Over the past few months, the so-called “decentralized finance (DeFi)” market on Ethereum (ETH) has absolutely exploded.
For those unaware, the idea is that to enable full freedom from the fiat system, there should be decentralized applications built on blockchains for financial applications — be that loans, investing, and so on and so forth.
There’s one overarching problem, however: privacy. People want decentralization but they also want privacy. However, with the current blockchain system right now, the data of transactions and the smart contracts can be leaked, made available for anyone that has the resources to look. As Chainlink wrote in a recent white paper:Smart contracts naively implementing financial instruments on blockchains (permissionless or permissioned) can leak critical business intelligence: Monetary amounts, instrument terms, and participating counterparties. In today’s complex capital and derivatives markets, privacy is both a given and a legal requirement of most contracts.
To make this statement a bit more tangible, here’s an example: If you get enough data on a blockchain, you can find how much a certain account/user is getting a loan for, and at what interest rate. Can that happen in the world of traditional finance? No, not really.
Of course, this is only one example of how DeFi can be seen as a downside for those looking for financial privacy, as there are many other cases in which an open blockchain model may actually hamper secrecy.Meet Mixicles
But, solutions are being created. Just recently the Ethereum-centric Chainlink just unveiled what it calls “Mixicles” in the aforementioned white paper. Mixicles, according to Chainlink, are DeFi instruments that are embedded with oracles to promote privacy.We’re thrilled to release our work on Mixicles, a new approach to enabling privacy for smart contracts with an initial focus on decentralized financ...