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When choosing a blockchain, with a DeFi ecosystem, to start interacting, “crypto-users” generally analyze transaction fees, network speed, available applications and their connections.
Until now, no one has been able to choose a blockchain like Secret Network, which allows interaction with decentralized finance and meets the requirement of offering total privacy on the movements made on it.
But in this irrepressible ecosystem everything comes. Today I have the pleasure to answer the question “What is Secret Network? And bring you the necessary information to have a first contact with this blockchain that offers a DeFi ecosystem with completely private transactions.
A bit of history
As usual in my articles, let’s first go to the context, to understand how Secret Network became what it is today.
It was 2015 when Guy Zyskind and Can Kisagun noticed that the Ethereum network lacked an attribute they considered extremely necessary and that was, of course, privacy.
They started working on a project that they envisioned at the time as an L2 or second-layer solution for the Ethereum network, which they called Enigma. The goal of this network was to offer transactions whose data is private.
They advanced steadily, with a solid documentation, which holds the record in this ecosystem, having been cited more than 1,500 times in the academic field.
All this hard work led to an ICO in 2017, through which they raised no less than $45 million.
But this was the first step on a tortuous path for the creators of Enigma.
SEC issues and rebranding
Following the successful ICO, Enigma was indicted by the SEC on charges of offering “Securities” without a license. According to the SEC definition, a “Security” is a fungible, exchangeable financial instrument used to raise money in either a public or private market.
The outcome of this accusation was the return to its investors of the US$45 million raised plus a US$500,000 fine that the team had to pay.
However, this setback was far from discouraging the team behind Enigma from moving forward. They decided to rebrand the project as “Secret Network” and move away from the idea of being an Ethereum L2 solution to being a standalone blockchain within the Cosmos ecosystem.
It was 2020, which saw the launch of Secret Network arrive.
So, what is Secret Network?
As I anticipated in the introduction of the article, Secret Network is a blockchain, designed to support multi-purpose smart contracts, but its main and also unique feature is that it allows developers to configure these contracts in such a way that the interactions that users make with them are private.
Before detailing how privacy works in Secret, it is important to note that Secret’s blockchain is located within the Cosmos ecosystem, where it shares space with other important networks such as Terra, Osmosis and Cosmos itself. The fact that it has been assembled within this ecosystem, using the Cosmos SDK (software development kit), gives us a preview of several features:
- It is a Proof of Stake network, which uses the Tendermint consensus mechanism for the creation and validation of its blocks.
- Its TPS, or number of transactions per second, reaches 10,000.
- The time in which a new block is generated is between 6 and 7 seconds.
With this foundation in place, we can now dive into the workings of this unique and revolutionary blockchain.
Secret Network and its particular operation
As of today, Secret users already have several options to invest their capital within its incipient DeFi ecosystem powered by its secret contracts and tokens. They can also, of course, participate in providing security by delegating their SCRTs.
But, let’s take a step-by-step approach to understand how this network works.
SCRT, the native currency
Obviously, like all Proof of Stake networks, Secret has its own native currency that fulfills important functions, and is identified by the ticker SCRT.
It is the currency that serves as a means of payment for transactions carried out on the network and is also the reward that validators and those who delegate their SCRT to them receive with the creation of each new block.
As for SCRT numbers and tokenomics, I must come clean, and reveal that they are not entirely to my liking. As of today there is no limit to the issuance, some 149,109,567 SCRTs are issued and their annual inflation is as high as 15%. We will have to stay tuned to find out if the team plans some kind of mechanism to control this issuance or its total supply.
As for its price, it is around US$5. It saw its highest price ever a few days ago, on October 11 at around US$6.88, and its lowest on November 3, 2020, when each SCRT traded at US$0.25.
It is remarkable and perhaps surprising to learn that SCRT and its transactions are not private. Every movement or holding of SCRT can be observed in the block explorer as in any other blockchain. Patience that we will get to the secret tokens…..
As in the entire Cosmos ecosystem, the consensus used by Secret is Tendermint, so we have a good choice in delegating SCRT to network validators and thus contributing to the security of Secret Network.
Given its tokenomics, the SCRT delegation is very attractive, offering a return of around 30% per annum.
It is not a minor detail that once we delegate our SCRTs, we start receiving rewards automatically, but when it is time to withdraw them we must wait a period of 21 days to dispose of them.
As for the risks, it is necessary to know that there are three types of penalties on validators, which are also detrimental to those who have delegated their currencies:
- “Soft slashing -> occurs when a validator is disconnected for a period exceeding 10 minutes. The fine is 1% of the total staked.
- “Hard slashing -> if a validator validates the same block twice, he/she will receive a 5% penalty.
- “Tonobostoned” -> means, to be imprisoned forever. This sanction is reached when there are numerous misdemeanors or a serious misdemeanor occurs.
Taking into account these penalties, when choosing a validator it is necessary to know its background.
This is the name given to the contracts that allow the network to provide its most valuable feature, privacy. Like everything developed within the Cosmos ecosystem, these contracts are written in Rust, a programming language created by the Mozilla team, and compiled using WASM.
Each interaction with a Secret Contract will be carried out in such a way that only the user who executed it will be able to access the transaction data. Not even the validators will be able to see the data to be validated, since the transactions and their amounts are encrypted.
The technology used by Secret’s validators to process these transactions is known as Trusted Execution Environment (TEE). This is specific hardware that allows them to protect the area where the code is executed in isolation. The code executed in the trusted execution environment cannot be seen or modified. Through the implementation of this technology, Secret Network was able to achieve the level of privacy so desired since the birth of the project.
To comply with their own standards, Secret’s team designed a proprietary standard they called SNIP-20, similar to and with the same function as ERC-20 tokens, but with the addition of privacy.
This standard is compatible with Secret Contracts and by default, since its creation, its balances and transactions are private. Whoever owns one of these tokens, which are identified with an “s” at the beginning, (e.g. sSCRT or sBTC) will have the “Display Key”. This key allows to prove the ownership of the tokens, if necessary. We can imagine that this precaution derives from the team’s first experience with the SEC.
The network has bridges that connect it with other blockchains, this being one of the most important points of Secret, since a user, without the need to sell his tokens, could delete his traces if he wished to do so.
The operation of Secret Bridges is similar to REN VM, from the Ethereum network, achieving communication between networks by blocking tokens in one blockchain to create or “mine” equal amount in the other blockchain.
Once a token crosses these bridges to Secret, it will land on the network as a secret token which, as I discussed earlier, is identified with an “s” in front of it, for example: sETH.
At the time of writing, active bridges connect Secret to Ethereum, Binance Smart Chain and Monero networks. Work is in progress on connecting to Bitcoin and Polkadot.
Secret Foundation and Governance
Behind the Secret network, providing sustenance, is a non-profit foundation known as the “Secret Foundation”. Its creator is Tor Blair who received, at the beginning of this foundation, funding from the team that came from Enigma. This foundation promotes the adoption of Secret Network, the development within the network and they are the ones who implement the changes decided by the community.
The Secret Foundation’s funding comes from the staking of the network, 15% of the total generated is derived for this purpose.
With respect to governance, all decisions on the future of Secret Network are made by the community. The voting system indicates that to create a proposal, 1000 SCRTs must be “locked” and for it to be approved, at least 33% of the SCRT holders must vote and receive more than 50% positive votes. In this system, each SCRT represents one vote.
The future of Secret
In addition to the bridges available today and the important new connections being worked on, users’ attention is focused on the “Supernova” update. This is the arrival of the IBC at Secret. The IBC is a general upgrade to be made to the Cosmos networks, whereby the blockchains that make up this ecosystem will be able to connect with each other. The opportunities arising from this connection are innumerable.
On the other hand, the network expects the arrival of several applications that will continue to enhance the DeFi ecosystem that today only includes Secret Swap and Sienna, two decentralized exchanges whose main feature, beyond their liquidity pools and attractive rewards, is the elimination of front-running.
The front-run is a practice we met in the Ethereum ecosystem. When a user sends a transaction to the network, it stops in the mempool where it waits for a miner, today and a validator in the future, to take it. As these transactions are public, any user or usually a bot, could observe it, replicate it with more gas and thus get a validator to execute it first.
Secret Network with its privacy standard, provided by Secret Network and Secret Tokens, eradicates this problem forever and opens up countless options, until today out of reach of the “average user”.
Conclusion on Secret
Undoubtedly, Secret has a lot to offer and its future looks very positive. A thriving DeFi ecosystem that seeks connections with other networks and provides a unique layer of privacy is very attractive. And while we await the arrival of new applications that will propel the growth of this DeFi ecosystem plus the arrival of the precious NFTs, as a friend says, “what better than the explosion catching us on the inside?