Arcium: Revolutionizing Privacy on Solana

In a groundbreaking episode of the Lightspeed podcast, host Mert interviews Yannik Schrade, the visionary behind Arcium, a project that's set to transform privacy on the Solana blockchain. This in-depth discussion delves into the evolution of privacy in crypto, the innovative technology powering Arcium, and the far-reaching implications for decentralized finance and beyond.

Top Projects

Lulo

Score: 7,586.13

Bonk

Score: 4,806.12

Sphere

Score: 2,544.42

Moonwalk

Score: 2,026.11

The Genesis of Arcium

Arcium's journey began three years ago under the name Elusive, with a team of four co-founders deeply embedded in the Solana ecosystem since 2021. Yannik, the last to join, was drawn to Solana's speed and vibrant ecosystem. The team's initial foray into Solana's hacker houses, particularly in Prague and Miami, proved pivotal. It was in Miami that they met key figures like Toli, who became their first investor even before they approached any VCs.

Yannik recalls the early days fondly:

"Toli right from the get-go supported us. And I think, I don't know if it was directly in Miami, but he was our first investor, right? We haven't even talked with any VCs. But Toli joined us in order to support us. So that felt amazing."

This early support from the Solana community set the stage for Elusive's development and eventual evolution into Arcium.

Privacy 1.0 vs Privacy 2.0

The transition from Elusive to Arcium marks a significant shift in the approach to privacy in blockchain technology. Yannik introduces the concept of "Privacy 2.0," which goes beyond the basic transactional privacy of earlier systems.

Privacy 1.0: The Foundation

Privacy 1.0, exemplified by projects like Monero and Zcash, focused primarily on making transactions private. While this was a crucial step in blockchain privacy, it had limitations, particularly in terms of scalability and the ability to perform complex operations on encrypted data.

Privacy 2.0: The Evolution

Arcium's Privacy 2.0 approach leverages advanced cryptographic techniques, particularly Multi-Party Computation (MPC) and semi-homomorphic encryption. This allows for the creation of "encrypted shared state," enabling complex operations on encrypted data without revealing the underlying information.

Yannik explains the power of this approach:

"Privacy 2.0 is about in any aspect, more powerful applications. We can now be way more creative in the way that we think about what privacy actually enables."

This leap forward allows for applications that were previously impossible, such as dark pools and encrypted AI training, all while maintaining the high performance that Solana is known for.

The Arcium Architecture

Arcium's architecture is designed to seamlessly integrate with Solana, acting as a network extension rather than a separate layer 2 solution. This design choice is crucial for maintaining Solana's high performance while adding powerful privacy features.

The Arcium Network

The Arcium network consists of nodes that are partitioned into computation clusters. These clusters operate on a "dishonest majority" principle, meaning that only one honest participant is required in each cluster to maintain privacy.

Yannik describes the network:

"Arcium itself is a stateless computing network. And so that has been very important to us to be able to trust without Arcium as this computing processor, if you will, that on Solana serves as a network extension."

Integration with Solana

Arcium uses Solana as both a coordination layer and a state layer. Developers can specify which functions should be private and which state should be encrypted within their Solana smart contracts. When a private function is called, it's processed by the Arcium network and settled back on Solana.

This tight integration ensures that assets never leave Solana, maintaining the blockchain's security and speed while adding powerful privacy features.

Dark Pools: A Killer Application

One of the most exciting applications of Arcium's technology is the creation of dark pools on Solana. Dark pools, which account for a significant portion of trading volume in traditional finance, have been challenging to implement in decentralized systems due to privacy concerns.

What are Dark Pools?

Dark pools are private exchanges for trading securities where the order book is not visible to other traders. In traditional finance, they're primarily used by large institutional investors to move significant volumes without impacting the market.

Implementing Dark Pools on Solana

Arcium's encrypted shared state technology allows for the creation of fully private order books on Solana. Traders can place orders that are encrypted and matched without anyone, including the Arcium network, seeing the details of the trades.

Yannik explains the process:

"You're able to trade in full privacy directly on Solana, which is something that previously hasn't been possible. So if we look at the stock market, nowadays, percent of daily US spot volume happens in dark pools of exchange."

This implementation could potentially bring a significant amount of institutional trading volume to Solana, further cementing its position as a leading blockchain for financial applications.

Beyond Finance: Encrypted AI and Data Privacy

While dark pools represent a significant use case for Arcium, the potential applications extend far beyond finance. Yannik highlights the possibility of using Arcium for encrypted AI training and data privacy in various industries.

Encrypted AI Training

One of the most intriguing applications is the ability to train AI models on sensitive data without exposing that data to any party. This could revolutionize fields like healthcare, where patient privacy is paramount but data sharing is crucial for advancing medical research.

Yannik describes this potential:

"We can also offer things where instead of submitting encrypted transactions, what everyone is doing is they're explicitly uploading encrypted data, let's say encrypted healthcare data, and then using Arcium to train a machine learning model on top of all of this data without anyone ever having to share a single bit of information about the underlying data."

Data Privacy in Consumer Applications

Beyond AI, Arcium's technology could be applied to a wide range of consumer applications where data privacy is crucial. For example, a decentralized document storage system could allow users to encrypt their documents and selectively share access with specific parties, all coordinated through the blockchain.

The Technical Magic: How Arcium Works

At the heart of Arcium's technology is a sophisticated implementation of Multi-Party Computation (MPC) and semi-homomorphic encryption. This allows for computations to be performed on encrypted data without ever decrypting it.

The Basics of MPC

Yannik provides a simplified explanation of how MPC works using an example of calculating the average wealth of three parties without revealing individual wealth:

1. Each party generates three random numbers that sum to their wealth.
2. These numbers are distributed among the parties.
3. Each party adds their received numbers locally.
4. The sums are publicly announced and combined.
5. The final result is the average wealth, with no individual wealth revealed.

Scaling MPC for Practical Use

Arcium extends this basic concept to work at scale, allowing for complex computations like order matching in dark pools. They've developed a custom Rust compiler that allows developers to write normal programs and specify which functions should be private.

Yannik explains:

"What we did for that is we've built a custom Rust compiler. So that the developer doesn't have to think about additions and multiplications, and how all of these things play cryptographically, but you just write a normal computer program."

This abstraction layer makes it much easier for developers to incorporate privacy features into their applications without needing to understand the underlying cryptography.

Performance Considerations

Given Solana's focus on high performance, a natural concern is how Arcium's privacy features might impact latency. Yannik acknowledges that there is some additional latency introduced but emphasizes that it's minimal compared to other privacy solutions.

Optimizing for Speed

Arcium uses several techniques to minimize latency:

1. Pre-processing: Nodes can generate correlated randomness in advance, speeding up computations.
2. Oblivious data structures: These allow for efficient access to encrypted data structures without revealing access patterns.
3. Hardware specialization: Nodes can specialize in different types of computations, optimizing for specific use cases like AI applications.

Interestingly, Yannik notes that currently, "the biggest latency that we are looking at for the current architecture has been the Solana transactions." This suggests that Arcium's processing is highly optimized and that further improvements in Solana's transaction speed could lead to even better performance for privacy-enabled applications.

The Arcium Token and Economic Model

With the announcement of a Coinlist sale for the Arcium token, Yannik provides insights into the token's utility and the network's economic model.

Token Utility

The Arcium token serves several key functions:

1. Staking: Node operators stake tokens to participate in the network.
2. Slashing: Misbehaving nodes can have their stakes slashed, ensuring network integrity.
3. Governance: Token holders can participate in network governance decisions.

Payment for Computations

Interestingly, payments for computations on Arcium are made in SOL rather than the Arcium token. Yannik explains this decision:

"I think it would be quite bad if you had to have both Sol to pay your guess fee and then some Arcium token and otherwise you couldn't place the transaction, right?"

This design choice prioritizes user and developer experience, making it easier to integrate Arcium into existing Solana applications.

Dynamic Supply and Demand Mechanism

The Arcium token incorporates a dynamic supply and demand mechanism:

1. Priority fees are applied when demand exceeds a certain threshold.
2. These fees are used to burn tokens, creating a deflationary pressure.
3. There's a native burning and buyback mechanism built into the system.

This economic model is designed to align the interests of token holders with the growth and usage of the network.

The Importance of Privacy in Crypto

Yannik makes a compelling case for why privacy is crucial for the future of cryptocurrency and blockchain technology. He argues that without proper privacy measures, we risk creating a financial system that's even more surveillable than traditional systems.

He points out the irony of current developments:

"We could wake up in a situation... that we now live in the European Union. We just overnight wake up and realize that because I've seen yesterday that Christine Lagarde now wants to implement the digital euro this year. And transfers starting at 300 euros will be surveyed, right? And so on top of this public letter, transfers starting at zero US dollars will actually be surveyed, right?"

This scenario underscores the need for privacy-preserving technologies in blockchain systems. Yannik argues that privacy should be seen not just as a political or ideological stance, but as a practical necessity for building secure and powerful applications.

The Future of Privacy in Crypto

Looking ahead, Yannik envisions a future where privacy is seamlessly integrated into blockchain applications, providing security and enabling new use cases without sacrificing transparency where it's needed.

He emphasizes the need to change the narrative around privacy:

"I think the correct framing as well is that privacy enables security and more powerful applications. We just go down the route of being the, I guess, preacher standing on New York Times Square and then saying, hey, we need to have privacy otherwise the world's gonna end. I think that will not lead to this outcome. I think what will lead to the outcome is making privacy a logical business decision to be using privacy."

This pragmatic approach to privacy could be key to its widespread adoption in the crypto space and beyond.

Conclusion: A New Era of Privacy on Solana

Arcium represents a significant leap forward in blockchain privacy technology. By bringing advanced MPC and encrypted computing capabilities to Solana, it opens up a world of possibilities for developers and users alike. From dark pools that could attract institutional capital to encrypted AI training that could revolutionize data sharing across industries, the potential applications are vast and exciting.

As the project moves forward with its token launch and continued development, it will be fascinating to see how the Solana ecosystem embraces these new privacy capabilities. If successful, Arcium could play a crucial role in establishing Solana as the go-to blockchain for privacy-preserving, high-performance applications.

The future of privacy in crypto is bright, and with projects like Arcium leading the way, we may be on the cusp of a new era where privacy is not just an afterthought, but a fundamental feature of blockchain technology.

Facts + Figures

• Arcium started as Elusive approximately three years ago, focusing on transactional privacy on Solana.
• The project evolved from basic transactional privacy (Privacy 1.0) to more advanced encrypted shared state capabilities (Privacy 2.0).
• Arcium uses Multi-Party Computation (MPC) and semi-homomorphic encryption to enable computations on encrypted data.
• The Arcium network consists of nodes partitioned into computation clusters, operating on a "dishonest majority" principle.
• Dark pools, which account for a significant portion of trading volume in traditional finance, can now be implemented on Solana using Arcium's technology.
• Arcium enables encrypted AI training on sensitive data without exposing the underlying information.
• The project has developed a custom Rust compiler to simplify the creation of privacy-preserving applications.
• Payments for computations on Arcium are made in SOL, not the Arcium token, to improve user experience.
• The Arcium token sale on Coinlist is scheduled to start on March 24, 2024, five years after Solana's Coinlist sale.
• The Arcium token incorporates a dynamic supply and demand mechanism with built-in burning and buyback features.
• Arcium uses Solana as both a coordination layer and a state layer, maintaining Solana's security and speed.
• The project aims to reduce latency through techniques like pre-processing and oblivious data structures.
• Arcium's technology could be applied to various industries beyond finance, including healthcare and document storage.
• The team behind Arcium received early support from key figures in the Solana ecosystem, including their first investor, Toli.
• Arcium's approach to privacy is designed to enable more powerful applications while maintaining the ability to have public, transparent state when needed.

Questions Answered

What is Arcium?

Arcium is a privacy-focused project built on Solana that enables encrypted shared state and computations. It allows developers to create applications with advanced privacy features, such as dark pools and encrypted AI training, while maintaining the high performance of the Solana blockchain. Arcium uses Multi-Party Computation (MPC) and semi-homomorphic encryption to process encrypted data without revealing the underlying information.

How does Arcium differ from previous privacy solutions in crypto?

Arcium represents a shift from Privacy 1.0 to Privacy 2.0. While Privacy 1.0 solutions like Monero and Zcash focused primarily on making transactions private, Arcium's Privacy 2.0 approach enables complex operations on encrypted data. This allows for more powerful applications, such as dark pools and encrypted AI training, which were not possible with earlier privacy solutions. Additionally, Arcium is designed to work seamlessly with Solana, maintaining high performance while adding privacy features.

What are dark pools, and how does Arcium enable them on Solana?

Dark pools are private exchanges for trading securities where the order book is not visible to other traders. Arcium enables dark pools on Solana by allowing traders to place encrypted orders that can be matched without revealing the details to anyone, including the Arcium network. This is achieved through encrypted shared state technology, where computations can be performed on encrypted data. Dark pools on Solana could potentially attract significant institutional trading volume to the blockchain.

How does the Arcium token work?

The Arcium token serves several functions within the network. Node operators stake tokens to participate in the network, and misbehaving nodes can have their stakes slashed to ensure network integrity. Token holders can also participate in network governance decisions. Interestingly, payments for computations on Arcium are made in SOL rather than the Arcium token to improve user experience. The token incorporates a dynamic supply and demand mechanism with built-in burning and buyback features to align token holder interests with network growth.

What are some potential applications of Arcium beyond finance?

While dark pools are a significant use case, Arcium's technology has applications beyond finance. One exciting possibility is encrypted AI training, where sensitive data (such as healthcare information) can be used to train AI models without exposing the underlying data. This could revolutionize fields where data privacy is crucial but data sharing is necessary for advancement. Additionally, Arcium's technology could be applied to consumer applications like decentralized document storage, allowing users to encrypt documents and selectively share access through the blockchain.

How does Arcium address performance concerns given Solana's focus on speed?

Arcium acknowledges that its privacy features introduce some additional latency but emphasizes that it's minimal compared to other privacy solutions. The project uses several techniques to optimize performance, including pre-processing (generating correlated randomness in advance), oblivious data structures for efficient access to encrypted data, and hardware specialization for different types of computations.

Why is privacy important in crypto, according to Yannik Schrade?

Yannik argues that privacy is crucial for the future of cryptocurrency and blockchain technology to prevent creating a financial system that's more surveillable than traditional systems. He points out the risk of waking up to a situation where all transactions are surveyed, as seen with proposals for digital currencies by central banks. Yannik emphasizes that privacy should be seen not just as a political or ideological stance, but as a practical necessity for building secure and powerful applications in the blockchain space.