Privacy is a key element of every network that pursues to be safe, power balanced and censorship-resistant. At the moment, Cardano is by default a transparent network that lacks built-in privacy capabilities. Fortunately, the adoption of Zero-Knowledge cryptography is improving key aspects of the blockchain industry that were neglected in the past such as Privacy. These matters are even more important today with the emergence of hypervigilance and Artificial Intelligence technologies. Our proposal aims to add private capabilities directly in layer 1 and in other contexts as well such as in the Hydra protocol. The usage of this technology will catalyze the development of new privacy-focused applications in Cardano with a broad use-cases.

The transparent design of Cardano brings the question about how to bring privacy in a ledger which is public by default. Cardano lacks private capabilities that allows users to control their data and have a censorship resilient ecosystem. In this sense, the infrastructure needed to have anonymous interactions in the Cardano doesn’t exist. This proposal aims to address two major challenges: On one hand, this proposal aims to develop a base protocol for privacy-oriented applications, which will lay the ground for innovation on development in this area. On the other hand, since to interact with a smart contract one needs to deal with the problem of the collateral, the Cardano requires a network of relays to avoid users providing the collateral. Although cryptographic primitives (e.g., zero-knowledge proofs) exist, the infrastructure layer needed to support private execution and anonymous access is missing.

Therefore, the solution consists of the development of two key pieces: A General privacy protocol and relay infrastructure. To complete all milestones and deliver a fully functional privacy layer, we estimate a total project duration of 12 months, structured across four sequential milestones.

General privacy protocol

We will build a general privacy protocol that has wide applications such as anonymous daos, private memberships and identity verification, voting and allowing privacy DeFi. This protocol is a privacy solution which serves as a base that can be extended to custom applications. It allows users to demonstrate their membership in a group and send arbitrary information without revealing their identity. It uses Zero-Knowledge cryptography to achieve anonymous proof of membership and overcome the double-signaling problem. The protocol has a wide range of use cases, and it serves as a base layer where other types of applications can be built on top of it.

From a technical perspective, the protocol enables users to create and manage groups while verifying group membership anonymously using Zero-Knowledge proofs. These groups can represent any kind of users, and membership can be confirmed without revealing individual identities. Once verified, members can post information to a smart contract. This information, typically represented as a string, also can be of any type. The protocol is designed to be extensible, serving as a foundational piece for building various applications on top of it. Use cases include anonymous login systems, voting mechanisms, decentralized autonomous organizations (DAOs), and even privacy mixers. Its flexibility allows for a wide range of implementations. Moreover, the protocol includes a mechanism to prevent double-signaling, ensuring that messages broadcast to the blockchain cannot be replayed or tampered with.

We have already developed prototype smart contracts that implement the core logic described above. It is an open source repository available on github called Cardano-Semaphore.

A decentralized relay network

Although advancements in cryptographic techniques have made meaningful progress, such as validators that can check Zero-Knowledge proofs to scale or validate a private information of a protocol, they alone are not sufficient. Additional layers of infrastructure are required to enable true anonymity and protect user privacy.

The requirement to provide collateral when interacting with smart contracts poses a challenge for anonymous users. If users supply the collateral directly, they risk exposing their identities. To preserve privacy, many protocols rely on intermediaries known as relays. These relays are incentivized to act on behalf of users, submitting their cryptographic proofs and covering the collateral, thereby enabling interaction with the smart contract without compromising anonymity. This relay infrastructure will be essential for most privacy-focused projects within the Cardano ecosystem. Decentralized applications such as voting platforms, mixers, and private wallets will depend on a robust and reliable system of relays to ensure user anonymity.

Therefore, our proposal is to build a decentralized and permissionless relay infrastructure that can serve as a foundational layer for privacy-preserving applications on Cardano. This will include the development of such relays as the protocol to claim incentives.

Privacy is a fundamental right that empowers users to control their own data and fosters a censorship-resistant ecosystem. In comparison to other blockchain networks, Cardano has made poor progress in advancing privacy features. For instance, Ethereum has outlined a clear roadmap for integrating privacy-enhancing technologies and has seen substantial investment across its ecosystem to support these efforts.

To remain competitive, Cardano must define a clear vision for privacy and prioritize key developments in this area. The absence of robust privacy solutions presents a significant barrier for users with heightened privacy needs—users who may instead turn to networks like Ethereum or Monero.

The data demonstrates a demand for privacy-focused solutions, with the privacy sector seeing a daily trading volume of $300 million and a market capitalization of $7.5 billions (this is a third of the Cardano market cap). There is a great opportunity for Cardano to participate in this growing market. This proposal aims to position Cardano at the forefront of blockchain privacy innovation, enhancing its competitiveness and appeal to privacy-conscious users.

This proposal will position Cardano as a leader in blockchain privacy, enhancing its competitiveness against other networks. It will have three major benefits:

1. Strengthen Cardano as a robust privacy platform. This proposal will enable the deployment of privacy-focused protocols—such as mixers, voting dApps, and private wallets—that can operate securely and anonymously on the network. It will also standardize privacy infrastructure across diverse use cases, improving interoperability, developer and user experience. The solution consists of the development of two key pieces: A General privacy protocol and relay infrastructure.

2. Increase the Cardano ecosystem growth. This proposal will drive growth across the Cardano ecosystem by attracting new users and increasing on-chain activity, leading to greater overall network utilization. It will also encourage developer engagement and support the launch of privacy-focused projects, expanding Cardano’s use cases and strengthening its position in the blockchain space.

3. It will inject liquidity into the Cardano ecosystem. By expanding Cardano’s footprint in the privacy sector, this proposal will unlock new streams of capital and attract privacy-focused users and investors. Increased transaction volume will also lead to greater fee generation, directly benefiting the Cardano treasury.

This proposal will consider four major milestones:

1. On-chain development of the General Privacy Protocol: Implementation of the on-chain component that represents logic of the protocol and proof verification capabilities.

2. Off-Chain Development of the General Privacy Protocol: Implementation of client-side tools for proof generation and interaction with the protocol.

3. Relay Software Development: Development of the software that allows relays to handle and submit private transactions.

4. Relay Incentive Protocol: Design of a mechanism to reward relays using fees collected into a treasury.

Cryptography development: 60k USD. Smart contract development 102k USD Backend and frontend development: 120k USD Project managing and technical writing: 60k USD.

We estimate a team of five individuals:

• 1 Cryptographer (Full time per 4 months). 15k usd x 12 months 60k usd
• 1 Smart contract developer (Full time per 12 months). 8500 x 12 months 102k usd
• 1.5 Full stack developer (1 Full time 1 part time per 12 months). 10000 x 12 months 120k usd
• 1 Project Manager (Full time per 12 months). 5k x 12 months 60 k usd

The duration of the milestone will be an aproximate of:

1. On-chain development of the General Privacy Protocol - 3 Months

2. Off-Chain Development of the General Privacy Protocol - 3 Months

3. Relay Software Development - 3 Months

4. Relay Incentive Protocol - 3 Months

Our team has been closely involved in major advancements in privacy and Zero-Knowledge proofs within the Cardano ecosystem.

We developed one of the first decentralized applications using Zero-Knowledge proofs on Hydra, showcasing the potential of scalable and private smart contracts just with Plutus V2.

https://zkmastermind.modulo-p.io/

In addition, we created a library for Cardano validators that enables the verification of Groth16 Zero-Knowledge proofs, bringing a pioneer milestone in the use of these proof on-chain.

https://github.com/Modulo-P/ak-381

We successfully implemented a port of the Semaphore smart contracts. These contracts are a prototype of the general privacy protocol mentioned.

https://github.com/Modulo-P/Cardano-Semaphore

We've also been actively working on the ENCOINS protocol—the first privacy-focused protocol on Cardano—pushing forward the vision of private transactions on a public blockchain.

https://www.encoins.io/

Right now we are working on an open-source private compliance solution, which allows users to anonymously prove that their transactions aren’t related to a set of malicious transactions.

https://github.com/eryxcoop/cardano-zk-proof-of-innocence

Relay fees will be collected into a dedicated treasury, which will be used to fund development. This mechanism ensures that the system remains sustainable and benefits from continuous community engagement. Since this is an open source project relevant to many privacy projects, we expect that the privacy community of developers will adopt and contribute to this initiative. Also we’ll consider participating in future grants.

In many ways, the Cardano community has expressed its interest in privacy.

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