A Guide for Avacash.Finance: privacy-focused investments in Avalanche
Chapter 1 — Why is privacy in DeFi so important?
Along with the promise of an uncensorable and unstoppable P2P network of payments system proposed by Bitcoin in 2009, some people were amazed by the possibility of a more discrete payment system, as we know, nowadays, most people that still use physical cash to pay do this for privacy concerns, regardless of the purposes of the payment. The main privacy problem of the way Bitcoin worked is the nature of a blockchain itself, that is, that bitcoin is intended to work as an open Ledger, for everyone to see every transaction. This intent is also what makes Blockchain such an amazing innovation, in the sense that most of the services, certificates, contracts, etc. that needed a degree of general trust, can be now archived.
Tackling this problem, some other Payments systems with the focus of privacy appeared, such as Monero in 2014, or even the Layer 2 of Bitcoin known as the Lightning Network in 2017. Both payments systems allow just the sender and recipient of Payments to know the exact data of the transaction. In the case of the Lightning Network, nodes can know the amount of the transaction, but the rest of the data is unknown to them. Although this works as a good private Payment network, such as physical cash does, we do not have the possibilities to access many of the good qualities of DeFi.
When someone is using a Smart Contracts Platform, such as Ethereum or Avalanche, there is also the possibility for anyone to see your movements. You can just go to any DEX right now, pick one of the last trades, extract the address of that person and check all their movements connecting their Wallet with Zapper, Zerion or any DeFi Tracker dApp. You can check all their movements, how and how often they use their Yield Farming, which Bridges are they using, which other Blockchain Networks are they using, and even deduce the location of that person, by just looking at which time that person interacts with any Smart Contract. Even posting a screenshot with some of the numbers of your Wallet can be a huge privacy breach if the person knows which tokens you normally interact with. Extracting the identity of a person, is not as hard as anyone thinks, and this will get easier and easier, as the innovation and capital towards blockchain analysis is incentivized by the upcoming regulation. For anyone not yet educated on how public blockchain networks are, the possibility of committing a misstep towards exposing your identity is easy. The number of people exposing their main Wallet that they use for investing in DeFi is not low. Privacy should be possible to obtain in any blockchain, regardless of the level of expertise of the person.
But one of the main benefits and strength on how DeFi works, is its composability. As research shows, the scientific method works also based on not only identifying and battling a problem on your own, but also by using the tools duly tested by your peers. As a team we identified this, and we want to make investing in DeFi not only easy, but also private. There is also other tools to achieve privacy on Avalanche, but what makes Avacash.Finance different, is that we also want to use other tools on DeFi, not only for securing a private payments system, but rather a private investments systems. We want to offer ways for people to gain dividend on their investments in a private way, and that is possible through composability.