The Midnight platform will safeguard sensitive personal and commercial data using zero-knowledge cryptography. It will operate as a sidechain of the Cardano blockchain. Midnight will inherit Cardano’s security, decentralization and community while providing privacy to users. The right to privacy is a fundamental human right. Explore how Midnight can protect your privacy and how it differs from existing projects like Monero and ZCash. TLDR Transactions in the ledger are public and many blockchain addresses are linked to people's real identities. For businesses, institutions, and banks, it is impossible to use a blockchain because they would not comply with regulations or protect business secrets. Optional or conditional privacy offers many interesting use cases. Midnight has no backdoor that would allow private information to be obtained without users' permission. The ability to selectively disclose certain information is necessary in the current complex world. Blockchain transactions are public All transactions sent on the Cardano network are publicly available to the whole world in the ledger. Anyone can use the publicly available explorers to look at any transaction. On-chain experts have created their own tools to make a deeper analysis of data in ledgers. This also applies to Bitcoin, Ethereum and almost all blockchain networks. Let's add that Bitcoin addresses are the most connected to real identities, as it is the one that analytics firms are most interested in at the request of the authorities. Most people buy cryptocurrencies on centralized exchanges where they provide their KYC/AML details. It's easy for companies like Chainalysis to link blockchain addresses to real identities and track the history of transactions. A large portion of blockchain addresses are linked to people's real identities, so transactions can never be private. Alice cares about her privacy and buys cryptocurrencies only in a hoodie and black glasses at ATM. She has never used a centralized exchange and has never provided her KYC/AML details to a third party that has any connection to cryptocurrencies. Alice believes she can use cryptocurrencies privately. This means that no one can discover her true identity or find out private information about her assets through on-chain analysis. Unfortunately, Alice doesn't know how exactly the blockchain works. Once she pays for goods in a store through an on-chain transaction, the seller can look at the blockchain address from which the payment came. He can see how much Alice has in funds. He can even look at her other transactions. Once Alice buys goods from an online store and provides a delivery address, her real identity is linked to the blockchain address in the retailer's database. Alice soon discovers that she cannot pay with cryptocurrencies unless she wants those around her to know everything about her transactions. If Alice receives a salary from her employer in cryptocurrency, the employer could see how often and how much Alice spends. Alice finds it uncomfortable to be paid in cryptocurrency. Alice is very uncomfortable using cryptocurrencies as all transactions are public. For businesses, institutions, and banks, it is often impossible to use them because they would not comply with regulations requiring privacy or confidentiality rights, or it is inconvenient for them to allow competitors to analyze financial flows. No one wants to voluntarily reveal business secrets to the competition. Note that in terms of privacy, blockchain networks are worse than traditional financial services. If Alice sends money from her bank account to Bob, only the two of them and the bank know the details of the transaction. No other third party has a chance to know that the transaction took place. The authority can order the bank to cooperate and provide the information. In the case of blockchain, the whole world knows about the transaction. There is no information about identities in the blockchain, but it can be externally obtained and linked. Not everyone has access to this information, but the authorities usually have it if they want it. There are blockchain addresses that nobody knows to who they belong. Unfortunately, there is a risk that the identity will be revealed when coins or tokens stored at the address are used. If ever the exchanges leak information about the connections between blockchain addresses and their owners, the whole world will be able to track the financial flows of all users. This is definitely not a good prospect for the money of the future. Privacy is not binary In certain circles of the cryptocurrency community, there is an opinion that privacy must be 100%. Monero falls into this category. It can hide users' addresses and the amount that is being transferred. Monero and similar projects are useful and will certainly find their users. If blockchain is to become a reality in the financial industry and other sectors, it needs to move closer to current requirements and regulations. Financial transactions between participants must be private (information must not be publicly available to third parties), but if the authorities want to make sure they comply with regulations, it must be possible to selectively disclose some information. Different jurisdictions have different privacy requirements. It is not possible to create a one-size-fits-all solution. The Midnight platform will use zero-knowledge cryptography to safeguard sensitive personal and commercial data. Midnight will enable developers to build applications that protect private user data. Users and companies will be able to share sensitive information, like financial data or medical records, directly with each other in a private manner. At the same time, it will be possible to prove to the third party that regulatory requirements are met without revealing any other confidential information. In other words, from the outside, the interaction between participants will be completely private. If the authority requires proof that the interaction is within the law, only the information that is strictly necessary will be revealed. Other information will remain confidential. Third-party developers can create applications that are jurisdiction-specific. In addition, it will be possible to use a decentralised identity. Let's illustrate this with an example. If the identities of participants who exchange over $50K per month between themselves are required to be disclosed, this will be possible. If the amount is lower, no one will know the identity of the participants. If the amount is higher, only the authority will know, but no one else. It is important that users of applications are aware of the terms of service. Users must be aware of the circumstances under which some private information will be disclosed and must give their consent. Users need to know that they are going to use an application that is subject to regulation and that viewing keys can be created that can be used if required by the authority. This will be the responsibility of third-party developers to make it transparent. Without similar functionality, it is impossible to build a service on blockchain that would be useful for traditional financial services or some Web3 services when it comes to regulation. In some cases, it may even be desirable to disclose private information to a third party. For example, when you need to prove a fact related to transactions in court. Or when a user wants to borrow money from a third party and remain anonymous, provided they repay on time. If he fails to repay, the real identity will be revealed and the case will be dealt with by the authorities. Optional or conditional privacy offers many interesting use cases. Midnight is not just another Monero-like project Midnight will allow developers to write private financial services such as DEXs or lending platforms. Not only when sending transactions, but also when using the apps, all sensitive information will remain private while complying with regulations. Projects like Monero will not allow this for ideological reasons, but also for technological reasons. Enabling the creation of private applications was and still is a major technological challenge. Privacy has higher demands on resources, making it difficult to achieve high scalability, for example. Monero and other privacy coins, and even Litecoin due to MimbleWimble, have been delisted from some exchanges. Regulators can restrict access to projects that do not comply with their requirements. These projects are losing liquidity and, unfortunately, relevance. The reality is that most people on the planet don't need to use Monero. The mission of the Monero project, at least as I understand it, is certainly not to meet the requirements of the regulators and get into traditional business. Monero and similar projects have an important but marginal use case. The mainstream is not interested in fighting states, regulators and authorities. Most people on the planet do not want to use volatile cryptocurrencies for everyday payments and expect the same or better user experience and service from an alternative financial system as they do from banking services. Midnight will enable exactly this to be built. It's important to note that Midnight has no backdoor that would allow private information to be obtained without users' permission. Users will be in control of their privacy, but it's worth being careful what terms of use they approve. The Midnight platform will allow sending private transactions with blockchain coins and tokens in those jurisdictions where KYC/AML information is required. Blockchains with a public ledger are not capable of this. Monero does not allow this on purpose. Midnight stands somewhere in the middle but is closer to the Monero side. This will allow this new Cardano sidechain to break into business and banking. It would be a mistake to see Midnight as a project that sacrifices user privacy. In the context of blockchain networks, the opposite is true. Users are the ones who are supposed to decide the extent of their privacy. Privacy is not a binary property that can be turned on or off. The ability to selectively disclose certain information is necessary in the current complex world. That is the reality. Conclusion I dare say that Midnight is one of the most important projects in terms of the adoption of blockchain technology by companies, institutions, banks and governments. However, what is important first and foremost are the users themselves, who have a right to privacy. Projects like Monero fail to provide them with privacy for one simple reason. The authorities will never allow merchants to use privacy coins for ordinary payments. Monero is technologically capable of providing privacy, but without permission from the authorities, this capability is unavailable to the majority of the population for everyday payments. For people who like to shop on the dark web, Monero is a good tool. Midnight should be a powerful platform. Our vision for the future is that we will use USDA or Djed stablecoins for everyday payments within a solution that is built on the Midnight platform and integrated with a decentralized identity (Atala PRISM). It will be possible to borrow anonymously from a third party or trade on DEXs while keeping all information private. If the authority requires certain information to be disclosed, the user will know about it and give consent. Optional and conditional privacy will be an important step in the adoption of Cardano. Midnight will have its own DUST token and Charles Hoskinson talked about fair distribution. I don't want to speculate on what that means, but I'm curious.
