Chainlink is adding two new features to its network to enhance its privacy features and updating one of them. The changes aim to help financial market participants preserve data confidentiality and integrity. This is to ensure regulatory compliance as the multi-chain economy continues to grow.
The new privacy features include:
- Blockchain Privacy Manager
- CCIP Private Transactions.
1. Blockchain Privacy Manager
The Blockchain Privacy Manager empowers institutions to bridge private blockchain networks into their current systems. This helps in exposing as minimal data as possible on the chain. The private chains enabled this way may then interact with the Chainlink public platform. It helps with critical off-chain data related to Proof of Reserve, Net Asset Value, and market prices. Also, identity information is not necessarily shown as sensitive information to external entities.
Moreover, with the Blockchain Privacy Manager, institutions can tap into the public CCIP network to create cross-chain connections from their private blockchains to any other chains, public or private. Only the on-chain information selected by the institution is disclosed during transaction processing.
2. CCIP Private Transactions
The CCIP Private Transactions, on top of the Blockchain Privacy Manager, utilize a sophisticated on-chain encryption and decryption protocol. An institution can use this feature to conduct transactions across multiple private blockchains with complete confidentiality of the transaction details. Its end-to-end encryption means neither the Chainlink node operators nor any third-party operator can have any view of sensitive data in the transaction, such as token amount or sender-receiver identities.
The institutions generate and hold these encryption keys, which can be shared selectively with authorized entities, such as counterparties, compliance auditors, or regulators. For most major financial institutions, this already happens at the piloting stage for cross-chain settlements of tokenized assets.
Institutional Need for Privacy
With blockchain entering the world’s financial markets, there is a greater chance of rebirthing asset transaction activity. Since the tokenized assets are expected to grow to 2030, reaching an estimated value of $16 trillion, financial institutions worldwide are moving from simple proof-of-concept stages into actual pilot projects and going live.
However, the lack of secure cross-chain privacy limited the scale of transactions, especially in cases where regulatory compliance, such as that required by the EU’s GDPR and MiFID II, was needed. These new features from Chainlink address both problems, enabling full privacy for the private chain part of a transaction while minimizing data leakage for a transaction between a private chain and a public chain.
This will be done by further developing the Chainlink platform to meet the growing demands for secure and private cross-chain connectivity, enabling financial institutions to use the Chainlink decentralized oracle network for a wide range of applications.
