Mid November 2022, Cardano’s parent company IOG unveiled Midnight: its privacy sidechain. It is to smart contract blockchains, what privacy coins are to Bitcoin. Midnight adds a layer of privacy on top of the smart contracts. This is made possible by zero-knowledge proof technology. Midnight is partly aimed at the gigantic enterprise market. It will have its own token.
Developers have been working on Midnight in secret for four years. It will operate as a sidechain of the Cardano blockchain, inheriting its security and decentralized qualities. Validators of Cardano can opt in to become validators of the Midnight sidechain. Midnight is still under development. IOG will continue to provide updates as they work on it into 2023.
The limitation of most privacy coins is that they are just that: coins. There is no smart contract functionality. If you send you some Monero or Zcash, you can be pretty sure the transaction is private and secure. But what if you want more? Cardano figured out a way to get privacy-enhanced smart contracts working, a concept they called Kachina. “Kachina identifies a large class of distributed computations expressible as smart contracts with privacy guarantees.”
Use Case: KYC with Regard for Privacy
One use case would be the merging of identity and privacy. What would a world look like in which you can have self-sovereign identity combined with confidential computation? It would give you the ability to do selective disclosures.
With zero-knowledge proofs you could for example prove to an exchange that you’re a citizen of the UK without having to disclose anything else. It would give regulators the confidence that an exchange plays by the rules without having access to private data. And for customers, it would make Know-Your-Customer (KYC) procedures much better to stomach.
To give regulators some peace of mind, Cardano announced that the Midnight blockchain will still allow authorities to access the system if permission is granted.
Cardano has integrated its application Atala Prism, into Midnight. Atala Prism is a self-sovereign identity (SSI) platform and service suite for verifiable data and digital identity.
Other Use Cases of the Cardano Midnight Sidechain
In a video interview, Charles Hoskinson lists just a few of the many use cases that privacy would bring to smart contracts:
- Build a private decentralized exchange where the order book is not visible but follows predictable logic. So your trading strategies are not revealed and can’t be front-run or otherwise exploited.
- Mine medical records while maintaining privacy, for example for statistical purposes: ‘show me the data of males in Amsterdam above the age of 50 who smoke, contracted covid and got hospitalized’. Without someone having access to private, individual medical records.
- Ad targeting without access to individual data: let’s say Brave browser has ads and they want to show those ads to people. They could micro target these people without the advertiser nor Brave knowing anything about the individual user.
Target Audience of Midnight: Enterprises
Despite superior trust and collaboration options, the lack of privacy means public networks are still not widely adopted by enterprises. Cardano wants to make this tech enterprise friendly. So far, enterprises that wanted to use blockchain tech had to create private blockchains. These are not decentralized, so then what is the point really?
Enterprises must comply with GDPR (privacy and security law) and with all kinds of things that require confidentiality. It’s a misunderstanding that companies don’t want things to be private, even if they do like the trust that blockchain tech offers. Imagine having to share inventory or sales data on the blockchain, where competitors can read them… not ideal.
Not Just Enterprises
This all doesn’t mean that Midnight was built with only enterprises in mind.
Charles Hoskinson: “So [our sidechain Midnight] must be equally useful to an underground newspaper in Russia or a Fortune 500 company trying to put a central bank digital currency on a blockchain.”
Benefits of Midnight for the Cardano Ecosystem
- It makes it very easy for a lot of projects to start building their own sidechains on Cardano: eventually we can expect dozens of side chains on cardano.
- It will make it more profitable to be a stake pool operator and ultimately it will strengthen the network effect of Cardano.
Similar Project: Polygon Nightfall
Midnight is related to another privacy focused blockchain solution for enterprises, with a very similar name: Polygon Nightfall. Launched in May 2022, it uses Optimistic-Zero Knowledge technology to give businesses an accessible blockchain network with the privacy they need. A big use case for Nightfall is Supply Chain Orchestration. That’s when multiple businesses in a supply chain collaborate and coordinate using a decentralized and private payment network.
Similarly, Midnight will be working with Hyperledger, which is a consortium of firms exploring private and permissioned ledgers for for example supply-chain management.
Midnight’s DUST token: To be Launched
As Midnight is a sidechain, it has its own native token, called DUST. Almost nothing is yet known about DUST’s tokenomics. Charles Hoskinson, in an interview in November 2022, said that there will be an airdrop to members of the Midnight community. He stressed that Midnight wants to depart from the old ICO approach, where a token is launched first and development happens later. For Midnight, it’s the reverse: utility first. Building an ecosystem that over time will demand that token and launch it. It’s in the hands of the community.
Erik started as a freelance writer around the time Satoshi was brewing on the whitepaper.
As a crypto investor, he is class of 2020. More of a holder than a trader, but never shy to experiment with new protocols.
