Researchers from the Stanford University and Visa Research have developed a privacy mechanism for Ethereum (ETH) smart contracts. A paper describing the mechanism was published on Stanford University's Applied Cryptography Group website on Feb. 20.
According to the paper, the researchers created "a fully-decentralized, confidential payment mechanism" called "Zether" that is consistent with both Ethereum and other smart contract platforms. The developers reportedly developed a new smart contract — that can be executed either individually or by other smart contracts — that maintains the account balances encrypted and enables the deposit, transfer and withdrawal of funds through cryptographic proofs.
The authors claim in the report that transactions on Zether are confidential, wherein one transaction costs approximately 0.014 ETH or around $1.51 at press time. Enhanced confidentiality is reportedly enabled by the option to lock funds in an account to a smart contract. The type of anonymity guaranteed by Zether is more similar to Monero (XMR), the report says, explaining:
"We describe an extension to Zether that can also hide the sender and receiver involved in a transaction among a group of users chosen by the sender. Though the overhead associated with anonymity scales linearly with the size of the group, no trusted set-up is needed and no changes to the underlying smart contract platform are required."
"The Zether contract will never transfer funds without first checking an appropriate burn or transfer proof, even if the request comes from another smart contract whose rules do not permit illegal transfers. This design decision ensures that the security of Zether only depends on itself and not on any outside smart contract. Even a maliciously written or insecure smart contract cannot cause Zether to misbehave," the report specifies.
Privacy coins, which provide users with more anonymity, are regarded with mixed feelings both from the community and governments. Last month, Litecoin (LTC) creator Charlie Lee declared that he would focus on making the major cryptocurrency more fungible and private. Lee explained that confidential transactions could be added to Litecoin through a soft fork and would be implemented "sometime in 2019."
In April 2018, Japanese regulators from the Financial Services Authority (FSA) suggested preventing cryptocurrency exchanges from trading anonymity-oriented altcoins Dash (DASH) and Monero. "It should be seriously discussed as to whether any registered cryptocurrency exchange should be allowed to use such currencies," an unnamed member of the FSA group said.
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