Layers Of Privacy In Crypto: What Hinkal Has To Offer

Hinkal’s solution enables the protection of users’ privacy on multiple layers.

Introduction

The term privacy in Crypto and DeFi is an abstract concept. It includes multiple layers - each layer covering a different aspect of a user’s on-chain activity. We can break it down into 4 distinct categories:

1. DID Privacy. Decentralized Identifiers (DIDs) allow users to authenticate their identity on the internet without divulging personal information to various websites or applications.
2. Transaction Privacy. A privacy protocol can provide confidentiality of transactions by shielding the user’s assets and executing the transactions on their behalf.
3. Remote Procedure Call (RPC) and IP Privacy. A private RPC allows the user to interact directly with a node provider. With a private RPC provider, the user avoids the exposure of their IP address to public providers.
4. Privacy in the mempool. Privacy in the mempools ensures that the content of the submitted transactions for validation is not used at the user’s expense.

Let’s have a closer look at each category.

DID Privacy

Decentralized Identifiers (DIDs) provide online identification without relying on a central authority, such as a government or a company. They function like a digital passport under your control, instead of one issued by an external entity or authority.

Transaction (wallet) Privacy

Transactions in crypto are publicly visible. As a result, all transaction activity can be traced back to the wallet address. This can lead to potential targeting from bad actors with the sole purpose of profiting at your expense by copy-trading, front-running, or directly hacking you. A privacy protocol can provide confidentiality and untraceability of transactions by shielding the user’s assets and executing the transactions on their behalf.

RPC / IP Privacy

RPC is the communication protocol used by services like wallets and dApps to engage with the blockchain. EVM-compatible networks offer a variety of public RPC providers for users to select from. However, RPC providers can also inspect, store, and digest your data like tying IP addresses with wallet addresses. Users can avoid this by setting up a private RPC or using a trusted third-party provider.

Privacy in the mempool

The memory pool (mempool for short) serves as a waiting area for transactions to be included in a block. A trader wishing to execute a swap will have to submit this transaction into the mempool and wait for it to be validated and submitted into the next block. This allows node runners/block creators to take advantage of the information about future swaps and perform Maximal Extractable Value (MEV) attacks. By manipulating the order of transactions submitted, they profit at the expense of the traders. Privacy in the mempools can be achieved by revealing the content of the transactions submitted only after their submission is final.

It becomes clear that preserving users’ privacy becomes a complex task, requiring an innovative solution.

How can privacy be achieved?

A complete solution for preserving users’ privacy in DeFi should provide confidential transactions while at the same time maintaining their personal information undisclosed.

1. Personal Information: A protocol providing on-chain privacy to its users should take the necessary steps to prevent any illegal parties and bad actors from accessing it. To ensure that, an attestation from DID/KYC(B) institutions or protocols is essential. Through zero-knowledge proofs (ZKPs), users can validate that they have completed the process without revealing their personal information. Thus they can keep their Personal Identifiable Information (PII) confidential.
2. Transactions: By using private shielded pools and relayers, users can deposit their assets and have their transactions executed on their behalf. As a result, their funds and their transaction activity stay completely hidden from the public, while keeping full custody. Crypto holders of substantial amounts of tokens like institutions and whales are enabled to execute their trading or yield farming strategies through a relayer, without being the target of exploiters.

Hinkal’s privacy protocol

Hinkal is a multi-chain privacy layer that facilitates private trading and yield farming strategies on EVM chains. It enables both liquid funds and retail users to create private accounts and transact on all the major decentralized applications (dApps) with complete confidentiality.

DID privacy and KYC(B) on Hinkal

Before accessing Hinkal’s functions, an Access Token is required. To mint it, all users need to prove an attestation from major CEXs/custodians or DID/KYC(B) providers. During this process, a ZKP is generated, meaning no personal information is revealed. If a user has no attestation, they can complete the verification through partner KYC(B) protocols or Coinbase/Binance, depending on their preference. Attestations from DID protocols are also supported which enables users to keep their personal information private.

How Hinkal achieves transaction privacy

After users mint their access token, they can now deposit their funds into the protocol. Relayers, stealth addresses, ZKPs, and a multi-asset shielded pool are utilized to provide users with complete confidentiality in their transactions.

By depositing into the shielded pool, users hide their assets and transaction activity from the public. All transactions take place through a relayer that executes the transaction on their behalf, returning exchanged assets back to private addresses inside the smart contract. Assets remain in the user’s full custody while they can interact privately with major dApps within a single UI. For each transaction to be initiated, ZK proofs are generated to prove ownership over the funds without revealing the identity of the owners. After a transaction is completed, any overhead fees paid by the user to cover the gas costs are returned through the use of stealth addresses.

Hinkal’s privacy on the mempool

To provide complete financial privacy in DeFi, the content of the transactions should remain undisclosed. Untraceable transactions, when submitted into the mempool waiting for validation, could still be a target of MEV attacks.

To reduce the risk of MEV attacks and profit loss, users can adjust the slippage tolerance for their transactions. By lowering the slippage tolerance, their transactions are less likely to be targeted for this kind of attack. However, this method does not provide complete MEV attack mitigation. Tools that aim to safeguard the profitability of the transactions of its users will be integrated. This can be achieved by:

1. Not revealing the content of the transactions until this information can’t be exploited.
2. Return any possible profits from MEV back to the users.

Conclusion

Privacy in the crypto space and DeFi is a multifaceted challenge. It is comprised of different aspects interconnected with each other. Hinkal, as a privacy protocol, is focused on the layer that is driven more from the financial standpoint, rather than the cultural. It ensures that your assets and transactions are visible only to you. In the future, Hinkal will add additional layers, like MEV Protection, providing a more thorough and complete approach.