Which privacy service fits the needs of the crypto market?

Coinbase CEO, hedge fund A16Z, and top names in the industry see privacy as a must-have trend in the crypto market. Different from previous years when there were only a few prominent names like Monero, Zcash or Tornado Cash. Currently, breakthrough privacy services have gradually appeared and are able to meet the real needs of the market. 

The article will analyze privacy services including: Mixing service, Privacy coin and infrastructure solutions. 

Mixing service

Imagine you put 100 thousand VND (BTC, ETH, ...) into a piggy bank (mixing service). That 100k is now mixed with many other coins. After a while you take out that 100 thousand secretly, it is very difficult for others to know who took the bill. 

Mixing service is like a piggy bank, but users can only take away exactly or less than the amount they deposited. 

Advantage:

The working mechanism of the mixing service is quite similar to sending money to CEX exchanges and then sending money from CEX to another wallet and it is difficult to be tracked. However, the big difference is that with CEX, users have to KYC, and with mixing service, users will not need to do any procedures. 

Defect:

The nature of a mixing service is a repository of assets, so there is a possibility that they will be attacked and cause property damage to users. The piggy bank can be stolen. 

Another disadvantage of mixing service is capital efficiency. A piggy bank has only 1 500k coin and if that bill is taken out, everyone will know who took it. Therefore, if the depositor wants to withdraw, the depositor must wait for the piggy bank to have another 500 thousand bill or have to divide the withdrawal into several times. 

Typical projects 

The iconic project in the mixing service space is Tornado Cash ($TORN). More than 3.6 million ETH and over $7.8 billion have been deposited into the project to date, showing that the demand for privacy in the market is huge. 

However, after strict sanctions from the US in August 2022, the amount of assets loaded into the platform has decreased significantly, from a few tens of millions of USD weekly deposited / withdrawn to several million USD. This shows the US government's not-so-good attitude towards privacy projects. This is a risk factor that users must consider if they want to use or invest in similar projects in the future. 

Privacy Coin

Privacy coins are coins developed to ensure user privacy. The transaction information of the coin is difficult to track. Typical privacy coins can be mentioned as Monero, Zcash, etc. Each type has a different privacy protection mechanism.

Advantage: 

The privacy security of privacy coin projects is at a high level. Zcash and Monero themselves have been around for a long time in the market and have been technologically proven.

Defect:

Similar to Bitcoin, these networks do not support smart contracts and can only be used to send between addresses. Therefore, the problem of increasing the acceptance of privacy coins is being put on top. 

Infrastructure solutions

More and more infrastructure solutions are being developed to address the disadvantages of the above services. They not only help secure privacy, but also increase flexibility and capital efficiency for users. 

The two most popular types of solutions today include: 

1/ Create a layer 1 blockchain that supports smart contracts and ensures privacy like Secret Network, Aleph Zero,...

2/ Create a layer 2 that provides privacy services like the Aztec Network does with Ethereum. 

Blockchain layer 1 supports smart contracts and ensures privacy

Aleph Zero 

The mainnet ecosystem has been around since December 2022 and there have been a few development projects, but due to the short launch, the quality of the projects is not too good.  

Secret Network 

Secret Network has been mainnet since 2020 and developed for themselves many dapps. However, the ecosystem does not do well in attracting users. The value of the locked assets on the network has been steadily decreasing and is now just over $5 million. 

Secret Network was also involved in many controversies related to the fact that the founder of the project had secretly sold a significant amount of the network's $SCRT token, which angered the community. Many validators have stopped cooperating with Secret Network after that incident. 

The layer 1 blockchain solution makes the project more flexible with the direction of development. However, developing something new requires the project to build a community network from the ground up. This is very difficult and prominent projects like Aleph Zero and Secret Network are still struggling with the problem of attracting developers and users.

Layer 2 provides privacy service

Aztec Network 

Aztec Network is a layer 2 that does not support smart contracts using zkRollup technology . The way Aztec works is quite similar to mixing service. Users will deposit assets into Aztec, that assets are mixed with other people's assets making it very difficult to track. 

However, Aztec is different in that users can use Aztec to participate in other activities. 

For example: 

• A wants to private stake 1 ETH on Lido. 

• A deposited that 1 ETH on Aztec

• A uses Aztec to stake ETH on Lido. 

• Aztec gathered orders from A and 10 others. 

• Aztec sends that total ETH to Ethereum and stakes on Lido

• A can withdraw that 1 ETH one by one without anyone knowing.

This not only helps to ensure privacy (mixed assets), optimize user experience (direct use of dapps from Aztec) but also increase capital efficiency (split transaction fees if needed) many people need to use 1 dapp).

Aztec Network has successfully raised more than 191 million USD after many rounds from many famous investment funds and is being integrated for many leading crypto projects.

What are the Cex plans in mind to retain and attract more users?

In the previous analysis of CEXs , when their positions were threatened, they began to find new solutions to keep the momentum going. The solution chosen by the CEXs at that time was to promote communication to promote the name with the new user file. 

Is that the right move? Has the picture of the CEX market changed and what is the plan that CEXs are planning in their heads? Find out below.

General context of crypto exchanges

In 2022, the high inflation rate caused the Fed to raise lending rates. This has had a strong impact on the market, only in January 2022, the market has evaporated 500 billion USD. 

In the months that followed, a series of names collapsed, giants like Terra (LUNA), Three Arrows Capital, Celsius and especially FTX also fell . The picture of the CEX market has changed markedly. The leader of Binance is increasingly consolidating his position with an average trading volume of about 70% of the entire market. 

The macro impact, the collapse of FTX, and the increasingly complete on-chain ecosystem have made CEXs return to the original problem of what to do to retain and attract more users. The method of promoting communication only solves the top but does not solve the internal problem of the lack of breakthrough products.

It's time for CEXs to return to focusing on developing their own platform. 

Platform development strategy

In 2022, the high inflation rate caused the Fed to raise lending rates. This has had a strong impact on the market, only in January 2022, the market has evaporated 500 billion USD. 

In the months that followed, a series of names collapsed, giants like Terra (LUNA), Three Arrows Capital, Celsius and especially FTX also fell . The picture of the CEX market has changed markedly. The leader of Binance is increasingly consolidating his position with an average trading volume of about 70% of the entire market.

The macro impact, the collapse of FTX, and the increasingly complete on-chain ecosystem have made CEXs return to the original problem of what to do to retain and attract more users. The method of promoting communication only solves the top but does not solve the internal problem of the lack of breakthrough products.

It's time for CEXs to return to focusing on developing their own platform. 

Platform development strategy

Below is a summary of the notable moves of the top CEXs in 2022 and early 2023: 

Specifically:

Binance

• Accelerate your security and legal activities, and hire more staff around the world.

• Launching many new features for trading

• On June 1, 2022, Binance Labs established a $500 million investment fund 

• November 9, 2022, inject more money into SAFU insurance fund to keep the 1 billion USD mark for the fund. 

• November 24, 2022, announced a $1 billion Industry Recovery Initiative (IRI) relief fund to help struggling companies in the industry. 

• On November 25, 2022, the Proof of Reserve tool was launched to help users check the exchange's reserve assets.

Coinbase

• Stepping up lobbying activities with American lawmakers, laying off a large number of employees to fine-tune the apparatus. 

• Launching many new features for trading and Coinbase Wallet 

• February 23, 2023, announced the development of Base, a layer 2 solution on Ethereum using Optimism's Op Stack technology. 

• March 8, 2023, announced the launch of Wallet as a Service, allowing companies and organizations to use Coinbase's wallet tool to bring users to the web3

OK

• Changing the brand and logo, promoting communication campaigns through sponsorship activities large and small

• Launching many new features for trading and OKX Wallet 

• November 17, 2022, announced the $100 million market recovery fund. 

• November 23, 2022, Launched Proof of Reserve tool to help users check the exchange's reserve assets.

• February 16, 2023, announced the launch of OKBchain, a new blockchain developed and operated by OKX and completely separate from the previous Okxchain.

Kucoin

• Recruit more employees worldwide

• Launching many new features for trading and Kucoin Wallet

• December 6, 2022, Launched Proof of Reserve tool to help users check the exchange's reserve assets.

Bybit

• Cut 30% of personnel to fine-tune the apparatus

• Launching many new features for transactions and Bybit Wallet

• November 24, 2022, announced the $100 million market rescue fund. 

• On December 10, 2022, the Proof of Reserve tool was launched to help users check the exchange's reserve assets.

• January 27, 2023, donate $134 million to BitDAO, the decentralized autonomous organization closely related to Bybit.

• Bitdao is responsible for developing the Web3 ecosystem. The organization has poured 200 million USD to develop the zkSync layer 2 ecosystem, self-developed Mantle Network, a layer 2 on Ethereum.

The current top CEXs all spend a lot of resources on product development instead of following media programs. In addition to Binance with the BNB chain, other CEXs such as Coinbase, Okx, Bybit are all developing new networks directly or indirectly. Is this a preparation for a new playing field among future CEXs, where competition will take place on-chain? 

Increase attraction value for

CEX token was created to provide certain benefits to the holder. In addition to the typical benefits such as transaction fee discounts, participation in events like IEOs,..., a benefit that is very relevant to the current development context is becoming a token of the ecosystem like BNB in ​​BNB chain. If the on-chain ecosystem flourishes, the CEX token will attract a lot of value. 

Some data showing that CEXs are focusing on developing on-chain ecosystems include:

Binance and BNB chain development plan

Although the CEX empire has the most users currently, the number of users from the Binance exchange willing to transfer assets to the BNB chain is not large. The reason is that the network still lacks quality projects that can attract cash flow. 

However, with spending a lot of money on investment packages as well as market relief (which is essentially an investment), it is likely that many quality projects will appear on the BNB chain in the future. 

CZ himself also mentioned DeFi on the BNB chain, proving that this is an area that has not been forgotten.Coinbase and Layer 2 Base on Ethereum

The launch of layer 2 Base shows a big bet by the largest US cryptocurrency exchange on Ethereum.  

Coinbase has announced that it will not launch the token. Coinbase also has grounds for this announcement because they are a publicly listed company in the US. Issuing a related token will most likely land them in lawsuits with the SEC.

However, in the past, many projects have also announced that they will not launch tokens but actually "turned over." This is a completely possible possibility in the future if there is more openness from the government. It is also hard to deny the huge revenue for any crypto organization from the issuance of tokens. 

OKX and OKB chain, a new network with “planning”

In the past, OKX also launched Okxchain, which is a fully open source and community-built network. But just following the trend without a methodical roadmap has made the network unattractive to users. 

The new network OKB chain is developed and operated by OKX itself and completely separate from Okx chain. It is highly likely that the OKB chain will have a more methodical roadmap and be developed by OKX with a lot of resources. However, will this affect the open nature of the blockchain and what will OKX have planned with the OKB chain? 

Intimate relationship between Bybit and BitDAO

Bybit is one of the founding members of BitDAO and is a major contributor to BitDAO's fund to help the organization operate. BitDAO's BIT token also has a similar use to BNB on Binance. Owners will have many incentives when participating in floor activities.

With so much money pouring into BitDAO's zkSync and Mantle Network, does Bybit have any plans to create value from here in the future?