Creditcoin (ctc) 
The Cryptocurrency Industry’s Dirty Little Secret: Transaction Privacy
The cryptocurrency industry has long been aware of the importance of security, but there’s another critical issue that has been overlooked for far too long: transaction privacy. The lack of privacy in cryptocurrency transactions has led to billions of dollars being stolen through front-running and sandwich attacks.
The Daily Heist
Every day, billions of dollars in cryptocurrency transactions flow through public mempools, waiting to be processed. Sophisticated bots scan these transparent pools for profitable opportunities, extracting value through front-running and sandwich attacks. These attacks happen thousands of times every day, with powerful entrenched players systematically extracting value from normal users.
Betrayal by Design
The inherent transparency of public blockchains, often hailed as a feature ensuring accountability, has become a fundamental vulnerability. When every pending transaction is visible to all participants, those with the fastest bots and strongest connections can exploit this information asymmetry to their advantage.
The Response from the Industry
The industry’s response to this issue has been inadequate, shifting trust from protocols to intermediaries in a misguided attempt at privacy. Centralized solutions that create private transaction channels merely privatize the problem rather than solve it, undermining blockchain’s foundational principles of decentralization and permissionless access.
Leveling the Playing Field
The real solution lies in advanced cryptography, specifically in threshold encryption systems. By encrypting transactions in the mempool through threshold encryption, we can create a system where no single participant can unilaterally access transaction details before execution, eliminating the information advantages that enable malicious MEV extraction.
How Threshold Encryption Works
- Users submit transactions that are encrypted with a public key generated collaboratively by the network’s keyholders.
- These encrypted transactions sitting in the mempool are immune to front-running because their contents remain hidden.
- Only after a transaction’s position in a block is finalized do the keyholders release their shares of the decryption key, allowing the transaction to be processed.
Restoring Trust
Threshold Fully Homomorphic Encryption (threshold-FHE) and Indistinguishability Obfuscation (IO) promise to enable computation on encrypted data directly, potentially changing the entire paradigm of blockchain computation. These developments represent a small component of a much bigger path towards a more private future.
Privacy isn’t about hiding or obscuring—it’s about having the power to decide what information you share, when you share it, and with whom.
The mathematics and cryptography to solve this exist today. The question is whether we have the vision to start using them and the will to ensure that our technology reflects the principles and values that our industry was founded on.
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