Blockchain

The rise of confidential blockchains

The rise of confidential blockchains

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Contributed by Pralhad Deshpande, Ph.D., Senior Solutions Architect at Fortanix.

Cryptoeconomics is the study of economic interaction in a potentially conflicting environment. The development of the cryptoeconomy has radically changed the way value is transferred globally through decentralized peer-to-peer networks. Today, two entities can transfer value globally, in near real time, without even having a banking relationship. The simple transfer of value, which manifests itself in payments made using digital cryptocurrencies, is only the beginning of the cryptoeconomic revolution. There are a variety of centralized and decentralized exchanges, trading desks, and lending platforms, and these platforms provide financial services to cryptocurrency users.
It has been interesting to observe how different aspects of computing have enabled the development of cryptoeconomic problems. Technologies that would otherwise remain hidden in academic journals have had the opportunity to impact how electronic value is created and transferred around the world.

Cryptoeconomics has long been based on the proof-of-work consensus algorithm. This algorithm has proven to be really resistant to Byzantine attacks. But there are downsides. First, the performance of proof-of-work blockchains remains poor. Bitcoin, for example, still operates at seven transactions per second. Second, proof-of-work blockchains are also extremely energy-intensive. Today, the Bitcoin creation process consumes approximately 91 terawatt hours of electricity per year. That’s more energy than Finland, a country of about 5.5 million people, uses. Although a portion of commentators consider this to be a necessary cost to protect the global cryptocurrency system, rather than just the cost of running a digital payment system. Another section thinks that this cost could be removed by developing proof-of-stake consensus protocols, as they offer much higher transaction throughput. Indeed, proof-of-stake blockchains built on the Tendermint framework deliver more than 10,000 transactions per second.

However, proof-of-stake blockchains also have drawbacks. For starters, they are much more centralized than proof-of-work blockchains, typically around 50 validating nodes controlling the system. Also, in proof-of-work blockchains, it is not necessary to own any network resources (blockchain tokens) to be part of the network. In proof-of-stake blockchains, this is not the case, and a node must own and stake a minimum number of tokens to become a validator. Therefore, proof-of-stake blockchains present effective barriers to entry that are not a feature of proof-of-work blockchains. To stake coins and become a validator, a node would have to submit a transaction to that effect and existing validators have the power to approve or disapprove such a transaction. This means that proof-of-stake blockchains are likely to be controlled by a handful of collaborating parties.

Nevertheless, there is a hidden advantage to proof-of-stake blockchains, as they can be designed such that only validators running in trusted runtimes provisioned using confidential computing resources can be authorized to join the network. In addition to proving sufficient participation in the network, a validator node can be mandated to also prove that it operates in a trusted execution environment that protects the blockchain application and the data processed by the validator. It is a simple extension of the proof-of-stake protocol that provides additional security for blockchain users. Note that this obligation to use confidential computing resources is not possible in proof-of-work blockchains because membership is open to everyone.

Now, if all validators are to run in trusted runtimes, then we have a new type of blockchain – a confidential blockchain. Indeed, a privacy-focused approach to designing blockchains is highly desirable. Projects such as ZCash and Monero have leveraged cryptographic techniques to provide privacy-preserving cryptocurrencies.

While it has been possible to develop privacy-preserving protocols for simple payments, it has proven extremely difficult to deliver programmatic blockchains that enable smart contracts while using cryptographic techniques. The Enigma project, with its roots at MIT, attempted to build a confidential blockchain using multi-party computing (MPC) technology, but the project didn’t really take off. MPC technology is notoriously difficult to implement and incurs performance penalties that increase with complexity. Computing on encrypted data without using a hardware root of trust has proven to be very difficult under real-world requirements.

There are privacy blockchains or privacy-focused blockchains with full smart contract capabilities. Take for example the Secret Network project. The Secret Network project, which may also have its roots in the Enigma blockchain project, kept the goal of building a privacy-focused blockchain, but chose a different path to deliver it. It relies on validators operating in secure runtime environments using the Intel® Software Guard Extensions (Intel® SGX) implementation of Confidential Computing.

Another project that also relies on confidential computing to ensure transaction confidentiality is the Oasis network. Their design opens up several new use cases, including private lending where the lender’s and borrower’s account balances remain private to each other. The amount borrowed also remains private, as does the meaning of the transaction.

Private automated market making and private decentralized exchanges – think private Uniswap – are also important use cases, in which trading pairs, trade amounts and contributor identities remain private. Private stablecoins also benefit from the protection afforded by confidential computing, as all account balances and transactions remain private, unlocking the potential of a truly private global payments system.
We have observed that proof-of-stake blockchains can bring improved performance and are not characterized by exorbitant energy consumption. When operating in a confidential computing framework, they can offer transactional privacy, even for programmatic blockchains. A variety of highly desirable use cases can be built on private proof-of-stake blockchains. Besides these benefits, however, there is another hidden benefit to using confidential computing, as it can be used to increase the openness of proof-of-stake blockchains; a problem that has been highlighted in the text above.

When a validator node signs a transaction, all we know is that a certain key was used to sign a certain transaction. We have no knowledge of the code this validator used to process the transaction. The validator could use discriminatory code for admitting new validators or sequencing transactions. Maybe he maintains a whitelist of entities he trusts and only approves staking transactions from that pre-approved list.

Can we use confidential computing to ensure validators operate with high integrity? The answer is yes”. It is possible to orchestrate the deployment of validators so that only validators with the correct hash measure of their application code receive the necessary certificates to participate in the proof-of-stake network. Using attestation to verify that the node is deployed in a trusted execution environment, the integrity of the validator code is checked at runtime to ensure that only the validator application authorized by the blockchain is executed This ensures transparency for blockchain participants while providing the inherent security of confidential computing for transactions.

In summary, confidential blockchains are here to stay and many, many more will be launched. A wide variety of use cases that were previously considered impossible will be implemented by leveraging confidential computing technology and proof-of-stake blockchains. Trusted execution environments will play a key role in the development of the global e-treasury system and financial services that depend on it. As the cryptoeconomy becomes a part of everyday life, the application of confidential computing will enable new efficiencies, use cases, and functionalities of blockchain that we have yet to imagine.

Pralhad Deshpande, Ph.D. is a Senior Solutions Architect at Fortanix.

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