Privacy is a widely discussed concern in the blockchain era, although its underlying technology gives transparency regarding user activity. In a blockchain transaction, you cannot see the identity of other users, but you can view every transaction, token type, amount, and address link. To tackle this issue to some extent, Coinbase CEO Brian Armstrong recently announced plans to bring ‘private stablecoin transactions’ to Base.
Base is a Layer-2 blockchain network built on Ethereum to make the coin more accessible and scalable, offering cheaper and faster transactions.
Now, with Coinbase’s announcement, if you are wondering how private stablecoin transactions can be executed, here is what you need to know.
Coinbase’s private transactions
If you are a Base user, your financial history will become less transparent — this is the goal behind Coinbase’s private stablecoin transactions. In other words, they are adding a privacy layer that hides sensitive transaction details.
So, how is it possible? Coinbase has already acquired Iron Fish, a Layer 1 blockchain with privacy as its key feature. Iron Fish blockchain includes multi-asset shielded pools and cross-chain bridges that use zero-knowledge proofs or ZKPs to hide transaction details.
Balancing privacy with compliance
As mentioned earlier, Base does not aim to bring complete privacy to avoid any red flags. Some traditional privacy coins, such as Zcash and Monero, often raise risk indicators as their transactions are fully anonymous. However, Coinbase focuses on compliant privacy — abiding by the rules while still incorporating privacy features
When regulatory authorities need to review blockchain activities, they can conduct audits, even though the data remains private to the general public.
As of now, Coinbase has not revealed the exact structure for executing the private stablecoin transactions.
More voices call for privacy in blockchain
As Peter Van Valkenburgh, Executive Director at Coin Center, wrote in response to the US Treasury’s request for input on stablecoins, privacy, and surveillance, applying anti-money laundering (AML) rules to public blockchains could bring intense oversight from the government.
Instead, the executive suggested promoting stablecoins on privacy-focused blockchains. He also argued for implementing privacy tools like Privacy Pools on a public chain.
For another executive at Coin Center, traditional AML surveillance methods could lead to privacy problems on public stablecoin transactions, which, in his words, can be worse for “Americans’ privacy than a hypothetical CBDC could be.”
While some crypto communities embrace Coinbase’s new initiative, others mock it, saying: “An exchange that can’t even protect their users’ identities is now building private transactions.”
Another blockchain enthusiast recalled confidential transactions on Solana when token extensions were released, but noted that they hadn’t seen much adoption since then.
