Secret Network recently announced that Secret Contracts are coming to the Secret Network mainnet (by community vote) in mid-September. Let’s take a dive into what that would mean for Secret Network and the greater Cosmos ecosystem.
What is a Secret?
Secret Network states that a secret is, “something that you don’t want to share with everyone, but still want to share with people you choose to trust. A secret is something that you want to keep protected – not because it’s something bad, but because it’s something valuable.”
The Need for Secrets in Blockchain
Most of us understand the value of privacy. Privacy limits the power of both public and private entities, and gives further control to individuals. This allows them to choose when, where, and who they wish to share information with. A complete elimination of privacy in the analog or non-digital space would dramatically change individuals day to day lives, but privacy is hard to come by when online.
This is true for blockchain as well. All balances, transfers, and smart contracts (and when they execute), are all publicly available on blockchains like Ethereum. If someone knows your public key, they can see all of your activity on a public blockchain. This feature limits the ability for certain industries and entities to leverage the power of blockchain.
Secret Network plans to change that through their Secret Contracts. Secret Contracts will keep inputs, outputs, and state of contracts completely private, even from the nodes that are executing the contract.
Secret Contracts and other privacy tools currently being built have the potential to bring in a new wave of blockchain users and use cases. Healthcare, traditional finance, and banking industries would all need some sort of privacy layer to be able to leverage blockchain technology in a compliant way. More so, their users would demand it.
Granted, it would take a while for these industries to adopt public blockchains, but what are the implications of Secret Contracts for current blockchain users?
In the future, the explosion of DeFi is definitely something all of us will mention if asked about blockchain in 2020. That said, it is lacking privacy which is essential if it wants to continue its parabolic growth.
For example, if I try to take out a traditional loan, my potential lender would screen me to see if I qualify for the loan. This same process exists in DeFi, but with one key difference: the information gathered during the screening process is shared with the entire blockchain instead of being shared with a single lender.
If these DeFi contracts existed as Secret Contracts, these screening processes can exist in a Trusted Execution Environment (TEE), which allows these contracts to perform their functions without any data having to be publicly released, not even to the nodes executing the contract.
Front-running is another problem that currently exists in DeFi that can be solved with Secret Contracts. Front-running, which is a practice that is illegal in most traditional finance markets, can be performed fairly easily since information on blockchains are public.
A front-runner would be able to see submitted transactions and gas prices before a block is mined, which would allow them to submit a transaction at a higher gas price, thus giving the front-runner priority.
This is problematic for decentralized exchanges because a front-runner could buy at a low price and then immediately sell at a higher price to the same user who submitted the initial transaction.
By using Secret Contracts, DEX participants can submit orders privately which would help prevent front-running attacks.
Cross-chain Secret Contracts
Secret Network is a Cosmos SDK blockchain and runs on a Tendermint based consensus. With the upcoming Cosmos Stargate upgrade, Cosmos based blockchains that support Inter-Blockchain Communication (IBC) will become interoperable. This means that networks and assets that exist outside of Secret Network will be able to take full advantage of Secret Contracts, which will bring further privacy to the Cosmos ecosystem.
Perhaps one of the most interesting aspects of Secret Network is the ability to create “secret tokens”. Secret tokens allow users to deposit tokens, SCRT for example, and receive an equal amount of secretSCRT in return. Once these tokens are created, the movement of secretSCRT tokens and balances of secretSCRT wallets will be completely shielded and private.
This is similar to what happens after someone withdraws cash from a traditional bank, since it is pretty difficult to track how that cash is spent or used after it has been withdrawn, but secret tokens will have more utility than cash, since they can be utilized within the existing DeFi ecosystem.
Secret token holders could lend, borrow, or even join a secret staking pool once appropriate platforms are created.
With the introduction of IBC, any asset within the Cosmos ecosystem could become a secret token in the future. An ATOM holder could exchange their ATOMs for secretATOMs, and exchange them for other secret tokens like secretSCRT or secretKAVA and these amounts will stay completely private until they are exchanged for a non secret token.
We could even see secretETH and secretDOT in the future with the use of bridges.
Figment and other members of the Secret Network ecosystem have recently been stress-testing Secret Contracts and functionality on the testnet.
A proposal to add Secret Contracts to mainnet will happen on September 8th. If the proposal passes via community vote, then the upgrade will take place on September 15th.