Privacy gains attention as Ethereum developers investigate new token standards

What to know:

This week, we’re exploring the trajectory of privacy within the Ethereum ecosystem.

For years, privacy in transactions was one of the most ambitious promises of crypto. However, it took a backseat as other trends gained momentum.

As developers concentrated on scaling blockchains and regulators scrutinized privacy tools like Tornado Cash, much of the industry’s focus shifted elsewhere. Nevertheless, a new Ethereum proposal and a rising number of privacy-oriented products indicate that the topic is resurfacing.

The latest illustration is pERC-20, a proposed Ethereum token standard that would enable users to hold and transfer tokens without publicly disclosing their balances, transaction amounts, or counterparties. This proposal has reignited discussions about whether public blockchains should automatically reveal every financial interaction.

In contrast to traditional ERC-20 tokens, which represent the current default token standard on Ethereum and display balances and transaction histories on-chain for public inspection, pERC-20 keeps sensitive information confidential.

Currently, most Ethereum tokens operate like public bank accounts. Anyone can look up a wallet address and see how many tokens it holds, their origins, and where they were sent. Under pERC-20, tokens would exist as encrypted cryptographic «notes,» akin to digital cash.

The outcome is a system where transactions stay private while still allowing the network to verify that no alterations to the transactions took place.

Significantly, the proposal does not conceal everything. The total supply of a token would remain publicly visible, enabling anyone to verify that new tokens are not being secretly created. The proposal also includes a compliance mechanism that would permit issuers to freeze specific notes via a cryptographic blacklist without revealing the balances or transaction histories of ordinary users.

This design mirrors a broader shift in how privacy is being discussed throughout crypto.

Rather than viewing privacy and compliance as mutually exclusive, many newer projects aim to develop systems that provide both.

However, some developers contend that private payments are only part of the challenge.

Earlier this week, Starknet launched STRK20, a privacy-centric token framework intended to extend confidentiality beyond simple token transfers and into decentralized finance applications like lending, staking, and token swaps.

According to Eli Ben-Sasson, co-founder of StarkWare, the primary developer firm behind Starknet, the biggest challenge facing privacy technologies today is not cryptography. «The main issue with privacy is UX,» Ben-Sasson told Decryptnews.

Historically, cryptocurrencies focused on privacy have faced usability challenges. Users often encountered slow wallet synchronization, complicated transaction processes, and limited compatibility with the broader crypto ecosystem. These limitations made privacy tools difficult to use and, in some cases, undermined the very privacy they aimed to provide.

Privacy systems depend on large groups of users participating together. If only a small number of individuals use a privacy network, it becomes easier to identify individual participants.

«If the UX is poor, very few users are going to utilize it,» Ben-Sasson remarked. «If very few users are engaging with it, and only for a limited range of functions, they don’t gain much anonymity.»

Ben-Sasson indicated that pERC-20 appears to be primarily focused on private token transfers and draws inspiration from ideas pioneered by privacy-oriented projects like Zcash. While he acknowledged this as a crucial capability, he argued that the next phase of privacy infrastructure must accommodate a much broader array of financial activities.

«Today we can accomplish more,» he stated, referring to privacy-preserving DeFi applications.

The STRK20 framework was designed with that objective in mind. Rather than shielding a single token, the framework allows users to manage multiple assets under a unified privacy layer and interact with decentralized applications while preserving confidentiality. Ben-Sasson noted that users can access services like swapping, borrowing, and staking without compromising privacy.

The framework also employs post-quantum secure cryptography, which Ben-Sasson asserted will become increasingly significant as blockchain developers begin to prepare for future advancements in quantum computing.

The contrast between pERC-20 and STRK20 underscores an emerging debate about what privacy in crypto should genuinely entail.

One vision emphasizes making payments private while retaining transparency in other areas. Another aims to establish privacy as a foundational layer that spans an entire ecosystem of financial applications.

Regardless, the discussion itself signifies a noteworthy shift.

For much of the past few years, privacy occupied a relatively small niche within the crypto industry, often linked to niche privacy coins or contentious mixing services. Today, the dialogue is increasingly focused on mainstream infrastructure, token standards, and institutional use cases.

Whether pERC-20 ultimately becomes an Ethereum standard remains uncertain. Like all Ethereum Improvement Proposals, it must undergo an extensive review process before it can achieve widespread adoption. However, its emergence, alongside projects like STRK20, suggests that privacy is once again becoming a priority for blockchain developers.