Nym + Libp2p: how to solve the Ethereum privacy crisis with public goods

Another major milestone in the Ethereum ecosystem was achieved yesterday with the Shanghai upgrade, or Shapella. This upgrade allows…

Author: Nym

April 12, 20235 mins read

Another major milestone in the Ethereum ecosystem was achieved yesterday with the Shanghai upgrade, or Shapella. This upgrade allows validators to withdraw ETH that have been staked (and the rewards earned from staking) from as far back as December 2020 — over $26 billion worth of ETH is potentially becoming liquid.

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Now, the ideal outcome of such an event would be that some of this liquidity would go towards boosting decentralisation by encouraging more people to operate and stake on validators in underrepresented areas. At present, the vast majority of validators are run on AWS and in US and Europe.

Decentralisation is one of the core principles of Web3 and with good reason: it can ensure censorship resistance and reliability of service globally. But decentralisation is not feasible unless we realise another core principle in Web3, namely privacy. Decentralised infrastructures require a high intensity of coordination between actors. If this takes place in open networks or through trusted third parties, this exposes the infrastructure — and importantly, those who run it — to a range of attacks.

Why Ethereum isn’t privacy-preserving

The Ethereum ecosystem achieved a monumental transition from proof-of-work to proof-of-stake consensus algorithms last year. But with the move to POS, new privacy issues became evident at the very core of the blockchain, covered in an earlier blogpost.

In summary, with the move to POS, validators need to coordinate on who creates the next block in the blockchain, which means more traffic between validators. This traffic can be analysed, compromising validator privacy and opening the infrastructure up to attacks, from MEV Bots and DDoS attacks to targeted censorship. At this year’s ETHDenver, privacy-focused discussions were at the forefront and on the main stage, which signifies that the community strongly recognises the importance of privacy in the ecosystem.

In February 2023, Ethereum hit the milestone of 500K validators. This means that the consequences of the lack of validator privacy is only growing. In addition, Metamask recently launched a new staking functionality, allowing users to stake their ETH using liquid staking protocols. If this leads to more people staking as well as more people running validators, it will exacerbate the privacy issues. And staking and operating from home, for instance, could even entail people leaking their home IP addresses. Essentially, this is the same as someone finding out where you live, uncovering your salary slip, and then attaching it to your front door for all to see.

Deep privacy integrations for networked public goods

The good news is that as an industry we are making huge progress both when it comes to decentralisation and privacy.

The industry relies on a set of core public good technologies, and Libp2p is one of them. The Libp2p module has been nothing less than groundbreaking for decentralised networking. Developed by Protocol labs, it is a modular peer-to-peer networking framework that can run on across different network protocols. And this p2p networking framework is used in major blockchain ecosystems from IPFS, to Ethereum and Polkadot.

This is a huge win for decentralisation, but what about privacy? Libp2p is encrypted which is great, however, the patterns of communication running through the network remain exposed. And this can be almost more revealing than the content itself. This is where a mixnet such as the Nym mixnet comes in.

Nym recently partnered with leading blockchain R&D firm Chainsafe to build a Nym Libp2p module for the Rust implementation of Libp2p. Clients and networking libraries such as Lighthouse (maintained by Chainsafe) can privacy-enhance traffic by sending it through the mixnet, shielding information that could doxx them from prying machine learning scraping. Solving the privacy problem at the core of major Web3 public goods can have a major impact across several ecosystems and more specifically, resolve the privacy issues for Ethereum validators, preventing the leaking of their IP addresses and metadata.

All new Ethereum validators should include this Nym integration module as part of their standard “starter pack”!

Privacy is your right

Everyone has their own reasons for wanting privacy. At the very least, leaking your home address on a blockchain is scary! And allowing people to see your personal ETH balance is unnecessary and making yourself vulnerable to attacks is dangerous.

A fully decentralised network needs network layer privacy for it to provide the benefits that are envisioned as part of the core principles of Web3. The industry is making progress when it comes to decentralisation and privacy, it is now time to put it into action.

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