How do privacy-enhancing technologies ensure anonymity on the blockchain?

Blockchain technology has gained significant attention and adoption across various industries due to its decentralized and transparent nature. However, one of the key challenges associated with blockchain is privacy. The traditional blockchain, such as the Bitcoin blockchain, is inherently transparent, allowing anyone to view transaction details and trace the flow of funds. This lack of privacy poses concerns for individuals and businesses who require confidentiality and anonymity. To address these issues, privacy-enhancing technologies (PETs) have emerged to provide robust privacy protection on the blockchain. In this article, we will explore how privacy-enhancing technologies ensure anonymity on the blockchain.
These are some of the most recent news on privacy breaches. According to the 2022 Data Breach Report from the Identity Theft Resource Center (ITRC), over 422 million people were affected by data breaches or PII exposures, up from 294 million in the previous year. As cyberattacks become even more sophisticated, it has become clear that conventional cybersecurity measures are insufficient. To reduce the risk of future data breaches, implementing blockchain technology is a promising approach that could help prevent data breaches.
Image source: Identity Theft Resource Centre
However, the two most popular blockchains, Bitcoin and Ethereum, are public ledgers that require transactions to be visible by default. Ethereum offers pseudo-anonymity as transactions are linked to addresses corresponding to user-held private keys instead of usernames or passwords. This prompts a growing need for privacy on public networks, which is why certain technologies, such as zk-SNARKs and ring signatures, are being developed and tested for Ethereum 2 and Ethereum 3.

Blockchain Privacy Essentials

  • The majority of blockchains provide pseudonymous anonymity.
  • Blockchain addresses may be accessed with private keys and recognised with public keys.
  • Blockchain, by default, does not save any data about a user's offline identity.
  • Verification is possible with zero-knowledge-proof systems without revealing any data.

Why should blockchains focus on privacy and anonymity?

In the current digital age, businesses must prioritise data privacy as an essential aspect of their operations. The emergence of privacy-enhancing technologies (PETs) has played a vital role in this respect. Pets are becoming increasingly significant for businesses in several ways.
  1. 1.
    Businesses must comply with data protection laws such as CCPA and GDPR. Non-compliance can lead to hefty fines, while data breaches can result in reputational damage and financial losses. Pets can help organisations achieve compliance with ease by enhancing privacy protection measures.
  2. 2.
    Organisations may require a third party to test data due to inadequate resources. Pets can aid enterprises in achieving efficient privacy protection and data-sharing functionalities, ensuring reliable and accurate data management.
  3. 3.
    Privacy breaches can significantly impact an enterprise's reputation, operations, and customers. Such incidents have the potential to drive valuable customers away, thereby undermining the success of the business. Therefore, organizations must implement robust measures such as PETs to assure privacy and prevent such breaches.
Therefore, ring signatures and zero-knowledge proofs successfully preserve user privacy and anonymity. Let’s understand how.

What are ring signatures?

One of the first and still-useful cryptographic innovations is the ring signature. As their name suggests, they entail a group where everyone has a key. These individuals unite as a ring to protect one another's privacy.
Ring signatures provide an effective method of preserving user anonymity during transactions. With the need for an existing group of people on both sides of each transaction, only one signature is necessary. This signature sends the message while the other ring members play the role of decoys, making it computationally impossible to ascertain the identity of the specific ring member who signed the message.
This approach makes it virtually impossible for anyone to trace the signature back to the individual who gave it, ensuring user privacy throughout. By providing indestructible digital anonymity, ring signatures offer a secure and effective means of conducting transactions while preventing unwanted exposure.


Zero-knowledge proofs have been at the forefront of privacy-enhancing technologies, and zk-SNARKs have significantly contributed to this trend. This technology can ensure privacy while carrying out specific actions without disclosing underlying details to third parties. Zk-SNARK allows entities to present proof of ownership, for instance, having a substantial sum of money, without revealing their exact balance.
Ring signatures and zk-SNARKs are the most fundamental cryptographic privacy tools widely used today. While ring signatures ensure the anonymity of a single signer in a group, zk-SNARKs are used to verify the authenticity of transactions without revealing any sensitive information. These tools serve different purposes and operate on entirely different mechanisms that have their own set of limitations and prospects.
Both these tools have effectively revolutionised blockchain privacy, enabling some of the world's most anonymous cryptocurrencies to operate without compromising security. Using these technologies, users can confidently use blockchain networks while enjoying anonymity. Above all, privacy-enhancing technologies protect user data and enable transparency between parties within the network.