The Era of Private Blockchains: What Kind of Privacy Will We Build?

The future of blockchains is becoming increasingly private, with the recent architectural proposal by Tempo for private enterprise stablecoin transactions marking a significant milestone. This shift towards private networks is driven by the need for institutions to protect sensitive financial information, as public blockchains like Bitcoin and Ethereum have been found to be unsuitable for large-scale financial transactions due to their transparent nature. The question now is what kind of privacy will be built into these private blockchains, with two main approaches emerging: operator-visible privacy, as seen in Tempo's Zones, and cryptographic guarantees through zero-knowledge proofs. The choice between these two approaches will have significant implications for the risk surface, compliance posture, and exposure to failure modes of intermediaries in the financial industry. As the industry moves towards private blockchains, it must carefully consider the trade-offs between these two approaches and decide what sort of privacy is acceptable, and who, if anyone, to trust with sensitive information.