A recap of the Elrond Community AMA on January 26th
On January 13th, we announced our collaboration with blockchain project Elrond to enable compliant and private enterprise use-cases at an internet-scale. Spurred by the excited response from both our communities, we arranged for a Dusk Network co-founders AMA hosted by Elrond in their English-language Telegram channel.
Co-founders Emanuele Francioni, Pascal Putman, and Mels Dees took the stage to explain how Dusk Network, a regulated decentralized finance infrastructure, can be described as the internet for assets. The floor was open to all questions from those attending.
For your convenience, we’ve gathered all questions and answers given during this event below. Minor edits were made for clarity.
Elrond Host & Community Questions
Let's start with a short introduction, tell us how did you guys discover blockchain and what motivated you to start working on Dusk Network?
[Emmanuel Francioni] My name is Emanuele Francioni and I am the tech lead of Dusk Network. I began to dwell with Byzantine Fault Tolerance when I worked in the aerospace industry as a software engineer in 2003. So naturally I became interested in blockchain as a solution to that exact problem around 2015. Was so enthusiastic about it that I took a couple of years to formulate the SBA consensus, but the real breakthrough was when I met Toghrul Maharramov and Dmitry Khovratovic, the inventor of the hashing algorithm used by ZCash for mining...
And Poseidon, the most performant zero knowledge-friendly hashing to date. We are also now working on a next generation of hashing that will increase performance of ZK proof even further. Preliminary tests point to a 30% speed up.
[Toghrul Muharramov] Hey everyone! A bit about myself. My name is Toghrul Maharramov and I work as Consensus Architect at Dusk Network. My responsibilities mainly lie in R&D of the consensus protocol as well as making sure that all the other parts of the protocol can function together seamlessly. I started delving into blockchain and cryptocurrencies, after delving into distributed systems during my studies. I met Emanuele through a mutual friend in early 2018 and after prolonged discussions about the field in general and Dusk Network in particular, I have joined the team and with Dusk ever since. I am a former contributor to NEO and City of Zion.
[Pascal Putman] Maybe not a familiar face in former DUSK AMAs, so also a quick intro about myself. I'm Pascal Putman, one of the founders and Commercial Lead of Dusk Network. This entails that I’m involved in all operations activities, both internally and externally. I’ve been active in the blockchain space for about 4 years now and fully focused on making Dusk Network a success together [with] these lads. Formerly worked as a Consultant for the ABN Amro bank, and led multiple IT and New Business teams within different companies.
[Mels Dees] Hey everyone, just a quick introduction from my side. My name is Mels Dees, one of the co-founders of Dusk Network and Marketing Lead. After graduating Cum Laude for my Masters in Marketing at Erasmus University, I actually started working at a major bank here in the Netherlands, in IT and Finance related fields. Later, in 2017 I started working in the blockchain space, which was also the time I met Emanuele Francioni, founder & tech lead of Dusk. Everyone who works at Dusk has been with us since the very start, we are a very tight-knit and all-rounded team and look forward to telling you all about Dusk in a second!
When we started Dusk there simply was no technology yet that could compliant handle security tokens, or any regulated assets really. These regulated assets need to be compliant with rules and regulations, in particular they should have confidentiality & auditability, and transactions should have immediate settlement of transactions.
Since then we've become a very strong tech powerhouse, with strong connections in the European (alternative) finance scene, and build very interesting zero-knowledge cryptography libraries that are an integral part of our stack.
Now there are quite a number of Dusk fans here today, but for those who are not familiar with Dusk, could you briefly explain what problem Dusk is trying to solve?
[Toghrul Muharramov] We achieve compliance through the use of provable encryption, encrypting the relevant data to the specified address (of an auditor or the contract operator) when creating a transaction. As a result, while an onlooker is incapable to discern the transaction details (meaning that the transaction remains obfuscated to the onlookers), however, the transaction details will be available to the relevant regulators. Provable encryption just means that the encryption correctness is proven with a zero-knowledge proof (meaning that a user is unable to encrypt faulty data or to an incorrect address).
How will Dusk be integrated with the Elrond Blockchain, what are the benefits for both parties?
[Emanuele Francioni] A very interesting question. Basically the idea is to use eGld pretty much as wBTC is used nowadays, so to provide Elrond holders exposure to regulated assets (securities basically) and privacy.
Amazing! while we are on the same topic, can you explain PLONKS in layman terms? I have started to read about them, but still not familiar with the concept.
[Mels Dees] We've actually written about this on Hackernoon. But in short, the gist is that where you've likely heard about SNARKs (think ZCash) and Bulletproofs (Monero). SNARKs are the quicker ones, but have a common reference string (which is problematic if we'd need to create one for every application we make on Dusk). And Bulletproofs don't have that, but have very long verification times (I am talking seconds, versus milliseconds for PLONK).
So PLONK provides us with the best of both worlds. We can have a universal reference string, and constant verification times of mere ms. Having constant verification times makes it very reliable and secure.
I have a question to the Elrond team: are you going to issue your own bonds, shares etc. on the Dusk blockchain? And which ones if yes?
[Elrond] - In the future, our network can be used to offer security tokens through DUSK, but that is a use case we will explore once our network has all the features released.
We have in the last years 3 very known projects about privacy... Monero, Zcash and Dash. Tell me why Dusk can shine where others were not able? I guess [it] is about compliance but please explain it quite in detail.
[Emanuele Francioni] Well, basically Monero, ZCash and Dash are incapable of smart contract capabilities. The reason is that they did not solve the problem of having a smart contract platform that would work with a UTXO system rather than an Account-based system.
Can you please explain the technology you implement, but in simplistic terms so all the community can understand it?
[Emanuele Francioni] Basically we have been the first to put forward confidential smart contracts. This [is] because we use a universal proof system which can be used for arbitrary contracts (as opposed to ZK-Snarks which is specific to a circuit), and developed our own transaction model (called Phoenix) that allows confidential spending even of public outputs (like coinbase transactions and tx fees rewards).
Recently we have seen some proposals with respect to regulatory compliance with respect to privacy tokens, what are your thoughts on this and what safeguards do you have in place?
[Emanuele Francioni] Great question! See, privacy has never been the problem. In fact, it is mandatory and quite an important part of any serious regulation, especially in the financial environment. Where all the other privacy coins fail, is in providing confidentiality AND auditability. While this might sound a bit antithetic, it actually makes perfect sense.
In order to provide auditability, you need to prove (and for this we use ZK technology) that a certain set of pre-requisite are met. One of these is the capability for a node to prove that an auditor will be able to audit a transaction, without the transaction-verifier to have such power herself. For that we use a technology that is called Provable Encryption.
What are the use cases of the DUSK token?
[Mels Dees] There're many use cases that we're working on at Dusk Network, we are quite well known for our Confidential Security Token standards (XSC), but we are working on a lot more. Dusk Network's tagline is that it's the 'Privacy Blockchain for Financial Applications'.
Since we uniquely offer smart contract capabilities as a L1-privacy blockchain, we can unlock a lot of use cases the world hasn't seen yet before. One of them is RegDeFI (Regulated Decentralised Finance) which we all are very excited about. You can read more here, as well on our website.
How can Security tokens improve on the model of Utility tokens and can Dusk be used for both?
[Emanuele Francioni] Dusk is a network with the capability of providing confidential smart contracts and has privacy in the layer 1. We have a keen focus on securities, but you of course can program arbitrary behaviour on any utility token. So yes, you can use DUSK for both. As for how securitized assets enhance the concept of utility tokens, the improvement goes both ways. Utility tokens have been the first to show how behaviour can be added to a currency and transform it into a smart asset. The same concept can be applied to regulated assets, so that you can program stuff like company voting, automated dividend distribution, even options.
[Pascal Putman] In short, Dusk can be used for both. We're focusing on the Security tokens ourselves. The foundation of utility tokens is basically that you invest money to receive tokens that might, or might not, be usable in a blockchain solution that is built. The big difference in comparison with security tokens is that you actually own part of the company or, in some cases, own an economic right of the company that is raising funds. We believe that this model is more future proof as these tokens are backed and more long term viable, as they are protected by security regulations.
Are network fees paid in Dusk or Elrond?
[Elrond] Depends on which chain the transaction is made. In Dusk it will be in Dusk tokens, in Elrond with Elrond tokens.
Can you explain a bit why Dusk utilizes two transaction models Phoenix and Zedger?
[Toghrul Maharramov] Phoenix forms the basis of the protocol, responsible for confidential transfers and reimbursements of computational costs (i.e. transaction fees if the token in question is DUSK). Phoenix is used for our native token (DUSK) and can be utilized for deployment of other tokens via our Confidential Token Standard (which is essentially a privacy-preserving version of ERC-20).
Zedger, on the other hand, is utilized to comply with the regulatory requirements of security lifecycle management. Zedger forms the basis for our Confidential Security Contract (XSC) Standard, which enables entities to tokenize securities with ease.
Unlike Phoenix, Zedger is a hybrid transaction model, meaning that it uses an account model to store and update the account data and UTXO model to initiate and settle transfers between users (be on the lookout for our Zedger paper, which is currently in the works!)
In what sense is DUSK going to leverage from eGld's blockchain? Is your partnership mainly about interoperability and scalability? What kind of use cases can we expect from this collaboration??
[Emanuele Francioni] The same way you can wrap BTC to provide liquidity on a DeFi platform like Uniswap, using DUSK you will be able to wrap your eGld liquidity on a regulated exchange (like NPEX) and gain exposure on securitized assets.
So GDPR has been a hot topic lately, even more so when it comes to blockchain, so how does Dusk enable companies to create dApps that respect GDPR?
[Emanuele Francioni] Basically we created a set of standards that provide out-of-the-box compliance with current regulations, including GDPR. One of such standards is the Confidential Security Contract (XSC). A smart contract implementing this standard is automatically compliant to security and GDPR regulations.
I see, speaking of the XSC token standard, how does it differ from ERC20 tokens? Is there one major distinction?
[Toghrul Maharramov] XSC Standard enables granular control of the security lifecycle, while remaining confidential and compliant. This is made possible through the underlying use of Zedger, which was specifically created to adhere to the regulatory requirements. Such functionality is not supported by ERC-20 and would be extremely expensive to be implemented in Ethereum even as a separate standard (the gas costs for a single XSC transfer would be roughly 1 million). [...] that's the cost of not having the native support for zero-knowledge proof verification in EVM.
How do you plan on utilizing the partnership with NPEX to accelerate innovation within the financial sector?
[Pascal Putman] Well this a great question. For those that do not yet know about this, we've recently announced our partnership with NPEX, which is a regulated Dutch stock exchange for SMEs. You can read all about it here. NPEX will give us a great platform to introduce pilot projects and introduce news services and digital infrastructure in a regulated environment. We're extremely happy with the partnership, as you can tell.
[Mels Dees] So for those unaware. We recently announced that we became a shareholder of the Dutch Stock Exchange NPEX. We've been working with them for a while on highly innovative pilot programmes, together we will make it possible that companies can leverage their infrastructure to benefit from modern means of token financing.
At the same time, our strong ties with NPEX (which we've had under the radar for a long while now) has helped to open many doors. We can engage in pilots, PoC's, etc with other major institutions, not only as a tech provider but also as a user of that tech. It's quite a significant difference and is great for the adoption of Dusk Network
You are working or have already developed a smart contract for an ETF-standard? Will this ETF-smart contract be usable for a crypto ETF or more for a ETF for traditional ETF's e.g. SPY?
[Emanuele Francioni] haha, you are entering highly confidential territory here :D. I won’t confirm nor deny that we are working on ETF products with industry leaders.
Consensus is perhaps the essential feature of a blockchain, and tweaking its components is super tough. My question to you is what is the time allocated for minting a block on Dusk and how did you decide for that value?
[Toghrul Maharramov] Currently our block times are set at roughly 10 seconds (assuming good network synchronicity), which is split between two committee voting steps and a block proposal step (with an additional asynchronous committee voting step to achieve finality). The block proposal step is allocated with 5 seconds, as we need to reserve time for the block proposers to compute zero-knowledge proofs correlating to their score (the higher the score, the greater the probability of being selected as the block proposer) as we use a privacy-preserving Proof-of-Stake model for block proposer extractions (called Proof-of-Blind Bid).
The allocated time also takes into account the propagation lag of the relatively large blocks (compared to transactions or other messages propagated to the network) and the time needed to verify the scores and the corresponding winning block by the voting committees.
That seems well thought through. What are the system requirements of a node on Dusk? Computing proofs is not as easy as verifying them, curious what you guys went for?
[Toghrul Maharramov] Our Proof-of-Blind Bid circuit was optimized to avoid the score computation proofs bottlenecking the throughput. As a result, we can achieve sub-second prover times for Proof-of-Blind Bid on quite modest hardware.
Speaking of which, how costly and resource-intensive is it to run a Dusk validator node?
[Emanuele Francioni] Our work on PLONK achieved a significant improvement in transaction validation, but the most expensive operation remains the validation of ZK proofs, which would benefit from using AVX2 acceleration. However, it is not required and will still be possible to run a node using average hardware.
Elrond is the internet-scale blockchain, designed from scratch to bring a 1000-fold cumulative improvement in throughput and execution speed. To achieve this, Elrond introduces two key innovations: a novel Adaptive State Sharding mechanism, and a Secure Proof of Stake (PoS) algorithm, enabling linear scalability with a fast, efficient, and secure consensus mechanism. Thus, Elrond can process upwards of 15,000 transactions per second (TPS), with 6-second latency, and negligible cost, attempting to become the backbone of a permissionless, borderless, globally accessible internet economy.
Dusk Network is the privacy blockchain for financial applications. Dusk Network envisions a financial industry that embraces innovation and provides equal opportunity for any organization to secure capital, trade assets, and access a full spectrum of financial services. Dusk Network executes on this vision by creating a global digital infrastructure, designed for regulatory compliance and auditability, that ensures that personal and transactional data remains confidential. Companies use the Dusk Network blockchain to issue tokens, trade and collaborate via smart contracts. Dusk Network recently became a shareholder of the Dutch Stock Exchange: NPEX.