DeFi Security and Privacy: Lessons Learned | European Blockchain Convention 9

[Music] 3 2 1 go so hello everyone uh it's really great to have you here for this extremely important panel because uh it's all about our money right and our privacy and security um I want to welcome on stage my amazing co- panelists uh and I would like to start the panel with a round of introductions since I'm speaking I can start my name is Maria I'm the founder and CEO of echoland where we educate professionals to work in web 3 and we activate them on board them to work for web3 protocols and web3 companies through hackathons developer challenges and user challenges so I would like to give the word maybe starting here um from J so hello everyone my name is Jason I'm working as ecosystem lead at Zama and a business developer also so Zama is a cryptography company working on a new cryptographic primitive called FH fully homomorphic encryption uh FH is basically a blackbox so it's the ability magical blackbox the ability to compute over encrypted data so let's say I take my personal data such as my genomic data I can send it to a server or a blockchain or third party that can run an algorithm without even seeing those data those data and today we are bringing this technology to the blockchain through a product called the FH evm so an evm with FH capabilities and uh a new privacy use case can can come with this thank you so much Antony uh hi everyone I'm Anthony I'm with Alf zero uh and Alf zero is a layer one um chain um everything's open source of course permissionless um wasam only and how we're approaching privacy is through a essentially a privacy layer that is based on both zkps and secure multiparty computation and applicability of this is from what we're seeing for now is primarily within defi um as well as various uh various Enterprises thank you y good morning everyone uh my name is n and I'm a developer relations engineer at streamer and streamer is a sorry is it streamer is a a realtime data distribution protocol that implements a pops up pattern so if that CHS all technical mumbo jumbo you could imagine as kind of the glue between devices uh realtime data and web tree hi everyone I'm Oliver Gail I'm co-founder of panther panther is a zero knowledge defi infrastructure we enable asset managers wallet providers to compliantly obfuscate senders and receivers and do things like onchain swaps and interact with protocols any anyi protocol uh that we build adapters into thank you everyone for the introductions and um to start the panel I would like to present some statistics because it's always good to see some statistics so according to chain um analysis defi related hacks and exploits accounted to over 99% of all cryptocurrency related crime a study by the blockchain analytics firm nansen found that over 70% of defi users are vulnerable to at least one type of privacy attack and defi users are also at risk of privacy violations as their on chain activity can be easily tracked so all all this Statistics show us how important this conversation today is so the first question I would like to ask is let's define first what is privacy Jon do you want to answer yes so our definition of privacy we' like to separate two different things the privacy on the blockchain for the data and the privacy of the metadata so today protocol like tornado cache they offer you privacy and the metadata so you can mix the sender and the receiver you can mix those things we at Zama with the fhvm we bring privacy to the data itself so if you send if I'm sending you 10 tokens everybody on the Block Explorer will be able to see that I am sending to you tokens but nobody will see the amounts so that's what the kind of privacy we are offering today and we will so call it we prefer also confidentiality in this case we bring we give confidentiality to transactions thank you does anyone want to add another perspective to privacy what is privacy sure I think it's like super important to understand the differences between sud onity anonymity and privacy itself um especially since you know when we talk about the general public and they're going to look at Bitcoin transactions and or ether transactions they're going to just see a bunch of random numbers and letters and they're going to assume that this is that this is private which of course it's it's it's it's not um so it's important to sort of dive deeper into the differences between those three um and have an understanding of of what actual privacy on chain is yeah I can also add on that that usually the traditional definition for privacy or or private information is that is that piece of information directly or indirectly related to you like your identity if it is then it's private information and you should have some way to govern and manage that state of the information and I think I I'd like to add confidentiality on the spectrum of privacy anonymity pseudonymity and so forth because uh really confidentiality is what industry is looking for it's the relationship that we have with all of our financial service providers healthc care providers governments and so on today we essentially to the rest of the world to the rest of the market it is you know it could be considered private or Anonymous they really have no information on what you are doing but between you and a trusted counterparty there's a confidential data exchange and relationship and the problem with pseud Anonymous ledgers is that statistically anyone can infer who the actors are and so this is what so so from our perspective we're tackling confidential Defi and my colleagues on this esteemed panel are are tackling other things like private or confidential computation thank you so much and I want to welcome Lisa on stage uh Lisa could you introduce yourself quickly and uh we were asking uh the first question what is privacy hi I'm Lisa loud from the secure uh secret Network Foundation um I'm the executive director and what we are doing is to promote privacy as a service for everybody on every layer uh every layer one who wants to use privacy and build it into their application and uh the question is what is privacy yes all right so privacy is the most basic thing that we take for granted and yet in blockchain it's missing from most of the industry most things are built transparent and unfortunately that is not a good um foundation for building for the future and for institutional adoption so privacy is something that matters to every single one of us and that we all need to be taking seriously ly thank you so much so now we spoke about the Privacy let's Pi about the second word here uh security what is Security in defi yeah knowing how not to get hacked like I think honestly on a high level it's a it's a ux challenge first and foremost because if we take a look at um you know the last two years uh for instance and how the industry tried to attract uh people from outside of it by giving them new tools to transact and exchange value online um most of the say most of the users came to centralized platforms and within defi onboarding people is just so much harder because the the you know the learning curve is much steeper so like if we manage to fix um both security as well as the user experience in decentralized um Finance but also really whatever application there is um this would be one of the most crucial crucial things to to to to tackle and as for as far a direct answer as to what it is it's the um well certainty that I'm going to be okay after um you know after uh well realizing a transaction or some action online in this context thank you this is a very important point you mentioned about uh user experience and how user friendly defi actually is and I would like to ask that question a little bit later on but does anyone else want to uh give a definition to security yeah sure it's actually quite important that we go through these definitions in the beginning because they are they sound similar and even the professionals get them sometimes wrong and typically security is uh defined as the way to protect information so something that is either valuable or it's private information so you want to protect it somehow and you want to manage it also somehow and quite fast you going to end up talking about what are the ways to protect them like Advanced encryption methods JK proofs hom marketing encryptions multi-party computations Etc but that's kind of the the split between the security and privacy I I just add a small comment that security and privacy are very much related uh if you don't have privacy then security is m a much bigger deal and much more difficult it's like having a a car that is factory installed with a feature and then another car that doesn't have that feature installed you have to go to Great Lengths to to achieve that at aftermarket installations thank you everyone um defi projects often emphasize decentralization how can we strike a balance between decentralization and security especially when considering the potential tradeoffs in terms of privacy and Trust in the ecosystem yeah I think um when you look at the most decentralized Network we have which is Bitcoin it's a very static Network relatively speaking and the infrastructure has been in production for many years at this point and so it's taken for granted that the infrastructure is secure as well and I think it's very important that you have secure infrastructure when you're also decentralizing projects because by its very nature what you're doing is Distributing governance and that slows down decision making and in some cases it removes the ability to do things like address bugs or hacks uh or upgrade your protocol and so when Builders are working towards decentralization and it usually is a path towards as opposed to a final destination on day one you really have to take into account your security model and ensure that your technology is uh extremely robust and then be prepared that once you decentralize it the decision to upgrade it um is no longer exclusively within the hands of the original developers and in some cases you will not be able to upgrade the the protocol and we'll have to Fork it and again going back to bitcoin you will see the many Forks of Bitcoin which have had you know low degrees low to moderate degrees of success yes um yeah so I think um to an extent decentralizing a project is like raising a kid uh you know you start with um essentially hoping that you're going to be able to develop something that uh is able to take care of itself in the end um and we see we see a bunch of uh Builders also wanting to decentralize something too fast and then everything as you mentioned everything becomes much more um complex as far as growing the project making it more technologically advanced ensuring that it's safe actually um so getting to like a sufficient level of decentralization as fast as possible is great and then this path to completely um giving the control away is is I would say much more difficult now let's talk about data is data a feature or a product do you want to data yeah um yeah right I I would I would say it's it's a it's a feat like data it's a difficult question I guess but um um I would say that the way we handle data is should be something that product Builders definitely focus on the most especially in the context of privacy um and like the the the you know the stuff that we sort of grew up in in in in web TW with data mining um the problem is that we don't really have very robust alternative business models when when we don't really exploit or somehow uh otherwise commercialize user data um so in the context of say again PR privacy uh if you were to ask like privacy is a feature or a product then I would say that it's more of a feature also that can lead to more sustainable business models in the end yeah yes a quick comment on the data uh so far you were only able to put certain data on the blockchain because you don't have native encryption so what we want to bring is uh new use cases where we can put new new sort of data on chain for example ID data today you cannot put them you have to compute them on chain and put some proof uh of chain sorry and put some proof on chain to have ad data on chain tomorrow with the FH and there is also other technology you'll be able to put much more data uh on chain so Health Data ad data and uh lots of different more use case will will emerge so in this case data is a feature to answer the initial question uh because uh new use case arrives and I would add that uh even today at secret Network you're able to put confidential data on chain uh we're using the sgx trusted execution environment in order to uh provide confidential Computing within an enclave so you can actually place you could place your digital identification information on chain protected by this uh by the hardware and then only those who have the private key to access it would be able to uh to get into that data and that's a step up from zero knowledge or or H keeping it offchain with a proof on chain it's a step up because it is it is much more decentralized everything here is in grades right you get you have to trade off between security and privacy and and ease of use but with secret Network today you are actually able to place data in this in Enclave that would be unaccessible except by the smart contract that has the access to it and then anyone you want can have access to that data to whatever degree you want because it's programmable privacy so yes fhe is coming and that will be a higher level of security and uh you know we're getting there but to even today there are ways to have onchain privacy I yeah I mean um thinking about your original question I and I would lean towards saying that data is a good privacy is a mechanism and security are both mechanisms for protecting your data and the fundamental premise is that if you can protect your goods then you can leverage them in commercial transactions whereas if data is easily replicated and so certainly Digital Data which is what we're talking about so if you have no privacy of your data then there's really much less value to it and so you find yourself in situations where for example any Al you may have as it pertains to your onchain transactions your activity uh let's say your uh systematic Trader or you're a large uh investor or Market maker there are many of them you can go to Arkham and you can see all of or whale watching accounts or you can go to nansen Alpha and you can see whole leaderboards of actors who are onchain who have valuable portfolios and whose moves are considered to be important in the market and there are Traders and data analysts who systematically analyze and then exploit that data usually by front running me attacks and so forth so you know data is a good it's generated in all kinds of ways and as Sovereign individuals we all have and do generate valuable data and the big issue with web 3 today is that you know 90 plus maybe 99% of value which is represented on chain is represented on ledgers which do nothing really to protect your data so it's a second order Pro problem to address data privacy uh but it's it's where we're at in the adoption curve it needs to be solved yeah I'd like to also add that I love the analogy of data is good um and it's more specifically kind of like anti Ral good so that more you use it it has negative substract ability the more you use it more it becomes valuable so you can always it doesn't go anywhere we can copy it it's not away from you and we can create more value on Tope of value but coming to the original question is it the is the product or feature I guess it depends how you use and package it so if you take about traditional social media we create content we create data on the platform we consume each other's data so it's a feature but then how we use the platform is more data and it's been packaged and sold to advertisers so that a product if it's a product then whose product is it right like in the past Google has used our data as a product many companies gather data that doesn't actually belong to them gather data on all of us and sell that if we can say that a product is also something that a user owns then privacy allows us to uh maintain control of that data and use that as a product that we can benefit from so so I think we have established how important data is for everyone um how do you interpret data security and privacy in your protocol Lisa do you want to start how do we interpret privacy in our protocol yeah data privacy data privacy in our um data privacy is so secret is a layer one protocol so it's a it has an ecosystem and the apps will build on top of that e ecosystem so each each dap that builds something on secret Network defines uh data privacy in a different way it uses data privacy in a different way in some cases it's uh I mean it's Central to our product so it's like we Define data privacy as as our as our Basic Value um but each app can use it in a separate way and Define it as either their their product or their their their uh unique selling proposition is that they keep the data private um there's many different ways to take it because we are a layer one which covers a lot of different use cases Thank you Lisa Oliver so Panther is focused on on chain finance and so the data that we are working to protect is the data of our users as it relates to who they're transacting with and in what amount the types of transactions are peer-to trans transactions swaps and interactions with any D5 protocol this matters particularly in the case of D5 protocols which are not built on private ledgers such as secret and so that would be you know the ethereums and salanas going down that list smart contract platforms and really there's this uh compromise that Panther has been tackling since Inception which is how do you enable actors to have onchain privacy while whilst also enabling full uh compliance compatibility like how do you have uh FCA regulated broker dealer or a virtual asset service provider of any kind enable themselves or their users to have privacy whilst also being able to report to the regulator and so that tradeoff has resulted in us implementing a number of zero knowledge compliance schemes and NPC data saves to secure data uh and house it and then you know as has been pointed out on this panel user experience is really important as well how do you create an experience where the user doesn't get lost in the complexity of the technology that underpins uh the product um that's actually ex question um I guess we differ here a little bit from their backgrounds that our our project is kind of a let's say a tool that you could use as a building PL for defi Solutions because it's a data Transportation protocol um so it's part of layer zero and Layer Two where the access control authentication is in Layer Two side itself but our stance to the Privacy is basically that you own your own data like it's it's yours so when you create a data stream and push it through our Network then you get the encryption Keys you manage it we don't process it we don't host it it's up to you what you want to do with it we just give you the tools to do it properly yeah um I mean in in our case um I I would say that we view privacy as something that should be standard everywhere like it is really in our daily lives you know offline we like our privacy and we do private stuff uh and it's not bad stuff it's just normal stuff but private um and then if you if we sort of establish this as a baseline then you have two challenges when it comes to exchanging value uh and the first one is is compliance so then the this sort of you know grows into to how do you make compliance as comfortable for users as possible how do you ensure that if there is a need to um issue verified credentials like how do you make sure that they um just go through the verification process once and then they can reuse it within the ecosystem and the second thing is ux because if we for instance talk about zero knowledge proofs then users have to generate them locally so this takes a a a bit of time so they have to have like the the developers of the product or an environment have to have some way of circumventing the difficulties surrounding the um the entire experience so um just to just to sum up I would say that privacy needs to be talked about in the context also of compliance and ux and compliance not because of you know privacy is in itself is non-compliant but it may allow dishonest actors to enter the ecosystem and do well various stuff um I try to to give the audience because I'm sure here most of the people are not really technical like us or privacy specialist so I'll try to give you a global framework for privacy So In traditional Finance you can trust someone with the data so you don't have the problem in blockchain we don't want to trust people so we bu we put stuff on chain but they are transparent and today you have four different Fighter for your privacy on the blockchain you have FH which is what we do at at Zama that I'll explain a little bit later you have MPC your multipy computation you have zero knowledge proof and you have trusted Hardware like Intel sgx so and you have some software stuff to to do it and we are all trying to mix these Technologies in orderers to remove transparency of the blockchain to give you back the privacy of your uh data so now to answer the question more specifically what we do in FH uh with the FH VM is that we take an evm ethereum virtual machine or any other virtual machine we open it we add a new precompile uh calling our FH library and with this we add a new data type uh new integer FH integer uh encrypted integer sorry and so with this the developer in solidity can write smart contract with unencrypted data so that's how we Implement uh the Privacy stuff yeah thank you so much for this explanation uh and Anton because you mentioned uh multiple times you wi uh your experience I would like to talk more about this topic so how can privacy improve user experience uh sure I mean there's a really really simple case uh that that I think is going to be close to everyone's Hearts so when you when you try to send um I don't know usdt on erc20 to your friend so you have your your metamask or whatever and you send funds or coins or or you know whatever you want to um to a friend then that friend can click on the address well your address and see your entire history of operations right so um I mean depending on how much you like that friend it can be a good thing or a bad thing but really if you want to execute a transfer that would be well in this case pseudonymous uh you would have to go to for instance a centralized exchange withdraw funds to a newly you know to a wallet that you just um uh that you just uh sort of well generated um and that gives you more let's say more privacy um and if you were to use uh a solution that has this privacy built in then you can essentially derive different um well addresses from your main wallet uh and you well you don't have to generate new ones you just kind of roll with the thing you have and not worry about people picking H into your uh your wallet so that's the simplest use case I would say thank you for mentioning that does anyone else have an example yeah uh user experience the problem with user experience is that we are all trained from Decades of financial well if we're just talking about Finance we've been trained to rely on a centralized third party to protect our data to provide privacy now we all know I'm sure everybody here has received more than one message that says there's been a data breach here's the here's what we're doing to address it your data has been compromised so it's not perfect however we're all trained to trust that third party to handle our privacy for us we just hand over our data we do kyc we give them our passport or ID and we trust them to take care of it now in this new world where we're not trusting third parties C ciz third parties to take our privacy and hold it for us but it's on the blockchain it's a whole different point of view I mean I've told many many people um how to do crypto and when I start explaining how their their seed phrase Works they get this look in their eyes like I have to keep track of this or else I lose my money that's not a good user experience and it's not what most people are trained for so get moving privacy out of the hands of third parties and into the individuals hands is a very difficult user experience problem to solve how do we solve that that's I think what we're all working on here is to make it not only safe and secure but also understandable for the individual user for the average user and use and uh easy to easy understand and easy to not make mistakes about thank you um Oliver do you want to add uh well no just I think Lisa said it very well privacy has a cost and it changes your behavior and it's typically non-intuitive and what we're working on is building protocols systems tools technology that essentially move the bar in favor of the user towards them being able to secure and protect their own data and what you really typically find is that uh the actors that care about privacy have higher costs associated with not having it and uh you know speaking frankly there are two sides to that Spectrum they're illicit actors and they're those who have very sensitive and important or valuable information and I mentioned some sectors like Health Care Financial Services Asset Management really areas where the stakes are high and and this is what we're focused on and you know Finance is the prere requisite for secondary layer app economy to exist and so it's no surprise that for its duration the web 3 industry has largely been focused on finance applications and even a conference like this is one that has a mixed crowd a lot of institutional representation Asset Management representation because we're at that point where industry is really interested in bringing Finance on chain and the stumbling blocks are is it functional we've addressed that largely is it scalable and affordable blockchains are much faster uh is it secure is it private is it compliant and it's those security privacy and compliance are really the traction problems now that industry is addressing so that you can bring your financial activity on chain without being again you know the example of the retail user is you look at the wallet and you see the the transaction history apply that to a large Enterprise and you suddenly expose all of the gdpr information all of the personal data you reveal how systems and security models operate behind the Enterprise or the Technology stock and so they're major concerns and so you know this is like this is the world that is being addressed by the panelists here yeah this is an extremely important question as you mentioned we have a lot of traditional Banks here traditional Enterprises here that want to enter this world of defi right so let's answer the question how do Enterprises want to use private chains well the first obvious application for uh private chains is in defi enterp if we think about institutions financial institutions who want to trade there's the the fact that they want to keep their trading strategies private it so let's just take a step back and how does defi work how does decentralized Finance work you you have these pools that are entirely public and transparent you interact with them you place your transaction into the mem pool where it can be seen by everybody and then you execute your strategy in a clear format so everyone can see reverse engineer your strategy they can front run you if they see that you're about to make a big transaction they can jump in and and make that you know do a sandwich Arbitrage or or buy before you do so institutions are not very interested in doing defi in this in this clear world of transactions um put aside the question of Regulation whether who the counterparties are but just talk about their strategy their strategy is not it's not actually manageable in the current world of defi so what institutions need is to be able to do their strategies privately and uh last night we were talking about how it's very important to be able to have I think Oliver you said that it's very important to be able to to hide your strategy your overall strategy but it's also important to be able to execute your strategy without having Bad actors or you know not necessarily bad but opportunistic actors come in and siphon off your profitability before you're able to ex you're before you're able to execute your strategy itself so I think the most obvious application to come back to your question in finance for Enterprise is being able to do private defi being able to to trade and execute your strategy without um sharing it and broadcasting it to the world right uh does anyone want to add something to it no so well actually sorry just quickly I mean the the challenge as well is that you have to be able to do this privately and then superimposed upon that you have to be able to do this in adherence to your compliance structures otherwise it will never be a mainstream product and so there's this question of how do you enable privacy and how do you enable confidential and secure data disclosure and so it's a two-sided problem one without the other is going to result in a tornado cash or rail gun situation where you've got sanctions and illicit actors and criminal incarcerations and that's an inevitable outcome when you uh when you enable this type of sort of unfettered privacy and then offer it into the financial markets uh for Bad actors to exploit so how do you approach kyc and anti-money laundering and who is actually responsible for kyc and anti-money laundering since I've opened the can of worms I'll just quickly lead the we have a existential problem with web 3 today around the there's an argument which is ongoing as to whether the protocol is responsible or whether the operator is responsible for what happens and the I firm I'm firmly sitting in the camp of believing that it's the operator that is responsible for compli sence for data custody and disclosure and not the protocol the asteris next to the protocol is the protocol has to be sufficiently decentralized meaning there's no clear ownership or operation at the protocol level and so the world that we're building towards is one where Protocols are credibly neutral they're not political they cannot be politicized they are not interested in one party's view versus another their job is to mediate and enable Commerce and data transmission and so forth and operators act on top using these protocols and these actors are the ones that are offering you a mobile wallet or uh a master card or a Visa card and they're responsible for collecting your data processing your data and being compliant and so you know I think architecturally this is how we need to be building our protocols legally this is how we need to be structuring the law and then when when you're operating in Industry you have to know whether you sit in one camp or the other that that makes sense but you you put protocols and then operators I I think there's another level in there of developers because we're a protocol absolutely yeah and then there's developers who will create independent applications they're not necessarily The Operators but they're providing tools and uh I think there's a huge amount of responsibility on the developer level to to code in a way