Bitcoin in DeFi

VeradiVerdict - Issue #94

  • One lingering problem inherent with most blockchain architectures is that no data is ever truly “private.” Many blockchains rely on the principle of complete transparency, which involves publishing all actions to a public ledger. Even when data is encrypted, individuals can still deduce identities/secrets by examining the contents of the ledger and a history of actions. 

  • Keep Protocol aims to tackle the privacy problem of blockchain by offering off-chain private data storage, that can be securely accessed by on-chain contracts/transactions. 

  • “Keeps” are off-chain storage containers hosted by “keep providers.” Users can request a keep to store private data and are given secret keys that enable them and them-only to access this data. Contracts with these keys can now access private data stored in keeps via secure multi-party computation (sMPC), mutate this data, and compute functions over this data for use in other contracts on-chain.

  • The Protocol currently touts 5 major use cases, including decentralized signing (user authentication via off-chain services, like SSH), dead man switch (exposing private secrets when a blockchain network fails), custodial wallets (holding custody of non-ERC-20 cryptocurrencies in off-chain storage), encrypted data storage, and decentralized goods marketplaces (a storage mechanism for audio/video files, etc. that can be distributed through crypto transactions).

  • One of the most exciting use cases of Keep is trustless Bitcoin (tBTC). tBTC is an ERC-20 digital asset that is 1:1 backed by actual BTC; the custody for the actual BTC is maintained via a Keep. tBTC essentially allows users to send BTC using Ethereum contracts, since each tBTC corresponds to an actual BTC.

  • Keep’s storage marketplace is principled on the native KEEP token. Users who want keeps can pay for them using ETH or KEEP; the prices vary based on the storage option the user selects. Providers are compensated for hosting storage but are also required to stake KEEP tokens in order to be able to provide storage. The staked KEEP functions as a security deposit that ensures the provides maintain reliable uptimes and best practices, disincentivizing misconduct. Over time, providers accrue compensation for their services and use staked KEEP to payout any claims of misconduct.

  • Ultimately, Keep provides one of the most promising solutions for off-chain data storage and user privacy on the blockchain. It maintains the benefits of full transparency via a public ledger, which guaranteeing better user privacy and flexibility with off-chain private storage, providing an incredibly powerful abstraction for future cryptocurrencies and contracts.

Real Privacy on the Blockchain

One of the most commonly-touted benefits of blockchain and cryptocurrency is that it’s inherently private –– since users use pseudonyms (like wallet addresses) and have full ownership over their data and assets, many argue that blockchain is designed to obfuscate the identities of its users and protect user privacy. In practice, however, that’s not necessarily true. One aspect of many blockchains (including Bitcoin) is that all data is posted to a public ledger; that means anyone in the world can have access to a full history of wallets and transactions sent between these wallets. This enable third parties to “deduce” the identity behind different wallets, by analyzing the path of the transactions, the relay IP addresses, etc. There is no “privacy” when everything is effectively posted publicly.

Some cryptocurrencies have attempted to tackle this problem of privacy. One of these is Zcash which has garnered tons of attention for its cryptographic complexity and incredible privacy guarantees. Within the larger sphere of blockchain, however, (including DeFi, Dapps, etc.), there hasn’t been much progress on the issue of user privacy, until recently. And as the DeFi ecosystem gains momentum, there will be more demand for privacy than ever, as a key differentiator that sets it apart from traditional finance.

What’s the solution for user privacy?

Keep Protocol is a network that provides completely private data container that can be accessed from a public blockchain. One key problem with many blockchains today is that all data that a chain might need access to is stored on the public ledger; this means that any user with access to the public ledger can peek at that data. Keep solves this by using off-chain storage containers to privately hold data, which can be accessed by on-chain code and transactions via cryptographic signatures and verifications. This means a chain can access private data when given the appropriate permissions and doesn’t need to expose that data in the process.

How exactly does Keep work?

A “keep” is basically an off-chain storage container. “Keep providers” are essentially nodes that host keeps (much like a server or a storage bucket for a cloud service). The content of the keeps can only be accessed by secure multi-party computation (sMPC). 

At a high-level, sMPC works by storing all of the “private data” (sometimes referred to as the “secret”) across a multitude of nodes, where each node only contains a portion of the secret. The only way to access the entire secret is to gain access to all of the nodes, which requires multiple different keys, enhancing security. Nodes are assigned to user storage using a random beacon protocol. 

When a user wants a keep, they would publish a request to the blockchain. The Keep Protocol would accept the request, and securely return the necessary keys for the user to be able to access the contents of the keep in future transactions or contracts. The user can now write contracts that access the content of the keep, mutate the contents of the keep, or compute some function over the contents of the keep and post the secrets back to the public blockchain, either in encrypted or non-encrypted form. All signature and transaction data are secured via Threshold Elliptic Curve Digital Signature Algorithm (T-ECDSA) and zero-knowledge proofs, ensuring that private data is never exposed. The protocol combines the micro-level security guarantees of off-chain storage with the macro-level security guarantees of full transparency on the public ledger to create an incredibly versatile, powerful abstraction for blockchain.

At the moment, Keep is in production for the Ethereum blockchain, but the team is designing the code to allow cross-chain functionality for other blockchains. It is also one of the first protocols to use sMPC on Ethereum.

What are some use cases for Keep?

Currently, the team proposes five primary uses cases:

  • Decentralized Signing. Keep can act like a virtual notary and can perform identity verification/user authentication with off-chain data or services, like SSH, PCP, TLS, and more.

  • Dead Man Switch. Keeps can be written to expose secrets (like trusts, plans, contracts for the future, etc.) whenever some condition in the calling blockchain is met (like an attack or node failure).

  • Custodial Wallets. Keeps can be used to generate wallets to which Ethereum contracts can send various different cryptocurrencies. This is important for blockchain interoperability and cross-chain transactions, a problem that has pained the blockchain community for years.

  • Encrypted Blockchain Storage. This is the most obvious example –– several Ethereum contracts may need access to private data that users don’t want to post to a public ledger. Keeps provide a mechanism for users to store private data externally.

  • Digital Good Transactions. Files like audiobooks, music, movies, games, and more can be stored in off-chain Keeps. Contracts can then distribute these files/services in exchange for cryptocurrency, ensuring that security is maintained throughout the transaction.

One of the most prominent uses of keep is trustless Bitcoin (tBTC). tBTC is an ERC-20 digital asset that is backed 1:1 by BTC (on the actual Bitcoin blockchain). tBTC can be used on Ethereum, and essentially provides an Ethereum-analog that allows Ethereum contracts to use/send tBTC, which corresponds in value to actual BTC. The ability to back tBTC 1:1 with BTC at all times relies on off-chain secrets stored in a keep and cross-chain communication enabled by keeps.

In general, keeps are a powerful solution for any blockchain problem that requires access to private data. The protocol is incredibly versatile and generalizable and can fit many specific use cases under the broad realm of private data storage and blockchain access.

How do users pay for storage and how are providers compensated?

Keep structures its economics around its native token, KEEP. Users who request keep storage pay for the storage using ETH or KEEP; there are different options available to users, and the payment differs based on the selected storage plan. 

Keep Protocol compensates providers for hosting off-chain storage. The protocol needs to incentivize provides to make sure their storage is reliable, and thus, providers are also required to stake KEEP in order to be part of the storage market. Providers are continually paid for operating keeps, but also can lose portions of the KEEP they stake if they are unreliable or negligent. The KEEP token acts as a pseudo-security deposit that creates a financial incentive for providers to actually offer powerful, usable storage.

At the moment, Keep Protocol is investing tons of energy into building up legitimacy and publicity around tBTC. Since tBTC custodianship is handled with Keeps, tBTC signers generally need to stake KEEP and ETH to fulfill their responsibilities. Since KEEP hasn’t been publicly distributed yet, the Protocol kicked off a stakedrop in June of this year where the public can stake exclusively ETH to sign for tBTC, earning rewards in the form of KEEP tokens over time. This fundamentally means that anyone can stake ETH to earn KEEP in the coming months, building up a marketplace of providers that can stake KEEP and offer off-chain storage to users. 

There is a fixed supply of 1 million KEEP tokens over the protocol’s lifetime, of which 25% will be publicly distributed in the stakedrop. 

Final Thoughts

Keep Protocol takes some of the most powerful cryptographic tools from recent history, like zero-knowledge proofs and secure multi-party computation and provides one of the most promising solutions to a fundamental problem with blockchain –– user privacy. Being able to securely interface a blockchain with off-chain storage opens up a myriad of opportunities for contracts and Dapps on Ethereum. The excitement around tBTC demonstrates the material need for secure off-chain data storage, and the potential that keeps have for blockchain interoperability, complex Dapps, digital good marketplaces, and more. The protocol’s use of the KEEP token incentivizes storage providers to maintain strong uptimes and secure guarantees around their off-chain storage, making this one of the most reliable solutions to off-chain private data storage. Ultimately, Keep Protocol presents a huge step forward in enhancing user privacy and contract versatility on the blockchain, without compromising the benefits a public ledger and full transparency.

- Paul V



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Walks at the park or Zoom coffee meetings


Hi, I’m Paul Veradittakit, a Partner at Pantera Capital, one of the oldest and largest institutional investors focused on investing in blockchain companies and cryptocurrencies. The firm invests in equity, pre-auction ICOs, and cryptocurrencies on the secondary markets. I focus on early-stage investments and share my thoughts on what’s going on in the industry in this weekly newsletter.