Published: October 11th, 2021
SiennaSwap is bringing anonymised trades to the decentralised finance (DeFi) space, giving crypto traders privacy-protected transactions and stopping unfair front-running.
With the launch, Sienna Network hopes to set the foundations for a new ecosystem of privacy-focused DeFi products. The first will be a Uniswap-inspired decentralised exchange (DEX) named SiennaSwap.
The SiennaSwap DEX enables traders to swap ‘secret' versions of popular tokens like Cosmos and Ethereum, then convert them back on the platform anonymously. For now, the available assets are limited to bridges already established by the project, which explains why there isn’t (yet) a secret version of bitcoin on offer.
The bridges available currently are to Monero, Binance Smart Chain, Polkadot, Ethereum, and Cosmos. Amongst those assets, traders can create as many pairs for swapping as they like.
Since the exchange is built on top of the Sienna Network platform, which in turn sits on top of Cosmos’s own Secret Network, interoperability is expected to expand once Cosmos completes the upgrade of its Inter Blockchain Communication (IBC). It's designed to allow blockchains with different consensus mechanisms, like proof-of-stake (PoS) and proof-of-work (PoW), and enable them to integrate with other Cosmos-based services.
Basing the DEX on Cosmos also promises to keep gas fees low, said Bill Mumford, an analyst at a blockchain data firm Chainalysis. ‘The protocol Sienna Network uses is scalable, which means transactions are confirmed almost instantly, which in turn keeps gas fees low. The firm says the typical transaction fee on Sienna Network is roughly USD two cents, a fraction of the cost of mainstream ethereum-based services.
Arguably the most significant trading cost the SiennaSwap DEX hopes to eliminate is front-running, when traders jump to the front of the line and firm up lucrative trades before others, something the Sienna Network’s privacy features inadvertently enable.
‘Getting rid of front running means SiennaSwap’s true cost is reduced again since users will no longer have to compete with traders who can afford to front-run their trades. Front-running is becoming a serious issue on other decentralised exchanges, where the use of bots to monitor pending transactions and leap past them is growing,’ says Mumford.
Because bitcoin addresses process transactions with pseudonyms that don’t reveal personal information, crypto trades are often perceived as private and anonymous, but that isn’t exactly true. Blockchain technology stores the complete history of every transaction and displays it publicly, meaning investigators can use software to link individual identities based on the movement of coins and metadata gleaned from internet usage.
Meeting demand for ‘real’ transaction privacy is what SiennaSwap hopes to achieve. That desire for anonymous trading is also feeling the growth of so-called privacy coins: cryptocurrencies like Dash (DASH), Zcash (ZEC), and Monero (XMR) that use different cryptographic techniques to blur transaction details that could identify the counterparties at one or both ends of a trade.
Privacy coin advocates say they have perfectly legal applications, enabling anyone who wants to stop oversight by external parties and better control over what data they choose to share. Ultimately, privacy coins seek to bring the privacy benefits of physical cash to the digital economy.
There is an underside, however, as privacy coins also emerge as a medium for paying ransomware blackmail, facilitating money laundering, or being used for illegal transactions. They’ve attracted the attention of police and regulators s a result.
Different privacy coins operate differently, but they’re all designed to do essentially the same thing: mask personally identifiable information (PII) like addresses or amounts transacted. The aim is to make it very difficult, if not impossible, to string together enough info to name the counterparties in a trade.
Some privacy coins generate a single-use address for each new transaction. Called a stealth address, they de-link the online activities behind a transaction from their source address. A second technical approach called Zero-Knowledge Succinct Non-Interactive Argument of Knowledge (zk-SNARK for shirt) uses advanced cryptography techniques to hide personally identifiable information.
Other coins like Monero use ring signatures. These connect multiple user addresses to sign transactions anonymously and hide which addresses have agreed them. A Harry-Potter-inspired technique called Mimblewimble streamlines the blockchain to store only a compact history that doesn’t reveal users’ PII to the public.
A fourth technique uses a process called CoinJoin, whereby transactions from various senders are mixed together. The system then disburses the money across recipients to further obfuscate who sites on every side of a trade or transaction.
Monero is the privacy coin with the widest circulation, as well as the biggest market capitalisation of any name on the list. It began its life in 2014 as a fork from Bytecoin, one of the first attempts at building a privacy coin. Monero anonymises personal information like transaction amounts or sender and recipient. It uses a mix of privacy techniques, including both single-use addresses and ring signatures, to confound attempts at tracking. Unlike bitcoin, every Monero coin is fungible. Without a traceable history, one is indistinguishable from another.
Dash was originally forked from bitcoin to add more anonymising features to the original cryptocurrency. The Dash protocol uses ConJoin to blend multiple transactions and obscure potentially identifying details. Dash also makes its added privacy capabilities optional and offers an ‘instant send’ feature that confirms transactions within two seconds. Dash has gained popularity under the pandemic, especially in countries where inflation has skyrocketed for their state-issued currencies.
Zcash is a Bitcoin copycat that uses the zk-SNARKs method to ensure that every condition for a valid transaction is met without exposing data that could identify the counterparties. Zcash offers several different transaction privacy options, from fully public to completely private. On paper, at least, that makes it more regulator-friendly than Monero, while privacy fans can take advantage of extra features in shielded transactions like secret memos.