Solana Unveils Confidential Balances to Enhance Privacy and Compliance

• Solana has unveiled a new feature to enable institutional and retail users to obscure transaction amounts without sacrificing compliance and sub-second finality. 
• An official report has indicated that this initiative is an expanded version of the Confidential Transfers feature earlier introduced to use Zero-Knowledge capabilities to encrypt transaction information. 

Solana (SOL) has officially launched the much-anticipated Zero-Knowledge powered encrypted token standard, Confidential Balance, to the mainnet. According to the report, this would add an additional layer of privacy to the transaction activities of institutions, users, and developers without compromising the sub-second finality.

As noted in our earlier post, this roll-out comes at a time when privacy and compliance have been a major focus in the Decentralized Finance (DeFi) ecosystem. Meanwhile, this feature was built on another initiative called Confidential Transfer which was originally introduced as part of the Token2022 program.

Confidential Transfer, also known as the Confidential Token Extension, was highlighted as a privacy-enabling feature that taps the full capabilities of ZKP to ensure that token balances and transfer amounts are encrypted. According to the report detailing this feature, the general intent of this introduction was to improve privacy by confidentiality rather than anonymity.

An excerpt of that report reads:

Because balances can be added to or subtracted from, The Token Extensions standard requires an encryption scheme that allows for these hidden mathematical operations; the encryption must be homomorphic. Homomorphic encryption is a special class of encryption scheme that allows specific types of computations to be performed on encrypted data without actually having to decrypt the data.

More About the Solana’s Confidential Balance

Today, the functionality under the name Confidential Balance is reported to have taken an upgraded shape as it expands into a more detailed set of extensions. According to the Solana communication team, this has integrated a new layer of confidentiality specifically for asset owners and token issues.

The Confidential Balance is also reported to serve more purposes than the Confidential Transfers as it encompasses all the needed components of token extensions that are cryptographically enhanced. Based on our research, this newly introduced feature “uses cryptographic primitives to conceal transfer amounts” while obscuring transaction fees. Apart from these, issuers can also hide the number of tokens that get minted or burned.

Amidst the backdrop of this, Solana has declared its willingness to significantly transform its ecosystem through a series of upgrades and partnerships to fully incentivize users and validators. Recently, it unveiled plans to execute two crucial upgrades – SIMD 0123 and SIMD 0228.

SIMD 0123 was highlighted as a major step towards distributing priority fees to validators. The SIMD 0228, which was also described as “the bigger change”, was proposed to adjust the SOL token inflation rate “based on the percentage of supply that is being staked.” However, the community rejected this proposal after receiving only 43.6% approval, as we discussed earlier.

The recent key ecosystem developments have, however, had little impact on the price of SOL as it has declined by 1.14% in the last 24 hours, extending its weekly fall to 13%. At the time of writing, SOL was trading at $107 with its daily trading volume down by 22.8%.

According to our recent analysis, the asset could overturn this trend to hit $500 if market adoption and institutional interest reach a new height.