Shhhh! Can you keep a secret ? Most people can’t. And certainly most blockchains don’t. But there is one blockchain that can. Its name is Secret Network.
In this article I will explain Secret Network in the easiest way possible. I will avoid crypto jargon and distracting acronyms. By the end of this article you will have a good understanding of what Secret Networks does, how it works and what SCRT token is.
Now, follow me but don’t tell anyone.
Let’s start with privacy, a complex topic that is hard to grasp both technically and intellectually.
Why do people care about privacy?
I’ve spent the last 20 minutes looking at that question wishing I hadn’t typed it.
Privacy is such a broad topic. From picking your nose to money laundering you can fit a lot of human behavior under that one word.
Privacy today conjures up Orwellian images of governments and corporations monitoring your every move. And it’s not some theoretical abstract fear of what might happen one day. Look no further than China to see how things are getting out of control currently.
For crypto folks you are probably thinking, “Yeah mate I know where this is going. You are going to talk about Central Bank Digital Currency (CBDCs). That way governments can check your transactions and control what you buy innit”
No man! I am not talking about CBDCs. I am talking about Bitcoin and Ethereum and Solana and all the blockchains that you anarcho-crypto-cypher punks love.
Their fundamental premise is that everything should be out in the open, there for anyone to cross-check.
Bring everything into the open you say. The light of the sun will purify us all. It’s only when humans can hide that they start misbehaving. Put everything on a blockchain and corporations will have to be accountable. We won’t get into the mess that obfuscation led to in 2008. Why hide if you have nothing to hide? Eyyy?
What Secret Network crypto aims to address
But erhmm there is one little problem with this mechanism. As an individual I don’t want to have to reveal everything that I do.
Transactions on blockchains are pseudonymous. But the moment anyone connects my identity to a string of numbers that’s it. FINITO! They can now see my whole transaction history.
Imagine if I went into a Starbucks to buy a Coffee but now these guys could suddenly know everything about every single transactions I have ever made on the blockchain.
It’s not as if we are not used to sharing our data.
Today, everyone is giving up their info to internet giants. What their name is, their address, their card details, where they are, how old they are, what their gender is, what content they like to consume, what device, what browser, what time they do what they do, what they search for, what they buy, what angers them, what delights them. The list goes on.
In fact, they probably even know you better than you know yourself.
Don’t you have that friend who thinks that Google and Facebook are listening in on your conversations because, the other day, they were talking about a thing and then, what the hell man, there are ads for that same thing in articles and on instagram suddenly everywhere?
I don’t know about big corporations listening in on what you say. But what I do know is that these companies have built up such a good digital representation of your persona that they are pretty accurate in serving you the right ads.
Does privacy matter?
So yeah, everyone is giving up their information without giving much thought to privacy. On the surface it doesn’t matter much.
So what if the big guys know my data. These are cool Silicon valley guys. They dress like me and say the right things. And you know what ? I would rather have more relevant ads shown to me rather than seeing that Grammarly ad for the 100th time.
But as we transition to Web 3, privacy needs to be at the core. Otherwise we end up with surveillance capitalism times 100. And this is what Secret Network helps to achieve
Let’s understand how.
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What is Secret Network
Secret network is a blockchain built on Cosmos (What is cosmos crypto) where inputs, outputs and the stuff in between are all encrypted.
This means that the smart contracts preserve your privacy and users can decide who can see what data. At the same time the underlying ledger is public for anyone to see.
Allow me to explain in more detail.
The importance of privacy is often overlooked because there is the common misconception that blockchains are private by default.
But the thing is, with Ethereum or Bitcoin you don’t get anonymity, you get pseudonymity. Your address is a jumble of letters and numbers. If anyone ever associates your address with your identity it’s the same as making the entire transaction history of your wallet open to everyone. Already, many companies have raised money to harvest data off blockchains.
This isn’t how the digital world should work. At the end of the day blockchain technology is just a tool. In the wrong hands it could be used to take freedoms away just like in a bad science fiction novel.
In order to have sustainable app ecosystems, control needs to be in the hands of users. Privacy is absolutely essential. Otherwise Web3 will become a worse version of Web2.
Let’s see how the whole darn thing works.
How does Secret Network work?
To understand how Secret works let’s first focus on what it is not.
Secret Network is not another Monero or ZCash. Both of these focus on transactional privacy i.e. getting you money from point a to point b without anyone knowing.
You may have also have heard of mixers like Tornado Cash.
What’s a mixer
A mixer is a service that blends your transaction with other people’s transactions.
Imagine this as a service that takes your bitcoin, adds it to a bucket with other people’s bitcoin, sloshes it about and then sends the right amount of bitcoin to the end recipient. But it’s not the same bitcoin that ends up with the end recipient.
The original bitcoin you sent got mixed up with the other bitcoin so it is hard for anyone to trace what you ended up doing. Of course in that case you don’t know if you are mixing your cash with the mafia’s cash which is why anyone who ever used Tornado Cash is in trouble now.
Regarding the mafia and other concerns about criminal activity
Let’s veer off on a slight detour for a moment. It’s important.
Is the availability of privacy preserving technology going to increase money laundering and criminal activity? It’s a valid concern without an answer.
In Tor Bair’s interview with Laura Shin, he says we ought to pay attention at who is advancing those arguments.
Governments are absurdly protective of their own privacy. They looove privacy. They just don’t love your privacy. Plenty of governments have an awful record of human rights violations. So who is the criminal here?
Yes, it’s true that that there is no good way to stop criminals from accessing technology. After all they have access to the US dollar. But the availability of privacy preserving tools does not create more criminals. It does however advance security and empowerment for the end user. The end result is that people are safer if their privacy can be preserved.
In addition there might be ways to be compliant while maintaining privacy.
On Secret Network you could build an app that whitelists addresses. So, for example, you know that this entity is a bank. You can see their orders but the data is private. You don’t need to make everything public and people such as auditors can be provided temporary access.
OK back to Secret. So it’s not Monero and it not a mixer. What is it?
Back to what Secret Network is
Secret Network is different. Its focus is on computational privacy which is more generalized.
With Secret Network you can build an app where the smart contract itself is privacy preserving. This means that what goes in, what goes out and the code’s state are all encrypted.
And it’s not just the software that is encrypted. The hardware is too.
The computers participating in the network use the same technology that your smart phone uses to scan your fingerprint and keep it secure.
This is a separate section in your phone called an enclave that is set apart from the rest of the computation on your device.
Before we geek out on the technicals let me show how people are using Secret Network
What can you use Secret Network for?
1. You can make any token secret
The first use case is that you can port your tokens over from another blockchain and make them secret.
Say you are a company whose address has been doxed (revealed by someone) and now all your competitors can see your cashflows and where you invest them. Imagine you can take these cashflows and hide them.
Let’s see how you would go about using Secret Token bridges to do this.
Imagine you have $5M worth of the stablecoin USDC. USDC is an ERC-20 stablecoin which means it sits on the Ethereum platform. You can “move” these USDC over to Secret Network and convert them into a Secret Token called sUSDC.
To do this, Secret Network uses a bridge.
Technically what is happening is that your USDC is getting locked in a smart contract on Ethereum and a new token called sUSDC is being minted on Secret Network.
Now, on Secret’s platform everything you do is encrypted. Your balance, your wallet address, what you minted and the amounts you transferred are all cloaked. No one can see these unless you provide them with viewing access that you can revoke at any time. For example, you might want your partner to have access but no one else.
Pretty cool huh ?
Next use case
2. Prevent front running, hacks and other dodgy stuff
A key issue with public blockchains is that miners and validators are able to know what you are about to do.
Imagine you place a large order for a token that will cause its price to move.
Validators can see orders and re-arrange them. A savvy validator could place an order at the same time and move their order to the front of the queue. This way they can buy low and then later sell high. In crypto speak this is known as front running and it is estimated that billions of dollars worth of assets have been extracted in this manner.
On Secret Network, the whole front running issue is avoided because validators can’t see the transactions. They can validate them but they can’t see them. This reduces the likelyhood of hacks when you transact in DeFi.
When you take out a loan on a DeFi lending platform or when you join a liquidity pool on a Decentralized exchange no-one will be able to know precisely what you are doing.
Third reason has to do with NFTs
3. You can do some pretty cool stuff with NFTs
Imagine it’s 1994. Soundgarden have just released “Black Hole Sun” and you’ve bought the CD. You take the CD to school and show it off to your friends. They all want to look at the glossy album art. Your best friend asks if he can come home to listen to it. You agree and at home you pop it on the stereo player and you both listen in bliss.
What just happened here? You’ve got some art, you’re showing off that you own it and you are choosing to share a particular aspect of it, the sound, with your friend.
Fast forward to today. If you have an ERC-721 NFT on Ethereum all of its metadata is public facing. Everyone can see everything. Anyone can right click on your Crypto Punk and save-as.
This hasn’t been a problem to date because most NFTs holders are happy to flex their NFTs. If you were one of the first to buy a Crypto punk or Bored Ape (what is Ape coin) you bet it will be your profile pic.
But what if you wanted to provide layered access?
What if you want to have a low resolution copy of the pic to show you own it but only allow high resolution access to a select few. Or even a redacted version with parts cut out for the public. What if you want to show people you own the CD but want to chose who can listen and who can’t? This is where Secret NFTs come in.
Secret NFTs contain both public and private metadata. Owners can then choose what to make public and what to keep secret.
Tarantino uses Secret NFTs
The most publicized example is that of Tarantino partnering with Open Sea to auction Secret NFTs. The NFTs contains public metadata with cool art that you can show off.
But they also contains secret content such as the handwritten scripts of “Pulp Fiction” and exclusive comments from Tarantino, which the owner can choose to share with a select few (or not) .
4. DeFi apps
Secret Network contains all the DeFi apps you would expect on a layer 1 blockchain.
You’ve got AMMs, NFT marketplaces, a bunch of games and an algo stablecoin.
Also, there is a lot of experimentation with privacy-first solutions such as credit scoring for under-collateralized loans or storage of medical health data.
OK time to geek out. Let’s look at the technical side of things.
The mechanics of how Secret Network works
Originally Secret Network was called Enigma and sold itself as a privacy preserving solution that hooked up to Ethereum. However, the team soon realized they were spending 80% of their time trying to put a blockchain together whereas they primarily wanted to focus on privacy preserving computation at the smart contract level.
In 2019 they decided to rebrand to Secret Network and pivoted to use the Cosmos SDK which offers an out-of-the-box Proof-of-Stake blockchain. This solved the blockchain problem. Moreover, Cosmos makes it super easy to create and manage smart contracts.
Currently there are 50 validator nodes. What’s different about Secret Network’s validators is that they need to use SGX.
SGX is a software that is available on Intel’s Central Processing Units that allows you to create those enclaves I was talking about.
The technical term for these enclaves is Trusted Execution Environment (TEE), a segregated piece of memory that is walled off from anything else in the system. This means that no one can probe into it. Not even the validator who owns the machine.
If you own a hardware wallet such as a Trezor or Ledger wallet they also have something similar.
The hardware allows you to run one computation only which is to sign transactions but you cannot probe into the wallet to see the extra sensitive data i.e. the private key.
In a similar fashion, SGX runs any computation and any data you push into the enclave.
To become a validator on Secret you need to go through a registration process before you can start.
To register you need to run some code inside your TEE which proves that your machines have an enclave. Through a process called remote attestation, which I am not going to go into, the other validators can know that you are legit and use enclaves.
Let me tell you about the token
SCRT crypto token
Contrary to what most people think, SCRT is not a privacy coin itself.
SCRT is used to pay gas fees on the blockchain and reward validators. As a holder you can delegate you SCRT and stake it with a validator to earn rewards.
In addition, you can use SCRT to vote on governance decisions. Secret Network can process up to 10,000 transactions per second which translates into low gas fees.
As of August 2022 Staking annualized rewards are around 20-23%.
The total supply is 190Mn with 163Mn already in circulation and a market cap, as of today, at $170Mn down from a peak of 1.4Bn during its height.
Who is behind Secret Network
There’s two dudes you need to know about.
The first is Tor Bair. He runs the Secret Foundation that focuses on education and community building initiatives to spread the word about Secret Network.
I hope you share this article Tor!
Tor first paid attention to crypto when he was an options trader in Chicago.
His background is in game theory and auction theory. This guy loved volatility and in 2013 there was nothing more volatile than bitcoin.
After he got into the MBA program at MIT he started skipping classes to go to MIT’s Media Lab where they were already lecturing about blockchains. During his time there he met the CEO of Enigma.
The Secret Foundation receives 15% of block rewards generated by the network.
The other person you should know about is Guy Zyskind.
Guy is the founder and CEO of SCRT Labs which is the core development team behind Secret Network.
He too was at MIT in 2013 where he won a Bitcoin hackathon. Guy thought that there was surely a better way to maintain and manage privacy that what was offered at the time. At around that time he wrote a few papers that got a bunch of citations and then in 2017 he founded Enigma through an ICO.
OK it’s time to wrap it up people.
Wrapping up Secret Network
While privacy might not matter that much for trivial cases, it’s a massive issue for the more meaningful experiences we hope to have as we transition to Web3.
Tor Bair says privacy solutions need to happen at layer one. Only then can you scale and make it interoperable. But you need privacy by default otherwise you eliminate 99% of use cases.
Imagine if we ran our voting systems on a blockchain. Right now this is a terrible idea. While blockchains are hard to tamper with, voting needs to be anonymous. On a blockchain everyone’s vote is public for eternity. A privacy preserving blockchain on the other hand would protect sovereign identities.
Secret Network places itself on a Venn digram at the intersection of being permissionless and privacy preserving.
I am excited to see how Secret Network will evolve and will be keeping a close eye on it.
Thanks for reading folks!
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