like the idea of Bitcoin so to speak but really require that additional uh privacy. So like in in Zcash's case, the privacy isn't privacy for its own sake. It's to enable a better monetary property for that asset, right? It's sort of a for example, one one thing you might think of is fungeability, right? In the digital realm, if a coin has a history, for example, uh maybe I'll I'll I'll refer to the Canadian trucker pro uh protests. If a coin has history and you can see its providence, then there is a case in which you will not be allowed to use that coin because of its history. And so you actually sacrifice somewhat on the true fungeibility of of that asset. Whereas cash, for example,

is devoid of all information. If I give you a $5 bill, you don't see anything about where that cash bill has been in the past. There's of course other parts of this, right? So Zcash isn't just about the privacy, but sort of the holistic asset. And so one thing people might have missed in the Ironwood upgrade is that it is now quantum recoverable, right? So you probably heard at some point about all sorts of panic about Bitcoin's quantum readiness. Well, Zcash is actually quantum recoverable today and then it'll be quantum proof uh towards the end of autumn, right? And so that's another thing that's kind of checked off the list because a store of value fundamentally requires one to have a a low entropy channel so to speak and

entropy is defined as surprise meaning you don't want to be surprised. You want to be able to just store it somewhere and that's sort of that right and then of course there's other lesser known things. For example, Zcash is actually scaling in terms of uh compared to Bitcoin right it's going from 75 second block times to 20 second block times. uh the TPS target is a few thousand TPS which is obviously not the case for Bitcoin. I'm not sure it's not on me it's for the market to decide in terms of you know who buys it or who treats it as what but for a specific set of users me included it feels to me it it solves my needs better than Bitcoin would. That is not to say I don't hold Bitcoin, of course,

but that does mean that it is a clear viable alternative for some sets of uses that I care about personally. >> And um I'm curious to hear Jared's and Joe's take on, you know, what you think the trajectory of Zcash is. But I also just want to ask in in the same breath whether or not that bug that Mert talked about earlier, you know, in the orchard pool if that gave you any pause or or what. And just for the audience, you know, to be clear, that was the one where an attacker could have created an unlimited number of counterfeit tokens.

Most likely they did not. Um, you know, just from the way the market activity has looked. Um, but that bug was there for four years and nobody had detected it. So, it's another fact that's a little alarming, but yeah, I'd be curious to hear Jared and Joe's take on, you know, where you think Zcash could go. >> Um, I'm having to start. Um, I think, yeah, two things. I agree with the kind of more of the digital gold thesis. I think, um, you know, wealth and net worth is is kind of something that, uh, a lot of people are just sensitive about. like people wouldn't say on this call like what they're worth and and like privacy and and net worth have always been um kind of like fairly hand

hand in hand. Um so I do think that that is a kind of there's a product market fit there. I I also think if you think about Zcash as a payment instrument um there's UX friction there. Um you know every time uh you know in the real world someone wants to to pay with something there's a spread uh against their local currency. Um, and so it's not the best like last mile payment instrument. And so, yeah, I think it just it makes more natural sense for it to be digital gold. And other technologies, you know, st private stable coins that are actually decentralized um on on different chains are probably a better payment instrument um for for that. I also think that, you know, as soon as you start thinking

about payment instruments, you start talking about payment volumes and payment fees rather than um, you know, the the asset as uh something that you want to buy and hold. And so the valuation uh metrics get a little bit a little bit strange here. So I'm definitely more in the digital gold camp and kind of let let other networks deal with um privacy and uh privacy and kind of like crypto assets in the real world. Um and and yeah, that's kind of my take on on the on the bug. I think it's a little surprising that that um kind of it it was like that undiscovered for for that long, but I I think it's more just a testament to um how far like AI audits have come um and and the tools we have

today. So yeah, I think it's the same point as before where um you know things that we took for granted as being secure, not just on um crypto rails um are definitely not secure under the current threat models and it's actually what makes me more kind of more bullish on the digital gold thesis because if you you know if you keep your wealth in a broker account um and these other kind of uh you know web two things we haven't had an AI attack vector on web 2 infrastructure that's kind of been systemic yet. But I I do think that that will happen at some point and um the crypto rails have already been hardened by that because they're they're kind of

the ones that are easiest to attack first. So I think this is actually going to be a positive thing um in in the long run as we see the effects of kind of more adver more more adversarial environments play out. >> Yeah. I mean I'm not too firstly like I mean I have a sort of libertarian streak to me right so I really like the idea of sound money and of course fungeability um to me is a very important property and that's kind of why I use that cash shed transactions um so on on the sort of bug I mean like yeah I mean it's unfortunate it's a little bit of an eye eyebrow raisers but at the same time like you have to realize that most cryptographers would warn against

using any kind of cryptography um that's new for like you know five or even 10 years perhaps even more. Um and the those who are daring enough to implement that and to to take it to market um you know should really deserve the the sort of praise that they get and you know these systems do run in an adversarial environment. They are antifragile by nature uh and they get fixed uh as a result of this. Uh so um I'm just glad it's fixed. >> All right. So, to wrap up this little Zcash section, I do have to ask um MK because we just had a big upgrade in Zcash Ironwood, which he alluded to

earlier, but M, why don't you explain, you know, what happened in this upgrade, why you're excited about it. >> Sure. So, as we just discussed, there was a bug or a vulnerability found in specifically the orchard pool. So, Zcash has several shielded pools and Ironwood was the latest one up until Iron or or Orchard was the latest one up until Ironwood. And Taylor from Shielded Labs, who by the way is a very advanced high domain knowledge person. It wasn't sort of just vioded. He had access to some pretty lit frontier AI tools and and found disclosed and patched with the

coordination of other teams of course this this this bug and obviously so some people have the same reservation Laura that you have which is like okay well could they have done anything with that and while all the signs and heruristics point towards no there wasn't so for example in terms of the shielded pool activity going up over time rather and going down. Uh the price action, the fact that it was announced that there would be a fix and so the hacker would in theory would want to get out before sort of they lost that window. You can point to all sorts of these things as heristics, but fundamentally it's in it's crypto, so you have to be able to verify it. And so to do that, a new shielded pool called

Ironwood was released. And it's similar to Orchard, except it also has quantum recoverability. And by the way, a few days after this was found, the old orchard pool and Ironwood were both formally verified on three separate occasions actually and audited in all sorts of different ways. And so the one of what what the formerly ver and you can see um Sean Bo on Twitter he has a few posts on where where he goes into detail because I'll I'm sure I'll butcher the technicalities here but basically the claim that there can be no undetectable counterfeiting bugs going forward has been formally

verified. Right? So of course there could be other types of bugs just as in any software system but the specific set of bugs has been rendered mathematically not feasible like that's anyways you can sort of look at that blog post to confirm um but anyway so how do you confirm the supply actually is like how do you confirm that there was no new notes in orchard pool specifically right so you said for example and I think a lot of people have this confusion where people think it's just an unlimited amount Zcash, but it's actually just a limit amount of Zcash in the Orchard pool, which is about 28% of the supply, right? And so to confirm that, what you have to do is you have to migrate from

that pool to so the Orchard pool to the Ironwood pool. And if there was an attack, what would happen is this thing called a turn style would trigger. And all a turn style does is it ensures that what goes out can't be more than what went in, right? because you know what went in and you know what's going out in terms of aggregate amounts. And so imagine for example the pool orchard had a billion dollars worth in it. And imagine that 500 million has left it now and then the turnstyle triggers. Well then that 500 million remaining would be technically insolvent because you don't know who owns what notes in that pool, right? And so the idea here is that as

the funds migrate from Orchard to Ironwood, they would tend from, you know, a billion to 500 million to 5 million until basically it approaches zero. Now, of course, it'll never actually be zero because I'm sure some people have died and lost their keys or lost their devices or whatever. And so it'll be a probabistic bound in terms of what supply is for sure certainly not counterfeit and then what supply still might be uh insolvent. And so that already went live two days ago. There's no hiccups so far. Um the they're trying to make the migration such that it has built-in privacy when

you migrate such that you don't expose who owns what notes. And so the app teams are also working on that. But basically, so to summarize what you get with Ironwood is you get mathematical deterministic uh guarantees that no undetectable counterfeiting bugs like this one can exist in the future. Um you get a mechanism for verifying the supply wasn't um in orchard it wasn't counterfeited. you get quantum recoverability, but then also there's a few other goodies smuggled in there about faster sync times and u faster signing and just a general performance upgrade.

>> Great. Okay, so now let's switch to Ethereum because Ethereum has a really um extensive privacy roadmap and it covers a number of different areas. um you know there they announced this big push as I mentioned and uh as I also mentioned earlier there's a number of initiatives that you know range from you know everything including like R&D to UXUI so it really covers the gamut um what about you know Ethereum's privacy roadmap like which uh segments of it are most exciting to you and which do you think will really move the needle >> I'm Happy to start with this one. I

think yeah, Ethereum's privacy road map is is is very good to see. I think there's al there's also like a lot of ways to get privacy on Ethereum today that that don't need this. So Aztec's obviously one of those and just general like verifying zero knowledge proofs work today on Ethereum. So I think it's important to just state that. Um the things that are exciting um to me are some of the things that um Zcash has already achieved. um the kind of upgrades talk about like having a postquantum um kind of proving system um and just new new state types that make existing privacy apps much easier to build. Um you know Aztec exists as an layer 2 because Ethereum isn't that easy

to build privacy apps on. You have to build a roll up. You have to build all of these like additional metrics and and and like functionality to enable privacy. in a few years once this road map is kind of fully built the job of teams like Aztec gets a lot easier because um there's kind of parts of uh Ethereum that just do do things kind of for free. So I think it should see um a lot more teams building in the space. You won't need to raise as much kind of money to like bring privacy to Ethereum and you can kind of get started a lot quicker. My only kind of complaints about it are it's quite far out and so you know like we're dealing with privacy today on Ethereum like our V5 network

went went live last week and so it's kind of like there's a trade-off between you know the shiny city on the hill where um you know everything could could be perfect um and what can you actually do today and I think the only risk I see is that the the battle is being fought today for cryptographic privacy on blockchain and there's a chance that the road map comes too late. Um the only type of privacy that is legally allowed is privacy through intermediaries. Um and that obviously brings us on to tornado cash and and other things. But uh yeah, my only concern with it is like it could be too late to actually show that there's meaningful demand uh for

this privacy. And so I'd like to see more done like today on what's possible uh kind of on on on Ethereum and and and kind of embracing those privacy solutions that exist today. >> But I mean you must also think that if it comes to fruition then in a way it's almost competitive with what you're doing and could siphon like TBL or whatever. Am I right? >> Um not not really. Yeah, I think the the way to think about it is like there's a there's a bunch of things in the EVM today that enable Aztec to exist. Um, and there we're about to get even more, which means that we can build a better Aztec. I think Ethereum is at the protocol level is building um

features into the network that enable people to build privacy applications. Um, and so they it just makes our job easier. um the network effect is still going to acrue to some application on on Aztec that makes use of those and the way to think about Aztec is just uh it's a very generic execution environment for writing private applications and the privacy road map is not necessarily around that it's about making the the job of teams like us teams like privacy pools easier so that we have more private applications so I think that the two are kind of um very compatible. The only place it's maybe um kind of competing is like, you

know, if ETH has n native private transfers, it's probably better if those occur on Ethereum L1 than than on Aztec. But we're more focused about about kind of like real world use cases of privacy and like programmable money um like dollars and and and kind of decentralized stable coins. So I think yeah, I don't see it as fully competitive. I agree actually like um Athereion's privacy road map uh is very ecosystem focused right and I think that's the right play for them because they have such a dominant ecosystem um of you know DAP developers uh people building on Athereum um so that's a huge part of their focus and I

think that's probably the fastest way that they uh they can achieve those kind of goals as for the rest of the the the road map uh it's it's very ambitious um particularly for a system that's live that's already got a lot of value, right? It's it's kind of a it's very challenging to retrofit an existing system with some of these technologies um and have everything go really well. Having that said, like you know, I've been around the Ethereum community for a very long time now and I've had to raise eyebrows a couple of times and uh it's a huge testament to that community that they have pulled off some of the things that they've pulled off. um particularly a transition to Ethereum 2. So um if anyone can do it, they can definitely do

it. Um it is ambitious and uh I guess we'll we'll see. >> All right. So in the interest of time, even though I'm sure Mert would probably have some thoughts, we're going to talk about Canton because um I think that will take up the rest of the time. And this obviously is a chain that sort of came out of nowhere and um and there are private transactions on it. Um even private stable coin transactions. And I wondered, you know, what you think about it and how you like do you consider it like a a leader in the privacy space on chain or how do you think about what they're doing and how it relates to privacy?

I don't consider it a leader in the privacy space anymore than I would consider JP Morgan a leader in the privacy space, which is to say that those guarantees in terms of privacy that you would get, which is just trusting your counterparty are totally achievable without using crypto in the way that they've done it. And so I don't see any reason why I would want to expose myself to that. I like why I would want bank level guarantees. I would just use a bank. >> Yeah, I second that is is what I touched on earlier with privacy through intermediaries versus cryptographic privacy and uh the the way that they achieve their private stable coins or private transactions is um exactly the

the trust me bro. there's a sequencer who has a reputation and you send all your transactions to that sequencer and you you trust um uh with a noncredible commitment that they're not going to monetize that data or sell that data uh to anyone. And so whilst it kind of you know it jumps on the privacy ban wagon, it's it's basically a bunch of banks trying to adopt a different um tech stock. Um, and yeah, I think that it should come out in the wash um for kind of uh at least these these use cases that require strong credible commitments and actual privacy um that's backed by kind of cryptographic guarantees.

>> So Jared, I'm assuming you agree, so I want to switch up the question a little bit. >> Like what do you think then happens? So we have a bunch of financial financial institutions that are transacting on this chain. Like what do you think happens to Canton? Do you think that eventually goes away and that they end up using ones that have um actual, you know, technologically secure privacy or Yeah. Where does this go? How does it play out? >> Yeah. Well, I mean, I don't have a crystal ball, right? So um I I I think you know one way you could view that in a positive light is that you could get the sort of early market adoption or you know bringing these other sort of

institutions this way and um then hopefully uh they recognize the risks um that associated uh with that approach. Uh and then once they have that sort of market they can transition to want something that has much stronger imperative or credible commitments or imperative commitments. um cryptographic commandments. Um so that's what I would like to see uh from them. Um whether that's the case or not is a little unclear, right? I think that you have to be thinking about this pretty early on. Uh for similar reasons why I think that it's difficult to retrofit an existing chain uh with some of these technologies. Um it's possible uh but if you're an engineer you like you know

you work on these things and you accumulate tech debt and people say like something is temporary uh and then you find out that 5 years later it's you know this piece of software is still operating in the same way right because you know business interests go in different directions um at the same time like I I think that it's great to see more and more chains more and more different approaches uh because it is still pretty early like you know crypto as an industry is still relatively quite small and we have a lot of uh blocked market activity to unlock um you know if we want to see uh you know real world assets and you know more stable coins you know more value whatever whatever your heart desires uh

to be on chain. So more approaches, more surface area, uh bring more people in and then you know hopefully uh the use of these technologies um make good judgments over time. >> All right. Well, um this is all the time we have. Uh there were a few other topics, but we'll have to touch upon them another time. Thank you guys so much for coming on Unchained and sharing your thoughts on privacy. >> Thank you so much. >> See you.

>> All right. Thanks for thanks everyone for joining this live stream. We will catch you next week. Bye now. Nothing you here on Unchained is investment advice. This show is forformational and entertainment purposes only. And my guest and I may hold assets discussed on the show. For more disclosures, visit unchainedcrypto.com. Heat. Heat.