Is Onchain Privacy Finally Possible?: Naomi Brockwell, Bobbin Threadbare, Wei Dai, Ilia Volokh

came up too soon. I came up too soon. I was too excited. I waited didn't wait for the music to to play. All right.

Next, we have Naomi Brockwell with Lello Institute and she's going to bring up quite a few people um and have a great conversation. She's going to help them all introduce themselves. So, welcome on up Naomi. Thank you. We got quite a group here and we're going to be talking all things privacy.

Perfect.

So, uh it might be helpful for us to go through and just introduce ourselves and uh maybe say a line about what you do. Um we'll just do like rapid fire and then we can get into the questions. We did you want to start? We got We die here.

Yeah. I'm a research partner at WKX. I've been designing, implementing, and investing privacy protocols. Um, yeah, and excited to chat about privacy with everyone here.

Cool. We got

IAS Bakware. Do

you want to?

Yeah, I do product and I like geometry.

And we got Bubbin Threadbear from Maiden.

Yes. So, I'm one of the co-founders of Maiden. I've been working on privacy for a very long time. uh even before Maiden and yeah, Miden is a privacy L2.

Wonderful. So, we're going to be talking about privacy. Um first of all, I I would love you guys to define what you actually mean by privacy because it could mean application privacy. It could mean privacy and transactions. It could mean um all kinds of things.

So, to set it the stage of where you guys are all coming from, um did you want to start uh just like what what are you mainly focused on when you're talking about privacy? Yeah, I think when I think about privacy and there are as you said many aspects but for me the main one is like the protocol level privacy where you can't uh u and it has several properties. So like the first one is that you can't figure out who is transacting with whom. The second one you don't know what exactly is being transacted like how much am I transferring and the third level is like I you know at a smart contract level you don't know necessarily what code is being executed so like you have like functional privacy as well. So those are the primary things and then those are enforced at protocol level.

There are other things at the network level where like or you know are you interacting with a network through a privacy preserving layer and not things like that. I think those are important too but for me primary privacy is the privacy pro protocol layer.

Okay. Yeah.

Copy paste.

Copy paste. Great.

Yeah. So maybe I I will go a little bit more broad first to comment on actually since we're talking about privacy let's define you know the different categories right. So I think we have like communication privacy for messages right and then we have like data privacy that's you know you click like the constant thing um you know and those are important but that's you know not what we're talking about here and even at the protocol level right when we talk about like onchain uh privacy there's also privacy leakage when you connect for example to your RPC provider right that that connection is typically not discussed when we when we talk about like onchain privacy um and so so I I I would say the the most um the bottom line with the gap that we have is there's a block explorer that's public

that anyone can access, right? And that's really top of mind. That's the thing we want to fix. There's a lot of other issues, right? Like how can we make sure the RPC queries are also private.

Uh but I I would say that's not really in scope when we talk about onchain privacy.

I think that's great and I think it's really good to contextualize that because I find that people miss um the fact that privacy is not in a vacuum. Like you could have the most privacy private protocol in the world. Uh if you don't know how to use the internet privately, then it doesn't mean a thing. You know, you've got like even in wallets like the application layer. Um you know, quite often you're just pinging some API to get a currency conversion and people don't understand that that's a privacy leakage.

Is that a honeypot that's actually giving you that currency conversion? Now it's telling, you know, some company exactly what you're converting. Um so lot of things to keep in mind when we're talking about privacy. And then it's like the idea of um private from whom is this just like publicly accessible information. We've started talking about viewing keys.

Now we're starting to talk about like to what extent should we allow other entities um to be able to see inside this. And then there's transparency when it comes to the protocol itself. Some people want to know that like you can actually prove a certain fixed supply of a coin. So there's some you know transparency element in that. So it's like is it guess be a pretty um complicated discussion?

Um, so let's talk about threat models because that'll help us kind of zone in on which privacy we're most focused on. Um, we've got chain analysts, uh, data brokers, state actors. I would love to hear from each of you about, um, like where you think our focus should be in 2026. What is the barrier to privacy? Who's the main like adversary to privacy?

I mean, u, I think all of the above, but like there is priority, right? uh and in my mind um I do worry about like the state level actors as well like I think that's important but uh the data on blockchain being fully public and fully being like you know there forever and you being able to go back many years and figure out what what is uh you know who did what I think this is like the like the the barrier is becoming lower and lower for regular people to like go and look at it and by regular people I don't mean necessarily like just regular people I mean like criminals like they're not sophisticated I unsophisticated actors and with help of AI for example this barrier will keep coming down right so uh in my mind like we need to get to the point where it is difficult for like a regular person with help of AI to like make sense of what is happening now this is like almost table stakes now we can go to like okay now I have like a sophisticated actor that can invest like millions of dollars and like do this and that is like also important but like you know let's let's at least get to a point where like a regular person with internet and like an model cannot go and analyze as a chain and like figure out your personal transaction history up to like 10 years or 20 years back. Uh, and then

I just want to kind of zone in there because it's like it's 2026 and we're still talking about just getting that sorted. Like I like you know I feel like we crypto has been around for a really long time now. Um, and the understanding that permanence on a blockchain is going to be good for AI to process. You know, it's only just starting to uh get into people's uh awareness. I think there's like maybe there was some education gap at some point because people did think and a lot of people still think that blockchains are private right there anonymity and like therefore like you know you don't know who you're transacting with and it hasn't been true for almost ever like even from the very beginning it's just up until fairly recently it was relatively expensive to correlate data with um you know offchain identities and all that stuff you had to have sophisticated firms like chain analysis and others uh to do this kind of analysis and cost money so like we won't do it on a regular person but now again with advent of AI that will cost will come down and what was previously costing a lot of money will be very cheap now you do get to a point like there are state level actors who can like invest millions and billions of money dollars but I think and that's important to protect against those two but I think let's first solve the first problems and then like get after the state level actors later

yeah Ilas what are your thoughts

uh for the most part I agree I think the main objective from a product perspective is just to impede people from learning about each other's financial activity. Um, so for starters, nobody should know how many digital potatoes other people have. And then the next step after that in my mind is to facilitate something like private markets. So it's related to the idea that people are not able to know what code is being executed only that it's being executed correctly. So matchmaking in a private way uh and not leaking what positions are being entered and by who.

Yeah.

Yeah. I I think the the question on threat models um right is one that's really fundamental but really I I I I would frame it in a slightly different way right what is the threat of crypto not getting adoption like what is what are we all doing here with that ETH conference you know how many of you how many of you think Ethereum is at west scale adoption you know we we all want is transp all alltime high in terms of actual throughput but you know blockchain um demand like in terms block demand we're actually at at a pretty low point in history uh at least on Ethereum 01 I think um you know the threat is that we don't get to well scale adoption and that's the north star that's we want to get to right we can argue about the details we can argue about you know what's what's the ideology like how can we best build you know the cypher punk like protocol right and but at the end of the day we need to get this to people to use and that's what we're trying to build and if we want to get there there's a necessary couple of different steps we need to take. It's clear that if we just do the cypher punk approach, you know, 300 cache, um, you know, Zcash that that failed. We didn't get there. Now, let's try again.

Let's learn from that lesson and let's see how can we actually build for adoption.

Well, differentiate between tornado cache, a sanctioned protocol, and Zcash, which is like seen a giant giant increase in like the past few months. This is a great question and I think we're slowly getting getting into consensus on a type of privacy protocol that differentiates and that that can reach wale west scale adoption and I called it threat resistant protocols and Bobin actually had a better framing of it which I I will use now it's called evasion resistant

and the rough idea is actually okay let's look at what happened what's wrong um you know with a tuner cache with Cash like like protocol what happens is that the bad bit hack happens. Recall the bad bit hack last year, right? $1.5 billion of value hacked. If that goes into a privacy protocol, all of a sudden we cannot distinguish a normal user's money from the hacker's money.

And that was really the problem, the key problem with um directly implementing the maximal level of privacy, right, on on chain w without any type of controls. And and it turns out if you just try to fix that one problem, it becomes more or less you'll have a system that that can adapt to many many different situations. And what I mean by that by this is okay we need to trace hacks into our protocol and that means we'll have to maybe get some form of viewing key right and we had to decide who gets to see this viewing key and and there and therefore if we had the viewing key then the attacker you know the by the hacker is not able to evade uh the tracing of that transaction right and I think bombing can explain more on you know evasion resistance but but that's what I think is required is we need to build threat resistant and evasion resistant protocols and get them to wcale adoption.

And is your reasoning for threat resistance? I'm just trying to understand um uh like why uh you want that. Is it because you don't think enough people are going to create the network's effects to make a a protocol sustainable if they think that scammers are using it or do you think that governments won't allow these things to exist unless there's the layer of compliance? Um do like what is what why?

Yeah, really good question. I think on all sides, right? I think all of those are actually valid points for why um we need threat resistance. So on the compliance side, if you want enterprises, institutions to come on chain, they cannot they need to distinguish, right? Like uh it's similar with exchanges, right?

Change offs need to distinguish a normal honest user and you know hacked funds.

So it's a compliance issue. you think applies but I think you know to myself like speaking for myself I think you know um I think a lot of people are like me I also think that uh look I'm a normal user I should have a privacy but maybe you know this should apply to the hack like the hacker right and like how do we exactly draw that line is you know it's hard you know as a builder if you build completely permissionless protocols there's basically no way to distinguish that right and so I think ethically speaking Um anyway this whole other discussion I think you know um assets are more like action like they can incur real world consequences

when you give out assets as like um a a reward for action and but like communication right is is more like similar to freedom of speech and and anyways that's my opinion

where

so you wouldn't consider like freedom to transact as freedom of speech

but but I think maybe Bobin can can mention more on the

well yeah I'd love to know if you guys agree agree. Do you think that um like we need visibility, we need compromise like government compliance in order for crypto to succeed?

So there are two aspects to it which I I would like to say. There's a practical aspect to it and then there's ethical aspect to it. So the the practical aspect like why did US government go after cash and not after Zcash and like one of the obvious things is that you know North Koreans didn't try to launder a lot of money through Zcash and they did try to launder a lot of money through to cash and so the question is like can we have a protocol where most of the usage is being done for like you know regular people that's most of the usage is not nefarious and like what is the threshold after which the US government or any government will actually go after a protocol if they say okay half of the usage here is for money laundering and therefore we'll go after it and I think one of the things here to look at is a traditional financial system because traditional financial system launderers a ton of money through it and you know opinions vary but like between 2 and 5% of like the world GDP is getting laundered through traditional financial system and so I think the goal as a protocol builder is that build a protocol where you know not more than 5% of money is used for or transactions is done for money laundering it's like most of the transactions are nice and uh done for you know regular people for like legitimate uh reasons. But if there's a small portion of that as it's being done for illegitimate reasons, then maybe that's good enough from the standpoint of like regulators, governments and and so on. So not to come after this protocol because they they're seeing the same in the traditional financial system.

And that's like one of the practical aspects like we want to build a protocol that doesn't get used by like you know 20 30% of the time for illegal activities.

That's such an interesting question to explore for me. Maybe Ilas, you have an uh thoughts on this because for me it all comes down to who defines legitimate activity. So I feel like we're creating a system and we're saying we're making sure that we can control it to a certain extent so that people doing illegal things can't use it. And I'm wondering okay but like illegal by China's standards, illegal by North Korea standards, by America's standards. Like these are global protocols.

Who gets to dictate? And what happens when the regime change and now it's illegal to say things that are bad about the government? Like have we created a mechanism of control when now these people are still using it for legitimate which means just like cowtowing to politicians like do you have thoughts on this Ilas?

Uh yes but no answers. Um first of all I think a nice phenomenon in crypto is that builders uh they have a substantial say in what might become uh ethical because they define what is practical. So they sort of narrow the selection space um which is very nice and not a phenomenon that we have in Tradfi. Um my take is a bit extreme. Uh I think it's good to have running water even if criminals also enjoy running water.

And I pretty much think the same about privacy. It's good for people to have privacy. I don't think uh it's uh avoidable that uh good properties are also beholdened on to bad people and I don't necessarily think it's the most important problem to solve.

Mhm.

Like who defines the rules, right? Like it can be government defined rules in my opinion especially at the protocol level. I think in here like it's important to separate compliance versus evasion resistance. Compliance is something that is defined by a given jurisdiction and you cannot comply you can't build a protocol that complies with China with US with Europe with Nigeria and you know many other countries at the same time but at the protocol level like the evasion resistance is like a meta concept that is enforced by the protocol. It's a you know like in Ethereum Dow hack happened and like people came together it's a social contract decided to roll things back in the extreme situations like this maybe you can decide okay this like by bit hack happened and maybe it's good uh for a set of validators to come together and decrypt the the trail of by bit hacker uh but not touching anybody else's privacy and you know there are some technical issues with this and how to solve them but I think that would be the type of like who enforces the rules the protocol enforces the rules it's not any specific government that enforces not because it I mean, so that was the practical aspect.

I think there's the ethical aspect of there here as well is like it's not good for by bit hackers to get $1.5 billion uh regardless of who they are, whether they're in North Korea, US or wherever. And the protocol itself can decide that this is a bad thing that had happened and then yeah, you have competition between different protocols. But in this case, you could say, yeah, it it was clearly a hack and we clearly don't want it to happen. And like if let's say two-thirds of the validators agree, they can do that.

for example

and I have two points to make um you know this comes down to the debate of is a blockchain neutral infrastructure or is a blockchain a mechanism for social consensus and I think if you have built one if you have deployed one operator a vtor you you understand it's social consensus all the way down right even for bitcoin it's people decide even at the end of the day like whether they upgrade a protocol um you know ethereum still upgrades twice a year And how do we design the mechanism for the sort of consensus, right? currently has been let's just give this to validators you know validators get to decides and and then you know protocol designers get to design a protocol validators get to kind of choose whether they run the fork right and and I think yes this is a very builder centric way like build an operator ccentric way of thinking about governance and I should disagree with that point that um I actually would like to challenge that point should we really um let the community of builders and blockchain operators decide on an infrastructure that is used by every everyone right while we are the minority of of um uh I you know maybe we're not that much of a minority anymore but there's a lot more other other people out there with you know um I think we'll have the obligation to think through the governance structure and and not overindex on builders and operators of of chains and we should include you know everyone like in the world like and think through right this is more more than just just us we're building infrastructure that everyone will use

yeah I guess I have a question about like why is crypto the exception here because you don't see Apple having safeguards in place to make sure criminals don't get their phones and you don't get shoe manufacturers having safeguards in place to say that shoe you know criminals don't use shoes and so you're saying crypto must be fundamentally different and we should have those safeguards to stop criminals using crypto but like they're using electricity infrastructure they're using telecommunications infrastru like like there are all of these things um that criminals are using in day-to-day life including water Um, so I'm just trying to understand why crypto is like a a different kind of entity.

Can I elaborate on the point I made previously? So I let's think about the different type of privacy and and just compare messaging like into encryption to onchain privacy like pay privacy for payments right and messaging I think should be in encrypted. It's freed of speech. You should be able to communicate with anyone in the world privately. financial privacy freedom of speech like I get to donate to political causes and I get to donate to um you know charities and I'm kind of exercising my right to have a voice and

I'll give I'll give you an example this is a thought experiment you will see my tweet um you can look it up but here's a thought experiment with oracles you can design a mechanism where with a privacy protocol I can give out a bounty of let's say the $ 1.5 billion I hacked um from Bybit right in in Ethereum so no one can sees where if you can demonstrate a real world event happened and demonstrate that you caused that real event to happen and connect it to Ethereum address through oracle network I will give you this $ 1.5 billion I can encode that on the smart contracts and that incentivizes that event to happen in the real world and if you think it through there's a lot of people that are incentivized to think about ways to make that happen to claim the $1.5 billion and that makes assets fundamentally different than speech I would say.

Interesting. I think like pre 1970 people would not have agreed with you. Uh because when the bank secrecy act came into power like privacy in the financial sphere was like a given right. You have the New York Times saying like well the bank secrecy act is unconstitutional. You know disclosing $10,000 transactions is like egregious.

The government shouldn't have the right to that. We have the fourth amendment. um they should need a warrant. So there is an idea that maybe the fourth amendment should apply to everything including finance and maybe bank secrecy act should be repealed and interesting thought experience but I'd love your thoughts.

For me it's like a difference of a degree. I don't think like your political donations or anything should be ever like public or like visible to anyone. Uh but I do think like there's a difference of between like us exchanging let's say a few hundred a few thousand maybe even $100,000 but from somebody moving a billion dollars like in my mind like I would love like for a protocol to exist that works like cash more than anything where you know smaller transactions are fully private but if you try to move a billion dollar in cash that's very difficult like in from logistical standpoint like you need the van you need movers who will help you load the van and like creates a lot of complications and in the world of like electronic digital assets, moving a single dollar and moving 10 billion is equally as easy. And I don't know if this is the right property. I would love for like regular transactions to be fully private.

I don't know if moving like a billion or10 billion dollar should be just equally as private as moving at $1.

Interesting. So it might be a matter of scale for you. Um so we need to wrap up, but I guess the final question I wanted to maybe get a rapid fire response. Um, I see like the adoption issue is um, uh, definitely an issue that that we're facing. I think that one of the barriers to adoption is actually kind of the stigmatization of privacy.

Um, that privacy is now something about hiding. It's about like criminal activity. For me, it's just like a fundamental right. Do you see that this cultural shift where we now make people feel shameful for privacy is a like something we should be concerned about in the crypto space? Are we focused on this cultural shift so that we can like reestablish privacy as something that's normal?

Is this on your radar?

I'm I actually see that in especially in the last year things have shifted dramatically. Like I used to be in the position where I wasn't able to tweet about privacy because it was would draw too much attention and now like it's yeah and like I've been working on privacy for the last seven years and like there was a period of time where it was like no you shouldn't do this like our legal department would say you shouldn't do this because it draws too much attention to to the project and all of that stuff and now it's very open like I'm very happy that you can actually it's becoming a hot topic and people realize that it's need I actually do think it's a fundamental need we as a blockchain industry will not succeed without privacy like there's no way any of these protocols will work without privacy. And so I'm happy that the opinions are shifting and I do think there is probably much more to be done to distatize privacy, but we're already on a good path toward that.

Yeah, rapid fire response way.

I think we should say privacy is normal, but also ask more questions on okay, what what is normal? Normal is differently uh defined differently in different context and and it you know that's uh food for thought.

Yeah, I

nothing to add.

Nothing to add. Well, thank you so much. I appreciate all your time uh and the work that you're doing in the privacy space.

Thank you for having us.