Concordium to sunset Shielded Transactions Feature

During talks with several financially regulated partners, it became clear that Concordium’s shielded transaction feature was a dealbreaker. In order to drive ecosystem growth, the feature will be removed from the protocol.

In the current environment of tightening regulatory pressure both in the EU and the US, compliance departments in regulated financial companies have started to err on the side of caution. While this increased regulatory clarity might benefit the crypto industry as whole, it unfortunately means that centralised exchanges and other financial partners have rejected to integrate Concordium’s token, CCD, due to misplaced concerns about protocol-feature for shielded transactions.

The shielded transaction feature was intended to strike a balance between privacy and accountability. By shielding a balance, a party could hide the transaction amount, while the involved parties remain public. However, the shielded balance could be revealed by the Concordium identity disclosure authorities, following a due judicial process. This, we believe, struck a good balance between oversight, auditability, and transparency — shielded transactions are not about total anonymity, but about responsible privacy. However, in the current environment of regulatory scrutiny, this nuance got lost. Anything that could be perceived to be even in the vicinity to the greyzone of (still ambiguous) legal frameworks, makes compliance teams nervous.

The current strategic goal of Concordium is to develop a thriving Minimum Viable Ecosystem, and part of that process is to help make the CCD token available and accessible to the public. A healthy token provides the energy which ecosystem projects can harness to build the next generation of safe Web3 services. In order to remove the obstacles for Concordium to integrate with relevant financial institutions and gateways, the shielded transaction feature will be removed, while the Concordium core team will overhaul the strategy around protocol privacy features.

First step is to remove the shielded transaction feature from all wallets, and later at the protocol level (targeted for Protocol 7 update in August/September). To ensure no funds will get stuck in a shielded balance, the option to unshield will stay in both protocol and the wallets.

Privacy is a cornerstone for building strong Web3 services. Concordium still aims to build enterprise-grade privacy tools that can protect both treasury information and user data. Taking this opportunity to overhaul the strategy for privacy, we aim to set up a working group with regulators, legal experts, enterprises, and cryptographers, to build a suite of tools that can satisfy both regulatory requirements and business needs.

At all levels of operation, the Concordium team prioritizes features that will give the network and all its participants the most benefit possible. Today, we conclude that the shielded transactions feature is not adequate to meet the actual demands of the users, while at the same time being too much of an obstacle to the further progress of the ecosystem. By acting swiftly to remove this feature, while at the same time outlining a path towards more appropriate and balanced privacy features in the future, we believe that we will bring the most value to the network today and onwards.