How to Mint NFTs While Preserving Privacy

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By Rob Viglione

What began as quirky, fun digital collectibles, from CryptoKitties to Pudgy Penguins, is now revolutionizing how we interact with the digital world.

NFTs, or non-fungible tokens, are unique digital assets that can be transferred or traded on a blockchain. What makes them special is their intrinsic value: each one is verifiably unique like a digital snowflake – except an NFT can be created to digitally represent any item you can imagine.

NFTs’ ability to capture and commodify digital novelty makes them perfect for tracking and managing digital identities, assets and rights. For example, you can create an NFT representing your identity and store it on a blockchain. This will prevent others from pretending to be you online or accessing your personal data without permission. NFTs can also be used to track intellectual property rights and digital assets. For example, you can use them to register a copyright for a song or an image. This will mitigate the risks of copyright infringements, making it easier to prove you own the intellectual property in question.

But the real magic of NFTs lies in creating digital economies and social networks. For example, an NFT can be minted to represent a unit of currency. It can then be used to buy goods and services from other users. Or you can mint an NFT as a voting token, allowing it to be used to cast votes in online elections.

In order to protect an NFT’s novelty and prove its provenance, many use-cases call for privacy features not usually found in legacy cryptocurrency models. In NFTs, privacy comes from using a zero-knowledge enabled blockchain.

Why NFT Privacy Matters

The possibilities for NFTs are endless. But one thing is clear: privacy is paramount. If someone can track your NFTs, they can track your movements and activities online. This is why it is important to use privacy-preserving technologies, like zero-knowledge proofs, when creating or transferring NFTs.

It is vital the technology you choose, and the business you choose to work with, can create privacy-enabled NFT applications. Having a mechanism in place to verify the ownership of an NFT, without revealing any information about the creator, is imperative.

Otherwise, NFTs can potentially be used to track users’ activity, putting security and privacy at grave risk.

For example, consider the case of digital voting. If votes are tallied and published in a fully transparent manner, it could lead to election manipulation and fraud. But if votes are tallied and published in a privacy-preserving manner, it would be much harder to manipulate the results.

Privacy is therefore a non-negotiable requirement when it comes to maintaining a healthy and vibrant NFT ecosystem.

Privacy-oriented NFT Auctions

NFT auctions are another emerging use-case requiring privacy preservation.

In a ranked auction, items are allocated to bidders in order of their place in the closing bids. For example, the highest bidder will get the most-prized item, the second-highest bidder will get the second-most prized item and so on.

In a recent ranked auction hosted on Nifty Gateway, the second-highest bidder refused to make the purchase after the bidding was complete.

“Imagine bidding to win an item, ending up in second place and getting almost the same thing the third bidder gets but with a significant difference in bid amount,” said Amir Soleymani, the second-place bidder.

In other words, Soleymani, an art collector, reasoned he would have been better off losing to the third-highest (or even later) bidder than finishing second.

This kerfuffle raises an important question: can we create a ranked auction where bid amounts are not known, while still verifying the rank of each bid?

To answer this question, zero-knowledge proofs (ZKPs) are being closely looked at. This cryptographic technique allows two people to prove to each other they know something without revealing what that something is.

In the context of an online auction, a ZKP can be applied to prove to the auctioneer a bidder is in fact the person they say they are – without revealing how much they bid. ZKPs can create a more secure, private online auction.

A ZKP will allow bidders to remain anonymous. It will also prevent the second-highest bidder from refusing to make a purchase, as Soleymani did. Due to the privacy afforded by the ZKP, the bidder will no longer be able to know whether they were better off winning or not.

Mystery boxes

The “blind box” craze is heating up, with young collectors spending billions on toy boxes whose contents are a mystery.

NFTs can bring mystery boxes to the digital economy, offering collectors a variety of blind digital assets like NFTs, cryptocurrencies and digital art. The contents of a digital blind box would be a mystery until it is opened, creating a sense of excitement and anticipation among digital collectors.

However, in order to maintain privacy and safely verify the identities of buyers and sellers, a ZPK will be needed to anchor the process.

Privacy-oriented collections

Traditional art collectors often keep their artworks private, either to protect their value or because they don’t want everyone to have the same access to their personal belongings.

NFT collectors can do the same thing by creating privacy-oriented collections. This will allow them to showcase their collections to others, without risking that someone could steal their artworks.

Private collections can also be used to create exclusive clubs for NFT collectors. These clubs can be used by collectors to trade rare or valuable NFTs with each other.

While regular NFTs are entirely public, ZPKs can be used to mint private NFTs. This important function will allow collectors to keep their artworks and collections secret from the general public, upholding privacy and provenance.

Patreon-style memberships

NFTs can also be used to create Patreon-style memberships. In this model, patrons will pay a monthly or yearly fee to become a member of a particular NFT guild, organization or club.

However, as is the case with traditional in-person organizations, members may not want to broadcast everything they do to the public. A private members-only area can be minted through an NFT, granting access only to members. This will allow organizations to keep their activities secret from the general public.

From investment groups to political parties, ZKP-enabled NFTs can serve as the ‘key’ members use to access all types of private memberships.

Takeaways

NFTs are unique from traditional cryptocurrency. Essentially, NFTs can be thought of as standard, physical artwork (or other collectible item) when you want to assess their value and consider them as a unit for trade. Conversely, many traditional assets – like stocks, the U.S. dollar and even legacy cryptocurrency like Bitcoin – are fungible. This means each unit is uniform and has the same value.

Regular NFTs, just like cryptocurrency, are entirely public from end-to-end. Privacy-oriented NFTs, anchored by ZPKs, can be used to protect the privacy of collectors and beyond, and they can help create exclusive clubs for NFT collectors.

Rob Viglione is the co-founder and CEO of Horizen Labs, as well as the co-founder and team lead of the Zen Blockchain Foundation. He holds a Ph.D. in Finance, an MBA in Finance and Marketing, and a Bachelor’s in Physics & Applied Mathematics. Previously he has been an advisor to Aave, HeroEngine, and worked as a software project manager for the U.S. Air Force.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



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