Key conclusions
- The traditional pseudonymity of the Bitcoin network based on open public keys no longer guarantees full privacy when compared to advanced algorithms of analytical companies.
- The new pERC-20 standard on the Ethereum network replaces the public list of balances with a system of encrypted, cryptographic notes that act like digital cash.
- The STRK20 project on Starknet implements data protection directly into DeFi protocols, focusing on improved user experience and post-quantum resilience.
The radical transparency of public blockchains, which for years was considered the greatest advantage of distributed ledger technology, has become the main implementation barrier for institutional capital and mass users. The modern cryptocurrency ecosystem resembles an open banking book in which every financial interaction, ownership status or history of connections is available for viewing by any network observer. In response to this structural problem, Ethereum and Layer 2 network developers began exploring advanced cryptographic mechanisms. The key element of this transformation is the proposal of the pERC-20 standard introducing encrypted value notes and the STRK20 framework, which is intended to secure transactions in the area of decentralized finance.
Cypherpunk and Satoshi Nakamoto’s manifesto towards modern data analytics
Contemporary market reality has completely verified these assumptions.
The development of specialized companies dealing with on-chain analytics has led to advanced deanonymization of users. Tracking tools precisely cluster distributed wallet addresses, assigning them to specific entities based on behavioral patterns, unique timestamps and interactions with exchanges. When a user undergoes the identity verification procedure (KYC) on any centralized platform, the entire history of his or her financial connections in the Bitcoin or Ethereum network is no longer anonymous. For corporations and investment funds, this state of affairs is unacceptable because it forces them to expose their own market strategies to the competition.
The pERC-20 standard introduces encrypted notes instead of open balances
The current architecture of the Ethereum network is based on the ERC-20 standard, in which a smart contract stores a database containing an explicit list of addresses and the numerical units assigned to them. Anyone can easily check the holdings of any wallet using public block explorers. The pERC-20 proposal completely reverses this paradigm by implementing a cryptographic notes mechanism. Instead of a static table of balances, tokens in the new format begin to function in a way similar to the UTXO model known from the Bitcoin network, but with full use of advanced encryption.
Tokens in the pERC-20 standard are not written as a digit next to the address, but as unique, encrypted pieces of value resembling digital banknotes. When the transfer is made, the system does not modify the public account balance. Instead, the sender’s previous notes are invalidated and replaced by new ones intended for the recipient. Third parties are not able to view the amount of transferred capital or the final balance of the parties involved in the transaction. The protocol confirms the mathematical correctness of the entire operation without having to reveal the source data.
However, the creators of pERC-20 moved away from the concept of completely isolating the network from legal requirements, which in the past led to the marginalization of older alternative cryptocurrencies. The new standard introduces a programmable compromise between data protection and compliance. The total supply of a given asset remains fully transparent, which prevents additional coins from being secretly generated. In addition, issuers gain a tool that allows them to freeze specific, illegal notes using blacklists, using built-in cryptographic mechanisms. This process protects the privacy of honest market participants, while cutting off access to the ecosystem for entities violating the law.
The STRK20 project and privacy in the world of decentralized finance
Protecting simple value transfers is only part of the challenge developers face. Modern blockchain networks are based on advanced decentralized finance applications, such as AMM exchanges, lending protocols and liquid staking platforms. In this market segment, the lack of confidentiality generates the MEV (Maximal Extractable Value) phenomenon, where arbitrage bots and institutional entities scan the public pool of pending trades in order to manipulate prices to the detriment of smaller investors.
StarkWare co-founder Eli Ben-Sasson notes that the main barrier holding back the adoption of data protection technologies is not the limitations of mathematics or cryptography alone. The greatest difficulty is user comfort, i.e. the UX parameter. Historical confidentiality-oriented solutions suffered from low throughput, slow synchronization, and terrible compatibility, which deterred average consumers. Anonymity in distributed ledgers is directly based on economies of scale. If a small group of people use data protection tools, identifying individual transactions becomes simple. STRK20 emphasizes the integration of cryptographic processes directly into wallets, so the application experience remains seamless. Additionally, the Starknet framework uses post-quantum cryptography, which guarantees the security of stored information in the perspective of the upcoming development of quantum computers. Projects such as pERC-20 and STRK20 prove that developers’ attention has moved from niche solutions towards building a durable and secure infrastructure for the entire Web3 market.
