Thank you very much. I'm Thor Weller, not Thor Yeller Weller, not Thor Yeller , although I often shout. Sorry about that. Um, hi, I'm Thor, Chief Product Officer at Stellar Development Foundation, and I've been working in cryptocurrency for almost nine years. And over the last few years, I've really focused on privacy and have been talking a lot with institutions about requirements.
Um, so this conversation is about what we learned in discussions with institutions about privacy. So if you're here, you're probably already convinced about privacy, but just to set the stage, blockchain is the only financial system where every transaction is visible. So your salary is, um, usually private. Your, um, bank balance is private. But as soon as any of this data is moved to the blockchain, it becomes fully visible to everyone.
For individuals, this means that anyone with Block Explorer can reconstruct your entire financial history. If you are an institution, it is even worse. This means that volumes, relationships, trading strategies, wages—everything is completely open to your competitors. So when we talk to financial institutions, they make it clear that not having a way to manage your visibility is not an option. Well, you probably think it's easy.
We have been working on privacy and blockchain for the last 10 years. We have to have a solution, right? Well, something like... something like... You see, the thing is, we've been working on privacy for a while now, but we've really focused on the values of cipher punk.
So, complete financial freedom, which is great. I love Zcash. But for this next wave of adoption, we really need institutions, and we need them to feel comfortable feel comfortable depositing their assets, paying salaries, accepting merchant payments, interacting with the blockchain in a meaningful way blockchain in a meaningful way . For these institutions, confidentiality means something different. This means managing visibility in a way that keeps them competitive and compliant.
These are nuances. So the mistake is that we created absolute privacy, but institutions tell us they want something that's on a spectrum, because privacy is a spectrum. This is not a binary system. It has a huge number of, excuse me, permutations. It depends on the jurisdiction.
It depends on the jurisdiction. Um, a regulated asset issued in the US is different from an asset issued in Singapore and Brazil. It varies depending on the use cases. So there are different requirements for payroll than for trade, which has different requirements for money transfers. Technologies vary Technologies vary .
So ZKP, FHE, MPCTE, all the three-letter acronyms, all these technologies have different trade-offs, different performance different performance , different assumptions about trust, different things that they can actually keep secret. And the real problem is that we've built privacy as a single feature that can be turned on and off, when in fact it's a multidimensional design space. So when we started looking at privacy for Stellar, we realized that most privacy decisions today end up with what I call, sorry. So when we started looking at privacy for Stellar, we realized that most privacy decisions end up in one of two privacy dead ends. One of them is the “all or nothing” deadlock.
So, this is a privacy solution that has two modes: full transparency or full full privacy, nothing in between. So it can take the form of a smart the form of a smart contract pool, an L2 layer, and an app chain, but the premise is the same: all or nothing. Unfortunately, this leaves no room for nuance. Thank you very much. This leaves no room for the nuances that regulated financial institutions need to interact with this.
Another dead end is permission chains. So, I've been working in cryptocurrency for almost 9 years, and these things unfortunately keep coming back. So, uh coming back. So, uh , lately they've been coming back under the guise of privacy guise of privacy . Well, you know, yes, they are private.
They are private because they are a database on someone's computer. They are often truly private. But just to be clear, institutions are looking for open participation networks. They are looking for the type of compatibility, layout, validation that open networks provide. So permission chains are a dead end for privacy.
So how do you avoid these privacy dead ends? Well , we offer a very simple privacy stack. And above all, the base level must remain open and automated. So transparency is above all. This may come as a surprise, considering this is a conversation about privacy, but, um, transparency but, um, transparency is a feature, not a bug, not a bug.
the fact that an executive manager of an asset management company can open a block explorer and view their circulating supply and what is happening with the asset. We want to preserve this. It's a feature, and institutions love it. In addition to a basic level of transparency, we want to add building blocks for privacy. So the base layer should provide primitives that ensure privacy without enforcing any specific type of privacy.
So, we've seen L1s trying to enforce privacy. Sometimes this leads to errors, and sometimes it simply leads to running something outdated from the start. So at Stellar, we took a building block approach. We launched Protocol X-ray earlier this year, and Protocol X-ray provides a very broad set of ZK building blocks so you can build your own privacy layer on top of it. And this is the last level, the privacy protocols on top.
Different protocols for different privacy guarantees, different administrative controls, different underlying technologies. And most importantly, there will be a lot of them, and that's normal. So, we keep talking about privacy about privacy , but I want to focus on private payments because there are a lot of interesting things happening that aren't payments, uh that aren't payments, uh , commerce, DeFi, etc. But payments are actually the building blocks of modern finance, and that's what we need to get right first. So we see two main families of private protocols emerging today, private payment protocols.
The first is confidential tokens confidential tokens . Confidential tokens hide payment amounts and balances, but the sender and recipient are still visible on-chain. You know who is making the transaction, you just don't know how much. This is great for relationships with contractors I already know. For example, when I get paid, everyone knows that I work for the SDF, but we still want to hide the actual amounts.
Uh, there's a lot of work going on in this area . Stellar is part of the Privacy Token Association. Uh, and we're working with Open Zeppelin on implementation. Uh on implementation. Uh , we're seeing more projects from Salana, Aptos, uh, Sweet.
Hmm, lots of activity in this space. Hmm, privacy tokens provide a narrower set of privacy guarantees, but what they do provide is fairly easy to build compliance and scale. So we're seeing widespread adoption of this. Another option is privacy pools. So, uh, privacy pools are payment protocols that hide what and who.
So the funds are mixed so that the senders and recipients are not visible from the outside. So they provide anonymity, not just privacy. Some notable examples are Oxbow and the Ethereum ecosystem, as well as Stellar, Nethermine just launched Stellar Private Payments Stellar Private Payments , which is their own open source solution. So privacy pools have a much stronger guarantee of privacy, but they inherently commingle funds. This means that legitimate funds can sometimes get mixed in with the funds received, and there are ways to address this issue, and I'll talk about that a little later.
So this demonstrates that there are different systems, different privacy safeguards, and now the question is how do we create administrative controls around them. So at Stellar, we, uh, worked with various developers in this space to define the options compliance menu, the administrative control of subscriptions in the app. Now, compliance with astroskin is intentional. I'm not a lawyer, and regulators haven't been kind enough to explain to us what blockchain compliance actually looks like. But these are administrative controls that we are starting to see as requirements, not as an exhaustive list.
The idea is to make them as customizable as necessary. So, the first is selective disclosure. With selective disclosure, the user decides to disclose certain information to a specific party. This allows the user to show the source of funds on demand. And this is a very powerful primitive.
It has been around for a while, ever since Zcash launched. But unfortunately, we have not yet seen its widespread implementation. We hope this will happen soon . Indiscriminate disclosure allows a third-party auditor third-party auditor , such as the issuer or protocol operator, to have a key, a viewing key, that can view all transactions within a specific scope . This ensures that if law enforcement receives a subpoena, they will actually have a door to knock on to access this information.
Association sets were first proposed by privacy pools, and these lists of allowed assets are controlled by the pool operator. This way, they ensure that all mixed funds come from verified addresses. But what happens if an address was verified and then found to be problematic? For this, we see forced transparent withdrawal of funds. So this solves the problem of an asset that was previously authorized and now is not.
So this forces the user or address out of the pool without preserving any privacy guarantees. This was first proposed by Oxbow. They called it "rage quit, They called it "rage quit, " and we're seeing more and more of these solutions and more of these solutions . Finally, we see a refund. Yes, refund.
So if refund is a trigger word for you , then I apologize, but you are in the wrong room. This is exactly what institutions are looking for. So tokenization is in full swing now, and regulated assets often require a refund option . If we want to see RWA issuers interact with privacy protocols as a first-class primitive, they must have refund options. So this menu is just a starting point.
This allows you to compose the type of compliance you need for your asset, for your service. If you're in this room and this menu offends you, come talk to us. We can, uh, work on this . Uh, it's still under construction. We need your help.
So to wrap this up with cryptocurrency, we're pre-building privacy. At first it was ideology, but that is not enough. Institutions need confidentiality, and that's much more complicated. There is no single answer, and that's okay. Privacy is a spectrum.
The right approach is transparency first. Keep the base level open. Provide low-level building blocks and build customizable privacy on top. Confidential tokens Confidential tokens , private payments, all the administrative functionality you need. And finally, all the building blocks are in place.
So, we have a non-hostile administration in the United States. We have institutions that are ready to be created at the negotiating table. And more importantly, the technology is ready and has been ready for quite some time. So there are no excuses. We are building non-chain privacy into Stellar.
If this interests you, come talk to us. Thank you very much.
Automatic transcript — names and jargon may be misspelled.