Secret Network ($SCRT): Beginners Guide
This is your beginners guide to an intriguing new blockchain solving an overlooked issue in the crypto industry.
For today’s article I will be going down a slightly different route, I will be discussing a Layer 1 blockchain that is at an early stage which means that there is still a lot of experimentation going on. Do not take this as financial advice, I am simply discussing a blockchain that solves an interesting problem.
When you think of blockchain technologies, one of the first things that will come to your mind is the concept of transparency. Whether it’s Bitcoin or Ethereum, every transaction and interaction that takes place on the chain can be viewed by anyone in the world. Powerful right? Well, the founders of the Secret network saw this as a problem. Privacy is an inherent right that everybody deserves, whenever you interact with a vendor in the real world only you and the vendor know the nature of that transaction, everyone in the world does not know every single transaction you have ever made nor should they know.
Hence, the secret blockchain differentiates itself from other Layer 1s by having privacy built in by default on the application layer. This means that whenever you interact with a secret smart contract, other participants can only see that you have made a transaction and that’s it, they do not know the nature of that transaction.
The idea came to the founders at a class in MIT. There was a discussion about how privacy technologies can be combined with blockchain technologies to create the digital financial applications of the future. Privacy as a concept has been heavily debated within the blockchain community for years. Some people believe that it isn’t necessary because if you aren’t doing anything shady then why do you need privacy, while others believe that even if you’re an honest participant there is nothing wrong with demanding privacy.
We can see this through the evolutionary path of blockchains over the past decade. The first evolutionary stream was from Bitcoin to Ethereum. We had a shift from the concepts of decentralized transfer and decentralized storage of value to the concept of programmable money through smart contracts in a decentralized manner. The second evolutionary stream was that Bitcoin and Ethereum are both public and extremely transparent which gave rise to the concept of transactional privacy through chains like Zcash and Monero wherein only you and the party you are interacting with knows the nature of the transaction. Secret Network tries to combine these two streams by having decentralized smart contracts and built in privacy not only on the transactional level but the computational level as well.
Transactional level privacy
Transactional privacy is fairly self-explanatory, but to better understand it lets compare it to Ethereum. When you transfer an ERC-20 token you do so by interacting with a smart contract and when your transaction is validated and added to the chain everyone can see it. When you transfer a SNIP-20 token the process is similar except that the smart contract has privacy preserving features so nobody can see the nature of your transaction. However, it also gives you something known as a viewing key. As the address holder only you have this viewing key and with this key you can view the nature of the transaction. You can also share this viewing key with whoever you choose to and by sharing it you allow that person to also view the nature of your transaction. The element of viewing keys is unique because it gives the control of data back to the consumer. The data isn’t controlled by a trusted third party nor is it ready to be openly viewed by everyone around the world, the power is given to you the user.
Computational privacy
Computational privacy refers to privacy from the node operators. The people who validate the transactions and add the blocks to the chain are the node operators. Taking Ethereum as a point of comparison again, the node operators over there can view every single transaction even before its validated. On Secret Network there is a hardware requirement to become a node operator, the requirement is for the hardware to have this technology called Trusted Execution Environments (TEEs). TEEs are an isolated piece of technology within the hardware that is responsible for executing and processing the contracts/transactions in an isolated/private manner. It ensures that the node operators cannot access or view the raw data. This process provides privacy at the computational level.
But, Why Privacy?
Well, just because privacy is built in by default doesn’t mean that there is something inherently wrong with transparency. It just means that because privacy is a basic right, the participants deserve to have a choice. Secret network offers privacy but users can still transact on public chains if transparency is more important to them.
Secondly, consider enterprises and institutions that will eventually move over to blockchain technologies. All of them value privacy and even as the smaller enterprises become bigger they will demand privacy. They will not want their competitors to be able to see their every move, nor will they want random people to see their every move. Even traditional institutions that will look to move to the blockchain are used to privacy and prefer privacy. Hence, in terms of organizational adoption privacy is an important element.
Thirdly, the regulatory side. One thing regulators value is data privacy. Time and again we have seen web2 companies such as Facebook, Apple, and Microsoft show no value for the data-privacy of their consumers. Their data is sold to the highest bidder and used in ways the consumer will never know. Therefore, many of these web2 companies have been called to the congressional stand and have been fined billions of dollars. The computational privacy element solves this and will be appreciated by regulators. But you may be wondering why they would value transactional privacy especially considering the amount of money laundering and terrorist financing accusations the crypto industry receives. Well, the transactional privacy is on the application layer, which means that transactions of the native token $SCRT are publicly viewable but interactions with individual DeFi protocols and other individual participants are private as they should be.
Lastly, privacy also brings an element of security that doesn’t exist on other chains. With the computation being private it means that validators of the blockchain cannot front run transactions or reorganize the blocks to extract some additional value for themselves. This issue is a big problem on chains like Ethereum with Miner Extractable Value (MEV). The ZK technology on Ethereum also wants to solve this problem by introducing an element of privacy.
The drawbacks
There will always be risks in terms of bugs and smart contract risks, but the main overarching drawback comes from the node requirements. As I mentioned earlier, an essential requirement to become a node operator is TEEs, but that hardware can be expensive. Not only that, the network currently has an allowance of a maximum of 50 nodes. This creates a high barrier to entry to become a node operator which means down the line the network could face problems in becoming increasingly centralized as the control of the blockchain will be in the hands of the few validators. While there is no solution to this problem currently, I’m sure the team and the community of Secret Agents (as they call themselves) will come up with one down the line.
The $SCRT Token
SCRT is the native token of the Secret Network and has a few use cases. The first use case is that it is required to pay gas fees when making any transaction on the network. The other use case is that it is also a governance token which means that you can use it to vote on governance proposals and things like network updates.
The other use comes from staking. You can stake it to secure the network but also to participate in the consensus system. Secret is built using cosmos SDK and uses the Tendermint BFT Delegated Proof of Stake (DPoS) consensus algorithm. If you don’t know what that is then you can read my Cosmos guide here which explains these elements. Staking your SCRT is required to be a node operator/validator but also to be a delegator. Being a delegator means you can choose which node gets to validate the next block. Basically, the functionality of $SCRT is very similar to $ETH.
Concluding thoughts
The Secret Network made a very interesting proposal with their privacy by default blockchain and I believe they are pioneers in a sector of blockchains which currently has untapped market potential. It has been live since September 2020 and has an entire host of new DeFi applications in development which are slowly and steadily launching. With IBC integration (which is discussed in the cosmos guide) it will allow existing applications on other chains to easily move to the secret network. So keep an eye on this network but exercise caution because it’s still early.
As Always, if you enjoyed please consider subscribing to the substack and follow the medium for more. (ITS FREE)
Follow me on Twitter @LeftsideEmiri
Thank you for reading.