Incognito Chain – Bridging the Gap Between Transparency and Anonymity

In a shrinking world of increasing authoritarian surveillance, privacy is a commodity
more precious and sought after than at any period in history. In fact, it may well be
the currency by which the 21st Century is forged. The 2020 lockdown brought with it
a number of social developments, one of which was the revolutionary potential of
crypto currency making its way into the public psyche. There are many reasons for
the average person to dip their toe into the mystical crypto waters, ranging from mild
curiosity to the outright pursuit of financial freedom. However, if you were to ask
these people what the practical benefits of crypto over fiat currency are, many would
give you the same incorrect answer, ‘anonymity’.

Pseudonymity vs. Anonymity

It’s a common misconception that all crypto transactions are anonymous, fuelled
largely by the adoption of Bitcoin as the currency of the Dark Web over a decade ago.
While this notion of anonymity is true for a small group of specially designed tokens,
such as Monero (XMR) and PIVX, the majority are far more subject to public, if not
state scrutiny than one would desire. Let’s use the crypto godfather as an example.
Bitcoin, in all its glory is actually pseudonymous, in that just as an author writing
under a pseudonym is somewhat protected from the public gaze, he or she is still
identifiable in the event that their pseudonym is exposed. Similarly, the address from
which you send or receive your Bitcoin is ultimately linked to you, every transaction
exists forever in cyberspace, laid bare for prying eyes. And this is after you’ve
surrendered every facet of your identity to the exchange, and therefore the
government. Your name, address, passport, job title and expected deposit/withdrawal
amount per year all stain the cryptosphere like digital fingerprints. You may as well
send them a DNA sample and be done with it (and that day’s coming).

Incognito to the Rescue

We live in a world of dystopian direction. However, there is hope in the form of
incognito.org. They’ve done it with Ethereum, Bitcoin, Binance and they have plans
for ADA. Incognito is a privacy project dedicated to bringing trustless privacy for any
crypto asset. ‘Portal’ is the name of their universal incognito bridge, which will
connect their privacy layer to Cardano. It was designed specifically to connect
blockchains to each other under a common need for privacy, using a system of
over-collateralized bonds, similar to how the DAI stable coin is created on
MakerDAO. This grants you the ability to carry out confidential and more
importantly, untraceable transactions with relative ease. In essence, it allows you to
shield sending addresses, receiving addresses and transacted amounts. Incognito
Bridge achieves this by implementing a number of cryptographic primitives (building
blocks), such as linkable ring signatures.

Linkable Ring Signatures

In a P2P transaction, ring signatures grant the sender anonymity by shrouding the
input side of the said transaction. Think of a transaction as you would normally. You
enter a bar and order a drink, the barman gives you the drink and you take a ten dollar
bill from your wallet (output) and hand it to him (input). This transaction is
transparent to everyone involved and anyone watching. A good way to think of ring
signatures is as decoy outputs entangled in the one legitimate output, to form a ring. They are authentic previous outputs taken from the blockchain, yet have nothing to do
with the current transaction. At the point of input, snooping eyes would have no way
of knowing which was the legitimate output amongst the decoys.

Homomorphic Commitment Schemes

Another arrow in the quiver of the Incognito Bridge is the use of homomorphic
commitment schemes. In general terms, commitment schemes are a cryptographic
primitive that allows one to commit to a value, while ensuring it remains hidden until
a later time of one’s choosing. They take place in two phases, ‘the commit phase’,
during which a value is chosen and specified, and the ‘reveal phase’ during which the
value is revealed and checked. Think of it like this, you (the sender) put a message
(the commitment) into a locked box and give it to someone else (the receiver). The
receiver may have custody of the message, they may carry it with them at all times,
but they cannot know the details of the message unless provided with a key by the
sender. In homomorphic commitment schemes, the messages belong to Abelian
groups. So, by multiplying two commitments you can generate a brand new one,
containing the product of the combined messages. Commitment schemes are integral
to a range of cryptographic protocols, not least of all being zero-knowledge proofs.

Zero-Knowledge Proofs

A zero-knowledge proof is essentially just a way of proving that you know certain
information, without revealing the information itself. Or in the case of cryptography,
proving that certain data is correct without revealing the data, or how you arrived at
that conclusion. A real world example would be a payment app ensuring that you
have enough money available for a specific transaction, without having access to any
more data regarding the full contents of your bank account.

Building on Previous Success

Incognito’s previous success in this department is a testament to their commitment to
privacy. Before the development of Incognito Bridge, users were forced to choose
between compromising privacy to remain within their favourite ecosystem, or to leave
their favourite ecosystem in return for privacy. Needless to say, none of us have any
plans to be leaving Cardano, and we won’t have to. With a solid roadmap in place, it’s
clear that Incognito.org means business.

The Roadmap to Victory

• Milestone 1, (Implement shield process.) Shielding via a bond contract that allows the user to turn ADA into privacy ADA (pADA). With the new bond contract, custodians have one more option for collateralization, i.e. ADA alongside PRV (Incognito’s native token). 
• Milestone 2, (Implement auto liquidation process.) Implement the auto-liquidation process to handle 2 cases: custodian misbehavior or drop in the value of bonded collateral. Deliver a working module deployed on Incognito’s devnet (or testnet) environment. Unit-test coverage to ensure functionality and robustness. Documentation describing how the module can be used and tested.
• Milestone 3, (Implement unshield process.) Implement unshield process to turn shielded pADA back into ADA. Deliver a working module deployed on Incognito’s devnet (or testnet) environment. Unit-test coverage to ensure functionality and robustness. Documentation describing how the module can be used and tested. 
• Milestone 4, (Test, fix bugs and document.) Implement unshield process to turn shielded pADA back into ADA.  Deliver a working module deployed on Incognito’s devnet (or testnet) environment. Unit-test coverage to ensure functionality and robustness. Documentation describing how the module can be used and tested. Integration test for the 3 implemented modules to ensure the protocol works well. Complete documentation on our exposed APIs, how the protocol works as well as test-cases.

After perfecting and implementing all of the above milestones, there’s still a whole host of exciting future plans in the pipeline. One of which is the fascinating possibility of integrating the Cardano network into Incognito’s node tree devices. Along with research into enabling privacy for other native assets on the Cardano network.

Let’s Talk Funding

The Incognito team is seeking just $25k equivalent of ADA to develop the
Incognito/Cardano bridge, based on the ‘Incognito Bond Contract’, and to provide
liquidity for pDEX in the early stages of the bridge. However, they do think it’s
feasible to lower this amount and provide more liquidity by themselves, if and when
they were to receive marketing support and media coverage by the Cardano and
IOG team.

How Does This Benefit Us?

The benefits of this project for the Cardano ecosystem and its users are immeasurable.
When we compare it to an existence subject to the leering eye of public and state
scrutiny, which is only going to get worse, the possibility to cross-chain buy/sell and
swap ADA privately and without a third party custodian is one that should not be
overlooked. It will facilitate the onboarding of more users to the Cardano ecosystem
by letting them buy their coins privately, as well as earning interest (in PRV) directly
within the Incognito mobile app, by providing liquidity to the ADA/PRV pair. With
an approximate development time of just three months, including testing and
documentation, the future is well within our reach.

We are Cardano, we are not yet anonymous, but we are legion, expect us.

If you’d like to know more information or have questions/comments regarding The
Incognito Bridge proposal, check out the link Log in | Project Catalyst (ideascale.com)