Secret Network (SCRT) Review: Privacy Meets Compliance
Since its creation, cryptocurrency has had a difficult task: balancing transparency and privacy. Once upon a time this balancing act was easy – transactions were publicly viewable but the people behind the addresses making those transactions were anonymous.
Today, there are dozens of firms which specialize in analyzing these transactions. Some governments are even on the cusp of making it mandatory to tie your personal identity to your crypto wallet. This degree of regulatory overreach has been rightfully seen as unacceptable by many in the crypto space.
However, the fact of the matter is that some degree of oversight is necessary if large institutions and the public are going to fully embrace cryptocurrencies. With privacy coins like Monero at one extreme and fully compliant cryptos like Stellar at the other, Secret Network is a cryptocurrency project that seems to have found the middle ground everyone has been looking for.
A brief history of Secret Network
Secret Network has its roots in another cryptocurrency project called Enigma. Enigma was founded in 2014 by MIT graduates Can Kisagun and Guy Zyskind. Enigma was a layer-2 scaling solution for Ethereum which added privacy to smart contracts.
Guy Zyskind was a research assistant in the MIT Media Lab prior to founding the Secret Network. He was the author of all the Secret whitepapers (which have over 2,500 academic citations) and remains as the CEO of SCRT Labs.
Can Kisagun has extensive experience in the business sector, having founded several companies of his own before co-founding the Secret Network.
On February 13th, 2020, the Enigma mainnet launched, which was then rebranded to Secret Network after a community vote held on May 16th. This may have been partially due to the bad press Enigma had received around that time; they were hit with charges by the SEC that February over their 2017 ICO.
Although Secret Network is technically a continuation of Enigma the project, Enigma MPC (the core development company, now known as SCRT Labs) is now just one of many parties involved with the project.
Tor Bair is a core contributor of the Secret Network. He completed his MBA at MIT with Can Kisagun which is how he became involved in Enigma. Prior to his post-graduate studies, Tor was a professional options trader. He also worked as an intern at Spotify and was a data scientist at Snapchat before going full time with Enigma in 2017.
What is Secret Network?
Secret Network is the first cryptocurrency blockchain to offer completely private smart contracts. This means that all smart contract inputs and outputs are completely encrypted. Transactions made on Secret Smart Contracts cannot even be viewed by the nodes running the Secret Network blockchain.
That said, Secret Network’s native SCRT coin is not a privacy coin. All transactions made in SCRT are publicly viewable just like those on Bitcoin or Ethereum. By contrast, Secret tokens issued on the Secret Network preserve privacy by default like Monero.
Secret Network believes that this balance of transparency and privacy is what is required for cryptocurrency to achieve mainstream adoption. It also unlocks multiple use-cases for cryptocurrency that were previous unavailable due to their transparent blockchains which could reveal sensitive information.
How does Secret Network work?
Secret Network was built using the Cosmos SDK. As such, it uses the Tendermint Byzantine Fault Tolerant consensus mechanism – delegated proof of stake.
Like Cosmos, Secret Network has a block time of 6-7 seconds and can process close to 10,000 transactions per second.
Secret Contracts are privacy preserving smart contracts built on the Secret Network. These are coded in Rust and compiled using WASM. All Secret Contract transactions are made inside Trusted Execution Environments (TEEs).
TEEs are used in many devices including smartphones and video game consoles, and act like a “black box” wherein it is possible to compute encrypted data.
Secret tokens on the Secret Network can be made using the SNIP-20 standard. As you may have guessed, this token standard is like Ethereum’s ERC-20 token standard except that all Secret tokens have their privacy preserved by default (balances and transactions). Secret tokens are used in Secret Contracts.
Secret token holders will have access to something called a Viewing Key which can be given to third parties to prove ownership of their secret tokens if necessary. This is to make it possible to comply with regulators if need be. The first Secret token is secretSCRT (recall SCRT is public by default).
The Secret Ecosystem
An interesting feature in the Secret Network is the Secret Bridges function. Basically, it allows holders of assets in Ethereum and the Binance Smart Chain to create a privacy-preserving version of their assets. These Secret Tokens can then be used on the DeFi space in the Secret Network, known as Secret Finance. Not all assets on those blockchains work though, so it pays to check in advance. They are also working on integrating with other blockchains such as Terra and Plasm. Note that Monero is live on mainnet now, and they've also integrated IBC.
The secret sauce to making this work is the 3 of 5 multisig authorisation process approach adopted by the Secret Network team. 5 appointed bridge operators monitor the network for new events. When something comes up, need a 3 out of 5 consensus by the bridge operators before the event can officially become a transaction that will be added to the blockchain.
Viewing keys are also used in Secret Finance, the DeFi arm of the Secret Network. In addition to using Secret smart contracts and issuing private Secret tokens, all this would be futile if the blockchain explorer itself reveals all the financial data of a wallet address. What Secret Finance does is to privatise that data, which can only be viewed by someone who has access to the viewing keys. This is so that regulators and auditors can be satisfied while still keeping the information private for your regular Tom, Dick, and Harry.
This also prevents front-running, where bad actors can see what kind of transactions are going on or waiting to be added to the blockchain, thus pumping up the gas fee to make sure their own transactions are listed first. The other risk is MEV, aka Miner Extractable Value, where the miners themselves decide which transactions to add to the blockchain, thus giving themselves an edge.
These are the functions that token holders can do on Secret Finance:
- Swap Secret Tokens
- Provide liquidity for Secret Token pools to earn attractive yields
- Exchange assets peer-to-peer privately within a sealed bid auctions
What's a blockchain without NFTs these days? The Secret Network is also jumping on the bandwagon and bringing its own flavour to this popular concept. The key differences between a regular NFT and as Secret one is, once again, the emphasis on privacy. This means private metadata like unlocking hidden elements that increases the uniqueness (and possible rarity) of the NFT, private ownership for individuals who don't want the whole world to know what they own through their wallet address, and access control, which gives creators the ability to do a view-only version of a NFT that comes with a watermark or thumbnail before buying vs getting the full version after the purchase.
It's probably this level of security that prompted Quentin Tarantino to launch his Pulp Fiction NFT project on the Secret Network. Having gained cult status throughout the years, the film has enough diehard fans to drive up the NFT price, especially as the content of the NFT is only available to be viewed by the NFT owner. It's like having the key to a special mystery box and being the only person who can admire its contents. Compare that to buying a public piece of artwork and having everyone know you bought it. These Secret NFTs are certainly not for those seeking bragging rights but for those who truly value their privacy.
Once you've gotten some Secret NFTs, head on over to Stashh, Secret Network's own NFT marketplace, to get some privacy-enabled NFTs. One of their more popular collections is Anons, where each NFT is a faceless person. The floor price is about $10,400 going all the way up to $73,000.
Secret Network Staking
Staking on the Secret Network can be done in two ways: as a validator or as a delegator. Validators on the Secret Network only need to stake 1 SCRT token to participate. However, there is currently a limit of 70 validators on the Secret Network. As such, to be a validator you must stake enough SCRT to rank among those top 70.
Delegators also only need to stake 1 SCRT token to participate. Both validators and delegators have an unstaking period of 21 days, though delegators can freely move their stake to another validator at any time. Staking rewards on Secret Network are currently 30% per year for validators, and around 22% for delegators.
To incentivize good behavior from validators and good judgement from delegators, the Secret Network has two types of slashing: soft slashing and hard slashing. Soft slashing occurs when a validator is offline for roughly 14 hours and results in a 0.01% loss in stake for both validators and delegators. A validator is also put in ‘jail’ and must manually rejoin the network.
Hard slashing occurs when a validator double signs a block and results in a 5% loss in stake for both validators and delegators. This would not be all that hard were it not for the fact that a validator is also ‘jailed forever’ – permanently booted from the network. This is called getting ‘tombstoned’.
Secret Network Governance
Everything about the Secret Network can be changed through community vote wherein 1 SCRT equals 1 vote. Each voting period lasts 2 weeks and occurs in two stages: proposal and voting. To table a proposal, 1000 SCRT worth of votes must be locked during the first week of voting.
For that proposal to pass, more than 33.4% of all SCRT must participate and at least 50% must vote in favor during the second week. Delegators can choose to vote differently than the validator they are staking on but will vote in the same way as the validator by default. All SCRT in vetoed votes are burned.
SCRT Labs is the organisation building the Secret Network. Their mission of wanting to create products that are privacy-first with decentralisation is taking a slightly different spin when compared to other blockchains such as Solana and Avalanche, where the focus is more on scalability and throughput. Not to say that the Secret Network isn't designed with scalability in mind, their calling card is really on the privacy end, which is what makes it unique in the blockchain space.
The team behind the Secret Network is known as SCRT Labs. 8 principles are named on their official website, ranging from administration to software engineers. A cursory view of their LinkedIn profiles show their expertise and focus in cybersecurity.
SCRT is the native coin of the Secret Network blockchain. It is used to for staking and governance on the Secret Network. SCRT has a theoretical initial supply of 150 million SCRT (more on this in a moment).
SCRT has an inflation rate of anywhere between 7-15% per year depending on what percentage of SCRT is being staked on the Secret Network (more stake, less inflation). This is to incentivize participation.
SCRT Price Analysis
Although SCRT has been available since February, it did not begin trading until mid-September when it was listed on Binance. SCRT took a gradual plunge during its first two months of trading, falling from 70 cents USD to a low of 25 cents in early November.
The price of SCRT has seen a pretty meteoric rise from its humble beginnings of about 50 cents to an all time high that almost touched the $10 mark in Oct 2021. Given that the Secret Network is still in the early developmental stages of the project, SCRT could continue to see some positive price action in the coming months (not financial advice).
Where to get SCRT cryptocurrency
If you are looking to get your hands on some SCRT, your best bet is Binance. The trading volume is fairly decent and if you play it safe, can offer some good gains. Gate.io is also a good consideration for USDT pair. If you're a DEX fan, you can give Osmosis a try by doing a paired trade wth ATOM.
SCRT cryptocurrency wallets
If you are looking for a place to store your SCRT, you currently have three options. The first is the Ledger Nano S and Ledger Nano X hardware wallets. The second is Math Wallet which is available for desktop and mobile.
Finally, you have the Keplr wallet, which is also used for staking on the Secret Network.
Roadmap and Recent Developments
Taking a sneak peek at their roadmap, there seems to be quite a number of exciting things coming up. Here are some of the highlights:
The mechanics of the lottery is based on PancakeSwap's Lottery function. Basically, users choose 6 digits for the ticket they buy. There is also bulk discount available for buying more. The winning ticket is matched in order of the numbers' appearance. For example, if the winning number is 398078, those who match on the first number ("3") gets a prize. If you match the first two numbers ("39"), you get a bigger prize. If you match on other numbers but not the first one, you get a nothing burger. Simple mechanics, and if the cost is low enough, can be pretty addictive because you want to get closer to guessing as many correct numbers as possible. Each round refreshes every 12 hours.
Secret Terra Bridge
The collaboration of Secret Network and Terra is a combination that results in a win-win situation for both. Secret's privacy-first features gives certain Terra assets the option of a private version that would appeal to some users. Terra has a healthy variety of asset-types, some of which would benefit from a privacy twist. The benefit for Secret is to get Terra's users to start using SecretSwap, thus establishing itself as the go-to blockchain for all things privacy-concerned. From a technical point of view, the collaboration should be easier than most since both are written in the Rust language and come from the Cosmos blockchain.
I would be interested to see the level of adoption by the general crypto community for a privacy-version of the UST, one of the stronger stablecoins in the market. With the CBDC starting to chomp at the heels, perhaps an evolved version of a stablecoin will find favour amongst the initiated.
Play-to-Earn (P2E) gaming is also another area that could capture the general public's interest, so it's natural there be a gaming app on the Secret Network. According to the game developer Domerium Labs, Orbem Wars is "a full blown Tower Defense game with four game modes, set in a distant future in which humankind has ventured into space in search of riches." The game modes are:
- Single-player: more of a discovery-style game where you wander around adding treasures and exploring the constellation of Ehen.
- Event: a co-op style working with others to build infrastructure projects
- League: battle-style where you fight other mercenaries.
- Contract: task-completion style where you compete with others to be first to complete tasks set out by various factions in Ehen.
The gaming NFTs that consists of artillery, weapons and all kinds of tools used in the game are all airdropped to users based on participation level. The dev team proudly proclaims that no NFTs are sold to players. All one has to do is play the game, earn their way to various rarities of NFTs, and when they need to upgrade their loot, head on over to Stashh to trade them for better stuff.
The game has not been launched yet so it's too early to say what kind of success it could gain from the community. It is nice that the NFTs are all earned, which gives players the prospect of fair play.
Not content with the roadmap outlined above, the Secret Network team has lofty ambitions for H1 2022 which sees them:
- Build 100 new projects in the Secret ecosystem
- Onboard hundreds of thousands of new users onboarding onto Secret Apps
- Achieve 10,000+ active users on multiple Secret Apps
The biggest push on their end is Shockwave, a multi-initiative project aimed at driving up adoption and solidify their standing as the go-to Web3 privacy hub.
Secret Network is throwing in serious moolah and effort to entice developers to build on their blockchain by offering grants, providing developers the best support they can offer, giving them a safe space to unleash their creativity. In addition to enhancing development tools and better documentation to make development as easy and painless as possible, the Secret Network team will also be organizing hackathons, likely in collaboration with other blockchains within the Cosmos ecosystem, spurred on by the success of HackAtom and NFTerra.
On the community side, they're looking to expand their international reach by providing more educational material and funding for creating tutorials and hosting local events. There are more Asian languages supported than European and African ones so it's easy to guess where their focus of expansion will be headed in 2022.
Contributors to the Secret Network are known as Secret Agents and in 2022, there is also a big push to get more Agents active in the network. The roles of an Agent varies as some are more like employees working for the project full-time while others are out evangelizing or operating nodes. Basically, anyone involved with network in a more-than-casual capacity can be considered as an Agent.
2022 looks like a year of continued explosive growth for the Secret Network. With so many grand plans, I hope they manage to find enough deep pockets to help them achieve what they want.
Secret Ecosystem Funding
In fact they have found those deep pockets to keep them funded. On January 19, 2022 they announced $400M in ecosystem funding - including a new $225M ecosystem fund and a $175M accelerator pool - alongside new investment from DeFiance Capital, Alameda Research, CoinFund, HashKey and more.
This announcement continues the Shockwave growth initiative, establishing Secret Network as the data privacy hub for Web3. The ecosystem fund is led by SCRT Labs and features contributions from 25 orginasations, including: DeFiance Capital, Alameda Research, CoinFund, HashKey, Hashed, Arrington Capital, Dragonfly Capital Partners, Fenbushi Capital, Skyvision Capital, Blocktower Capital, Terraform Labs, Hartmann Ventures, NGC Ventures, Figment, Arkstream Capital, Shima Capital, Magnus Capital, Bison Fund, Momentum6, Arca, Iconium, Huobi Ventures, Kucoin Labs, and Skynet Trading. Developers around the world are now invited to join Secret in their mission, and to build the next generation of Secret Apps that will protect and empower millions of global users. They pledge to support and mentor participants at every stage.
Our Take on Secret Network
Secret Network may just be one of the most important projects in the cryptocurrency space. This is because they have developed a protocol that has found that balance between transparency and privacy. To understand the significance of this, we must take a step back and consider the bigger picture.
If you want to preserve your privacy in the cryptocurrency space, how do you do it? Using a privacy coin like Monero and others which hide transaction histories and balances by choice or by default. Almost every other cryptocurrency has a completely public record of all transactions and balances.
The problem is that this privacy extreme is not ideal since transparency is necessary to get regulators and institutions on board. However, those same institutions and regulators are not too keen on entirely public blockchains either because they too want to be able to maintain some degree of privacy.
The brilliance of Secret Network is that its SCRT token is completely transparent whereas any actions involving Secret tokens or Secret Contracts are completely private. It is now possible to turn to regulators and say, “you can see how much money I put in and how much money I take out, but what I do with that money inside that network is none of your business”.
This degree of transparency should be enough to satisfy regulators and allows businesses to preserve their privacy as well. This has been the main selling point of Secret Network from the outset, and it is a value proposition that cannot be understated.
The Secret Network has also put in the work when it comes to development. It has a functioning product and an engaged community.
Although the tokenomics of SCRT are not entirely ideal, what Secret Network is looking to accomplish here goes far beyond price action. They have arguably created the template for the future of cryptocurrency privacy and transparency. As they continue to build bridges to other blockchains, they may just become the standard in this regard.
To finish off this article, enjoy this amazing quote from the Secret Network website FAQs. It is a useful one to keep in mind when someone asks you why privacy is so important if you have nothing to hide.
“A secret is something that you don’t want to share with everyone, but still want to share with people you choose to trust. A secret is something that you want to keep protected – not because it’s something bad, but because it’s something valuable.”
Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.