Researchers from the Stanford University and Visa Research recently revealed a privacy mechanism for Ethereum smart contracts. A paper describing the mechanism was published on Applied Cryptography group on Stanford University’s website on February 20.
The paper states that researchers have built a decentralized and confidential payment system called “ Zether”. Also, the mechanism is consistent with both Ethereum and other smart contract platforms. The developers have built a smart contract which can either be executed independently or also by other smart contracts.
The mechanism offers enhanced confidentiality by providing an option for locking account funds in a smart contract. This helps in maintaining account balances, enabling deposits and transfer/withdrawal of funds through cryptographic proofs.
The Zether contract will first check appropriate burn and transfer proofs then only will it transfer funds. This procedure will be followed even if the request comes from a smart contract whose rules undermine illegal transfers. The design mechanism is such that Zether security is self-sustained and not on any other smart contract. A maliciously written smart contract can, thus cause no harm to Zether.
The author further claims in the report that as a transaction costs approximately 0.014 ETH or approximately $1.51 at press time. The privacy offered by Zether is quite similar to that of Monero. As per the report, an extension to Zether can also hide the sender and the receiver in a transaction.
Although, the overhead associated with anonymity scales linearly according the size of the group, no trusted set-up is required. Additionally, no changes to the existing smart contract platform are required.
The community and governments are not completely in favor of privacy coins neither do they condemn it completely. Last month, Litecoin (LTC) Charlie Lee declared that he would work on making crypto assets more private and fungible. He further stated that confidential transactions could be added to Litecoin network via a soft fork. Moreover, it is highly likely that it is implemented in Q3 of 2019.
In April 2018, Japanese regulators from Financial Services Authority (FSA) suggested that cryptocurrency exchanges should be prevented from trading anonymity- oriented altcoins such as Monero, Dash and Zcash. An FSA member on the promise of anonymity said that using such currencies will bring in bad fame to the cryptocurrency exchanges and will increase instances of money laundering.