Enigma – A Privacy Oriented Hybrid On/Off-Chain Network That Mines Encrypted Data

August 2017
By Sam
Posted: Updated:
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Enigma Network

The blockchain was originally designed for completely open, transparent transactions, verified by every node on the network to ensure its trustworthiness. However, this limits their use in handling, storing and preforming heavy computation of private data. There are two major reasons for this problem.

First, the flow of private data cannot be controlled on the blockchain. The public nature of the blockchain limits its use and “means that only fiduciary code can run on the blockchain.” Companies need to keep confidential medical records, accounting data, and other sensitive information that could cause damage if released to the public. Thus, they have been forced to store and process tis data on centralized systems, vulnerable to attack, surveillance, and manipulation.

Second, growth of the network creates scaling issues, more users create exponentially more data and eventually strains node processing. The ensuing backlog of transactions continues to build, increasing verification times and fees. This was apparent in pre-SegWit 2 Bitcoin, where transaction fees climbed to near $20 USD and required almost 15 minutes to complete. Even Ethereum has a scaling problem due to its PoW protocol, currently being resolved with Casper, but to be put to the test with the creation of new DApps such as Kin.

Enigma solves these problems with the creation of “a peer-to-peer network, enabling different parties to jointly store and run computations on data while keeping the data completely private.” Instead of each node containing a record of all data and transactions, Enigma uses “secure multi-party computation,” to split data up between nodes and compute it in a decentralized, distributed way. Additionally, Enigma allows for scalability by being able to process data without having access to the raw data itself. For example, a group of scientists could analyze medical data to determine disease rates without ever seeing the individual patient data itself.

“You can see it as a black box,”

Enigma connects to an existing blockchain, but will use an off-chain network to compute data, relieving the need to process intensive queries on-chain. The heart Enigma is its “private contracts which are a more powerful variation of smart contracts that can handle private information (i.e., their state is not strictly public).” This creates both “privacy and correctness.”

The blockchain/off-chain hybrid pair solves several issues existing on solely blockchain networks: storage, privacy-enforcing computation and heavy processing. Off-chain, shares, encrypted and public data will be distributed, stored and linked to the main blockchain. Data can be encrypted with a simple “private” keyword being applied to certain objects, locking the data and making it secure. Where and how the data has been stored is kept on the main blockchain. This solves the issue of “homomorphic encryption,” encrypting data so it can be shared with a third party without the data ever being decrypted.

“You can see it as a black box,” said Guy Zyskind, an MIT Media Lab graduate researcher and one of Enigma’s creators to publication Wired. “You send whatever data you want, and it runs in the black box and only returns the result. The actual data is never revealed, neither to the outside nor to the computers running the computations inside.”

Incentive Fee System

Enigma needs many thousands of users to facilitate the network and so it has a fee based reward system, rather than mining rewards. Each node is required to “deposit” funds to gain access to the network. These funds are checked when data is verified and transferred between the blockchain and off-chain networks. For its computational work, the node receives a fee every time it handles a data query, if the node is found to be malicious, its fees and deposits are revoked and distributed among the other honest nodes. Nodes ensure information remains both private and correct and are rewarded for this service.


By putting up a veil of secrecy and solving the scaling issue, Enigma opens the doors to vast corporate and government applications. Any large data set, such as medical records, tax information, IoT device info, etc.., could be integrated into Enigma and then stored and sold to other companies wanting to conduct their own analysis. Customer’s personal data can also be stored in a decentralized encrypted manner without any threat of breach or leak. Additionally, Enigma allows for cryptobanking without exposing details, blind e-voting, and other private matters.

The white paper is dense. It’s written by Guy Zyskind (MIT), Oz Nathan (Tel-Aviv University), and Alex ’Sandy’ Pentland (MIT). I did not understand a lot of the coding concepts and I’m waiting for it to be reviewed by others with more tech understanding.

If Enigma achieves what it says it does, there will be huge implications. Working for the government in a confidential capacity, I have seen the lengths and measures the US government goes to protect data. This system would allow for integration of their closed systems and data into a large blockchain. Currently, if you want to gain access to sensitive public data, you have to use government authorized computers and workspaces. With Enigma, all that would be necessary would be for the data administrators to allow access to the sensitive data and then that individual or group could then analyze or use that data so long as the data administrator deems necessary.

“No one wants to give their data to some company when you don’t know what they‘ll do with it,” says Oz Nathan, Enigma’s co-creator to Wired. “But if you have guaranteed privacy, data analysis can be a lot more powerful. People will actually be willing to share more.”

If its full goals are realized, Enigma could be the next major network innovation for the blockchain by connecting it to off-chain computational power, all while keeping data private, allowing for decentralized correctness to mesh with centralized privacy and power. I’m extremely interested in the role out of Enigma.

In part two of my review I’ll be analyzing their new token ECAT, the backbone of their quantitative financial platform Catalyst set for release on August 21, 2017.

If you have any questions or if I’m wrong about anything said here, leave a comment or contact me on Telegram

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