What About Privacy on Ethereum?

Over a year ago, the Ethereum Foundation unveiled Kohaku, an EF-led wallet SDK designed to make private transactions user-friendly. Ethereum has long had privacy-preserving protocols like Tornado Cash and Railgun, but said privacy protocols have been hard to access for the average user, often needing separate wallets from the ones most users are already familiar with. Kohaku aims to bring privacy to EVM users through wallets they already use. Yet a year later, no major EVM wallets have implemented any Kohaku-related features. 

New Ethereum upgrades and features often take longer than users hope, and Kohaku appears no different. Ambire’s integrations show that work is continuing. 

On September 15, Ambire, the wallet that was forked for the Kohaku SDK, announced that they had internally integrated Railgun into the Ambire wallet using the Kohaku SDK. Then, on October 4, further announced that Privacy Pools, another Ethereum-based privacy protocol, had been internally integrated using Kohaku. Ambire also told users to “expect news at Devcon,” which runs from November 3 to 6. 

Ambire’s teaser points to a Kohaku update at Devcon. For example, at last year’s Devcon, Vitalik Buterin did a presentation on Kohaku, and even shared a demo of a Kohaku-enabled wallet. Based on this, and Ambire’s recent announcements, I expect there to be some meaningful progress on Kohaku at this year’s Devcon. In the best case, Ambire announces that its wallet is now publicly integrated with some Kohaku features, but perhaps more likely, Ambire shows off what they have internally achieved and gives a timeline for when it will launch publicly. Regardless, one thing is clear: Ethereum is on the precipice of entering its next stage of privacy adoption.

This will have material implications for the leading privacy solutions on Ethereum, like Railgun. Railgun has been slowly, but steadily, growing as privacy in crypto becomes increasingly normalized. Total value locked (TVL) in Railgun stands at $114.8M, up a modest 12% YoY from $102.2M.

This growth is in spite of the current UX being clunky for most users, requiring them to download separate wallets such as Railway or command line interfaces (CLIs) like Terminal Wallet. For the average user, accessing Railgun today is a foreign concept. But, with wallets like Ambire integrating Kohaku and making privacy through Railgun as easy as an in-wallet swap, Railgun gains a new distribution channel.

Further standardization of privacy on Ethereum should not only benefit Railgun’s TVL, but its revenue as well. In Q3, Railgun’s revenue totaled just above $1.0M, or $4.1M annualized. Revenue had been on a downward trend since last October, but September had the highest monthly revenue of any month this year. 

Railgun’s revenue multiple has also increased, from 13.4x in April to 35.0x. There’s a confluence of factors that have impacted this rally, such as the leading privacy coin, ZEC, also putting in a strong rally at this time, but the market may also be sniffing out the impact of Kohaku on Railgun’s fundamentals. 

At the end of the day, it’s still mainly just speculation on just how big of an impact Kohaku will have on Ethereum privacy. To date, the only relevant EVM wallet that has confirmed they will be using Kohaku is Ambire, which admittedly has a tiny user base when compared to major wallets like MetaMask or Rabby. Regardless, it’s time to start paying attention again to privacy on Ethereum, given Ambire’s integration work and Devcon’s arrival as a potential catalyst. 

— AJC