When it comes to the discussion of privacy in cryptocurrency versus blockchain, many people misinterpret this to mean hiding or evading government regulations. Privacy is an integral part of any wide scale financial system, and all traditional finance relies on the ability to keep personal information private and to maintain a level of trust in the overall market. Thus, as blockchain technology evolves and matures it needs to also be able to comply with the standards associated with these types of expectations (i.e., all financial systems have legal obligations with regards to protect client confidentiality) that are upon any financial system operating at the scale.
With that being said, Dusk Network takes privacy into account as an enabler of education through outreach and autocorrecting processes rather than avoiding oversight through the usage of privacy. Dusk has been designed to reflect the way traditional finance operates with respect to protecting clients, and Dusk allows for the disclosure of sensitive information when a legal obligation is placed upon a company (such as in situations where there is legal authority to disclose). The idea behind this philosophy allows Dusk to be a bridge connecting the forthcoming transition of blockchain into a regulated market and financial institution with real-world assets and trades.
Why Dusk Solves the Transparency Problem of Public Blockchains
The current trend in blockchain technology seems to be towards complete openness for all users. This allows anyone to verify transactions and see which accounts hold which amounts, however this type of openness creates a number of problems in the context of government regulated financial services. Financial regulations imposed on all countries require a high degree of confidentiality to prevent market manipulation, to protect consumer privacy and to create a fair marketplace for competing businesses.
As an example, if an institution chooses to trade, issue securities, or settle an asset and all details about those activities would be exposed through the blockchain in real-time; this would provide the ability for every other institution or person in the ecosystem to follow their lead and use this information for nefarious purposes, such as manipulating the market, taking precedence over fellow institutions through front-running transactions, or gathering sensitive business information.
Dusk provides the means to address this barrier directly by incorporating privacy into the Protocol allowing both transactions and smart contracts to be both confidential and verifiable. As a result, both institutions and their customers can transact on-chain without exposing their sensitive financial information to everyone else. Dusk demonstrates that a Protocol can provide the needed level of transparency without needlessly exposing the personal data of its users.
Selective Disclosure and Dusk’s Compliance-First Design
Dusk’s approach to selective disclosure is one of its most significant features. Regulators do not require all transactions to be publicly viewable but want to ensure that they can verify compliance with regulations, audit transactions, and enforce regulations if required. The way Dusk accomplishes this is through the use of sophisticated zero-knowledge cryptography.
Because of this, users of Dusk can provide proof that their transactions are compliant with regulatory requirements without disclosing any information about who made the transaction, how much was transacted, or which strategies were utilised. For example, a company may issue tokenised shares on Dusk and provide the necessary evidence that it complied with all limits imposed by regulators regarding both ownership of tokens and those who are eligible to invest in those tokens while keeping the investors' information private. Audit firms that verify this can do so without needing access to all of the sensitive information associated with the individual investor.
This process mirrors the nature of compliance in traditional financial systems and, as such, aligns Dusk with existing legal compliance processes. Furthermore, while privacy features available to users of Dusk do not inhibit the use of regulation, they enable regulatory activity to take place privately on-chain.
Dusk as Infrastructure for Institutional and Regulated Finance
Dusk was specifically designed for practical financial applications. It allows for the creation of confidential smart contracts, the ability to create private asset classes, and the creation of a compliant ecosystem of DeFi primitives. All these features enable use cases like the issuance of tokenized securities, creation of regulated marketplaces, and institutional settlement systems.
Dusk is unlike many other networks that have attempted to add privacy to previously established networks because Dusk was always designed with regulated environments in mind. There are no centralised permissions for using Dusk, nor does it rely on intermediary entities that can be trusted. Therefore, it provides the benefits of decentralization while still being compliant with privacy, auditability, and regulatory compliance.
As a result, Dusk is particularly appealing to banks, asset managers, and other large enterprises looking to adopt blockchain technology. Dusk provides a true pathway for institutions to migrate to the on-chain eco-system without breaching their legal obligations or compromising sensitive data.
Dusk and the Future of Lawful On-Chain Finance
The development and service of a commercial blockchain in conjunction with the actual economy will produce a strong future for both parties who embrace the use of blockchain. It should be noted that Privacy is a Fundamental Requirement for conducting business or operating legally on the blockchain.
Dusk Network understands this need and supports it through building infrastructure based on how finance operates today. Dusk implements a new compliant standard through the combination of Confidentiality, Selective Disclosure and Decentralization.
As blockchain technology becomes increasingly adopted for use by businesses and institutions, Dusk Network will emerge as the long-term network of choice for compliant utilization.
