The Rise of Confidential Smart Contracts in Web3

In this article, we will explore why confidential smart contracts are the future of web3, and how they can overcome the privacy-preserving issue that hinders the massive adoption of web3 by enterprises.

We will also discuss the challenges and limitations of using confidential smart contracts and web3, and provide some implications and recommendations for the future.

Why confidential smart contracts and web3 ? 

• Confidential smart contracts are transaction protocols on blockchain networks that execute predetermined rules with user-determined privacy settings to protect data involved in the virtual agreement. Snooping third parties can scrape whatever information they want from unprotected smart contracts on public blockchains.[1] 

•  Web3 is a term used to describe an idea for the next stage of internet development. The term was introduced in 2014 by Ethereum co-founder Gavin Wood, and the idea gained interest in 2021 from cryptocurrency enthusiasts, large technology companies, and venture capital firms[2]. Web3 revolves around the idea of decentralisation and often incorporates blockchain technologies, such as various cryptocurrencies and non-fungible tokens (NFTs)[3]

• Confidential smart contracts are seen as a key component of Web3, as they enable users to create and manage their own identities, assets, and transactions, as well as to share and verify their data with others, without exposing any sensitive or personal information[4]

•  Web3 is not massively adopted by enterprises yet, because of several challenges and barriers, such as the privacy-preserving issue. Enterprises often deal with confidential and proprietary data that they do not want to disclose or leak to competitors or malicious actors. However, most existing blockchain platforms do not provide adequate privacy guarantees or mechanisms for smart contracts[6].

• To overcome the privacy-preserving issue, several solutions have been proposed, such as using encryption, zero-knowledge proofs, secure multiparty computation, or trusted execution environments. These solutions aim to protect the data involved in smart contracts from unauthorised access or tampering, while still allowing the verification and execution of the contract logic[7].

Smart contracts are transaction protocols on blockchain networks that execute predetermined rules with user-determined privacy settings to protect data involved in the virtual agreement.

They enable users to create and manage their own identities, assets, and transactions, as well as to share and verify their data with others, without intermediaries or trusted third parties.

However, most existing blockchain platforms do not provide adequate privacy guarantees or mechanisms for smart contracts, exposing the data to unauthorised access or tampering.

This is where confidential smart contracts and web3 come in. Confidential smart contracts are smart contracts that use advanced cryptographic techniques, such as encryption, zero-knowledge proofs, secure multiparty computation, or trusted execution environments, to protect the data involved in the contract from snooping third parties, while still allowing the verification and execution of the contract logic.

Web3 is a term used to describe the next stage of internet development, where decentralisation, peer-to-peer communication, and user empowerment are the core principles.

Web3 often incorporates blockchain technologies, such as various cryptocurrencies and non-fungible tokens (NFTs), to enable a more secure, private, and verifiable web ecosystem.

The problem of data privacy is one of the most pressing issues in the digital age. As more and more data is generated, collected, and processed by various entities, such as governments, corporations, and hackers, the risk of data breaches, leaks, and misuse increases.

This poses a serious threat to the security, privacy, and sovereignty of individuals and organisations, especially in the context of smart contracts.

Confidential smart contracts offer several features and functionalities to users and enterprises, such as:

• Data privacy: Confidential smart contracts allow users and enterprises to control who can access their data and under what conditions. They can choose the level of privacy they want for their data, depending on their needs and preferences. They can also comply with the data protection regulations and standards of their jurisdictions or industries.

• Data integrity: Confidential smart contracts ensure that the data involved in the contract is accurate and consistent, and that it cannot be modified or deleted by unauthorized parties. They also provide a transparent and immutable record of the contract history and transactions, which can be used for auditing and verification purposes.

• Data security: Confidential smart contracts protect the data involved in the contract from cyberattacks, such as hacking, phishing, or denial-of-service. They also prevent the data from being lost or corrupted due to hardware or software failures, natural disasters, or human errors.

Another technique used by confidential smart contracts is zero-knowledge proofs. Zero-knowledge proofs are a type of cryptographic protocol that allows one to prove that they possess certain information without revealing it and without any interaction between the parties proving and verifying the information.

Zero-knowledge proofs ensure that the contract logic can be verified and executed without disclosing the data involved in the contract. For example, a confidential smart contract could use zero-knowledge proofs to prove that a transaction is valid, that a user has a certain credential, or that a computation was done correctly, without revealing the details of the transaction, the credential, or the computation [8]. 

Conclusion

Confidential smart contracts and web3 are two technologies that have the potential to revolutionize the way we create and manage our own identities, assets, and transactions, as well as to share and verify our data with others, without intermediaries or trusted third parties.

They offer several features and functionalities, such as data privacy, data integrity, data security, and data efficiency, that can overcome the privacy-preserving issue that hinders the massive adoption of web3 by enterprises. However, they also pose some challenges and limitations, such as the technical complexity, the scalability issues, the regulatory and legal implications, etc.

Therefore, it is important to further research and develop these technologies and to foster a collaborative and inclusive web community. By doing so, we can create a more secure, private, and verifiable web ecosystem for the future.

References :

[1] https://medium.com/@mikesmolenski/smart-contracts-privacy-vs-confidentiality-645b6e9c6e5ahttps://arxiv.org/abs/2203.08548.

[2] https://cmr.berkeley.edu/2021/01/four-steps-to-preserving-privacy-and-debiasing-data-informed-policy/https://hbr.org/2022/02/the-new-rules-of-data-privacy

[3] https://cmr.berkeley.edu/2021/01/four-steps-to-preserving-privacy-and-debiasing-data-informed-policy/https://www.capgemini.com/insights/expert-perspectives/the-new-generation-of-privacy-preserving-technologies/

[5] https://medium.com/@mikesmolenski/smart-contracts-privacy-vs-confidentiality-645b6e9c6e5ahttps://arxiv.org/abs/2203.08548https://link.springer.com/article/10.1007/s12083-021-01110-9

[6] https://arxiv.org/abs/2203.08548https://link.springer.com/article/10.1007/s12083-021-01110-9https://ethereum.org/en/web3.

[7] https://arxiv.org/abs/2203.08548https://link.springer.com/article/10.1007/s12083-021-01110-9https://ethereum.org/en/web3https://en.wikipedia.org/wiki/Web3.

[8] https://www.semrush.com/blog/article-writing/