R3, known for its enterprise blockchain, Corda plans a proof of concept for a permissionless private network as a Layer 2 solution on Ethereum. R3 is not a one-trick pony and has significant privacy technology, Conclavewhich is the key confidential computing technology behind the new Obscuro Network announced today at the CordaCon 2021 conference. The company also plans to issue a regulatory-compliant utility token to power the Obscuro Network.
However, the company has made it clear that it is not abandoning its roots. “R3 is looking at the question of how to bring traditional finance and DeFi together, and we believe we are in a unique position to offer this connectivity. Neither will win. We believe the future of these two worlds will be hybrid,” he said in a statement.
The business case
He sees the need for this type of solution due to privacy requirements, to accommodate the prominent activity prevalent on public blockchains, and as a scaling solution for Ethereum.
Transparency is one of the key features of public blockchains. This is a huge asset, but for users who want privacy, it’s a liability. Some do not believe that DeFi can enter the mainstream without enabling privacy.
But there is a bigger problem. It is well known that public blockchains are prone to front running, in which miners can see proposed transactions and insert their own transactions before the transaction they previewed. Nicknamed “value extracted by miners», this leading activity is estimated at more than 1.4 billion dollars.
During the DeFi boom over the past 18 months, the Ethereum mainnet has become increasingly crowded. More and more transactions are being executed on Layer 2 solutions, which essentially run the transactions on a second network and then aggregate the results on the main network. Obscuro plans to be part of these networks.
Conclave and Obscuro
The Obscuro network will run a series of nodes using Conclave software technology running on servers powered by Intel SGX processors. It works similarly to a black box, in which individual users encrypt transaction data so that other users cannot see it. Only software running within the secure enclaves of the Intel SGX processor can decrypt transactions and generate the results. This solves the front running problem.
However, Obscuro provides delayed transparency so that transactions are initially hidden, preventing front running, but this shield is then revoked so that criminals cannot hide behind the confidentiality providing an equivalent level of transparency.
The project aims to avoid moving away from composable legos at the heart of DeFi and will have an explicit governance mechanism. And it envisions applications for use cases beyond DeFi.
Obscuro is still in its early stages, with a white paper expected to be released next month and aims to have a proof-of-concept solution ready for 2022. However, R3’s statement emphasizes that it will not launch without a clear regulatory landscape. “There are some unanswered questions and planets to align before this is adopted,” he says.
Hearing that R3 is piloting a layer 2 solution on Ethereum is sure to raise eyebrows. But this solution can also potentially solve some of the enterprise issues associated with using Ethereum on permissioned networks.
For example, the Bank of Thailand and the Hong Kong Monetary Authority have been working on a cross-border central bank digital currency (CBDC) solution currently powered by Ethereum Hyperledger Besu enterprise technology.
Today, central banks published an article showing progress in saving time and money for cross-border payments. However, it also highlighted three technological drawbacks, at least two of which could be solved by Obscuro, and perhaps even the third.
Due to privacy mechanisms, central banks have found it difficult to execute payment-for-payment transactions across borders. And the CBDC solution does not allow a single entity to see all pending transactions, meaning the liquidity saving mechanism used to clear transactions is not optimal. Conclave and Obscuro could probably solve both of these problems. The third challenge is scalability as the number of central bank validators increases. As a Layer 2 solution, it’s possible that Obscuro can help here as well.
Update: The article has been updated with the content of R3’s statement on Obscur.oh, oned the fact that it is a proof of concept.