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Data confidentiality refers to safeguarding data from accidental, unauthorized, or unlawful access, disclosure, or theft. It is a fundamental security service for data protection. The privacy of information, as well as permissions to see, distribute, and utilize it, are all aspects of confidentiality. If disclosed to a wider audience than it was meant for, information with little confidentiality concerns may be deemed "public" or generally non-threatening. High-confidentiality information is regarded as secret and must be kept private to avoid identity theft, account and system compromise, reputational harm, and other serious repercussions.

Examples of data with high confidentiality concerns include:

• Social Security numbers, which must remain confidential to prevent identity theft.

• passwords, which must remain confidential to protect systems and accounts.

It is important to note that regulatory compliance is one of the main forces behind data management. Standards for data confidentiality are determined by national and international laws and regulations, which are then enforced. However, every firm that deals with sensitive data is expected to prioritize data confidentiality in addition to adhering to compliance standards for the straightforward reason that trust is the foundation of all partnerships.

Customers, study participants, partners, and vendors are just a few examples of sources that produce data, and they all want to know that their private information is secure. Reputations and brands suffer irreparable harm from data breaches that jeopardize data confidentiality. The guarantee of data secrecy multiplies the favorable opinion of an organization. It is safe to presume that the requirement for confidentiality exists with this phenomenon.

Why is Confidentiality important to integrate into the blockchain?

Blockchain technology's promise of decentralization, justice, and transparency plays a significant role in its appeal. Incorporating confidentiality for particular data/transaction types would go a long way toward helping the blockchain maintain its stance as the biggest change the internet will ever see. Transparency, however, comes with a lack of privacy as it allows the public to have a full view of interactions on the blockchain, which is both a curse and a blessing. True privacy is more difficult to accomplish, even though transactions and messages on the blockchain can be pseudonymous. Few people want their personal information, including financial transactions and medical records, to be broadcasted publicly in an encrypted form.

Furthermore, to comply with the General Data Protection Regulation (GDPR) framework in the European Union, no private data should be kept on a permissionless, public blockchain. This is done to guard against the future risk of decryption. These privacy and data security concerns on a blockchain must be resolved for a blockchain to be more widely used in real life. Using technology infrastructure to support data privacy on the blockchain is one method of allaying these worries.

Technologies that help achieve confidentiality on the blockchain

Technology has become a driver of the world as we know it and data confidentiality isn’t left out, below are two major technologies deployed to achieve confidentiality on the blockchain:

1. Zero-Knowledge Proof

Mathematical formulas are used in zero-knowledge proofs (ZKPs) to confirm the accuracy of information without revealing it. One can utilize a ZKP and avoid directly sharing the data with the other party if they need to demonstrate to another party that they are in possession of a certain piece of private information. ZKPs evaluate unconnected and inconsequential pieces of data to mathematically demonstrate that the presence of the entire set of data is extremely plausible, in contrast to conventional cryptography approaches that inspect, encrypt, and send the entire piece of data. ZKPs stop nefarious third parties from intercepting anything of value by simply requiring the conveyance of little, unimportant bits of information.

ZKPs requires the fulfillment of three conditions:

  • Completeness: The whole set of data that the prover claims to possess must be proven to exist by the verifier.
  • Soundness: Without the necessary data, the challenges that the verifier uses to verify the prover's claims cannot be finished.
  • Zero-Knowledge: The prover and the verifier are not permitted to exchange any of the actual private information.

Applications of Zero-Knowledge Proofs.

The ZKP framework was created by MIT academics in the 1980s, but hasn't seen much use since then. To lessen the amount of data accessible on the blockchain and enhance the security and privacy of bitcoin transactions, developers have started introducing ZKPs.

To encourage the widespread adoption and standardization of ZKP technology, one group, the ZKProof effort, even established a global developer community. We will go over a few instances of how businesses have started using zero-knowledge proofs below.

Some Applications of Zero-knowledge proof infrastructure on the blockchain.

ZCash and Zk-SNARKs

The cryptocurrency ZCash uses ZKPs to validate transactions without disclosing the source of the money itself or any other private information, such as the amount transmitted or the identity of the intended receiver. ZCash users can demonstrate that they meet the requirements to execute a transaction without any contact between the prover and verifier by using ZK-SNARKs ("Zero-Knowledge Succinct Non-Interactive Argument of Knowledge"). As a result, ZCash transactions are totally private and safe.
Ethereum 2.0 and Zk-Rollups

With the use of zero-knowledge proofs, users can confirm Ethereum transactions in layer 2 and then publish the PoV (Proof of Validity) onto layer 1 using zk-Rollups, a technology designed to speed up transactions and lower fees.

User Verification

The identities of individuals can also be confirmed using zero-knowledge proofs. Think of a two-factor authentication (2FA) system that needs both a driver's license number and a social security number, for instance. In that situation, a ZKP algorithm can link together certain segments of the two and calculate the statistical likelihood that the person is who they say they are. The person can use this technique to verify their identification to the system while concealing their full social security and driver's license numbers.

Blockchain confidentiality is still being actively explored. Nevertheless, a number of use cases have been put into practice successfully.

2. Trusted Execution Environment.
Another technology that helps drive confidentiality in the blockchain is the trusted execution environment (TEE) and is when a portion of a device's main processor is isolated from the system's primary operating system. It makes sure that data is handled, processed, and safeguarded in a secure setting. Through the creation of an isolated, encrypted electrical structure and the implementation of end-to-end security, TEE offers protection for any connected "object," such as a trusted application (TA). Confidentiality, authenticity, privacy, system integrity, and data access rights are all included in this. It also covers the execution of authenticated code.

Although a TEE is isolated from the rest of the device, trusted applications running in a TEE often have access to all of the processor and memory resources that are available. Additionally, the TEE encapsulated apps will be kept apart from one another via software and cryptographic operations. A TEE can be configured to only accept codes that have already been approved.

Here are possible use cases from the deployment of Confidential Technology on the blockchain.

Know your customer (KYC) statements that banks have gathered may be kept in a blockchain. Numerous international banks have tested this with success. A bank can store the same data from a new customer's KYC in a blockchain so that other banks and other authorized entities can utilize it after receiving it (i.e., insurers, and loan providers).

Fraud management: The blockchain ledger may give historical records of each data element in the entire blockchain as well as the compliance actions done for each banking customer. If authorities inquire about this, it means that the bank has complied with all applicable regulations.

EHR programs— The compilation of patients' electronic health information is what is widely known as the electronic health record (EHR) (e.g. in the form of electronic medical records – EMRs). EMRs can be used as a data source for EHR, mostly from medical institutions' healthcare providers. The patient's wearable devices and other personal health information are included in the patient's personal health record (PHR). Users and healthcare providers may have access to the data that PHRs collect

Traceability: By mapping and visualizing enterprise supply chains, it increases operational efficiency. Consumers are becoming more and more interested in product sourcing information. Blockchain enables businesses to comprehend their supply chain and interact with customers using authentic, verifiable, and unchangeable data.

As one of the best web3 use cases, digital infrastructure improvements rely on the protection of users’ personal data.

Image from: https://blog.chain.link/zero-knowledge-projects/


Web3 has increased the design freedom for applications with better privacy. Given the significant data breaches in web 2.0, data safety is undoubtedly one of the key highlights among numerous web3 use cases. With web3, you may now access a variety of applications that will improve the security of your data.

Additionally, the web3 use cases for privacy and advancements in the digital infrastructure may enhance regulatory compliance. Users that are reluctant to share personal information with a blockchain application or service can benefit from privacy layers. Web3 will therefore undoubtedly be essential in making the road to regulatory compliance in blockchain networks easier and risk-free.

Why Decentralized Finance Systems may need to Evolve for deployment of confidentiality.

Even though the blockchain has been successful in achieving decentralized record keeping, speed of transactions, and other outstanding Dapps that are created every day using the blockchain, it is essential to manage some level of data visibility, particularly given the need for institutionalized adoption. Although one of the things that made the public blockchain trustworthy was its transparency, it has a lot of disadvantages.

While a lot of information is better kept private, other data should be made available for public verification. The exchange of a digital token, such as an equity token, is one of them. To guarantee that the amount being transacted and the parties involved in each transaction stay secret, it is crucial to include a privacy layer. This problem is resolved by ZKPs. Order front-running issues can be readily avoided when all relevant transaction information is concealed. Additionally, if an audit of a specific order is ever required, this functionality can be added.

For instance, the best execution of an order can be confirmed in terms of asset settlement without revealing the entire order book. As a result of the automated verification method, an effective audit approach is possible. The likelihood of disagreements between counterparties will be reduced as a result. Additionally, if necessary, it enables the exchange operator to conceal critical data. Both centrally managed and decentralized exchanges can use this technology. This is especially important right now because some exchanges are creating their own decentralized, blockchain-based alternatives.

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