Railgun is a privacy-preserving protocol that allows users to engage in DeFi anonymously.
The project is designed to shield both the user’s private information and the digital asset that is involved in the transaction from anyone following the transaction. It achieves this through zk-SNARK cryptography as part of the Railgun smart contract. The Railgun Privacy System enables users to maintain custody of their private keys and full control over their assets.
How is Railgun different from mixers?
Mixers are a form of privacy protocol that obfuscate a user’s transactions on a blockchain. Generally, they work by creating a pool of tokens from a variety of sources and acting as an intermediary for the final transaction. By scrambling the funds from different wallets, tracking the original tokens becomes difficult.
Railgun is different from mixers for a couple of reasons. Railgun can maintain a private balance within the Railgun wallet and is not limited to sending tokens from A to B. More importantly, Railgun does not blend multiple wallet funds, but fully removes identifying information from transactions, while never taking custody of a user’s digital assets.
Railgun Features
Private Balances
Private balances are a very important part of the Railgun protocol. Users can keep adding funds to their Railgun account from a publicly available wallet address. When they do this the transaction will be recorded on the blockchain with the sender’s address. However, once their funds enter the Railgun protocol they can shield their balance. Any additional transactions that a user makes with those funds will be private and anonymous.
Since transactions after shielding do not record the wallet address, it is impossible to know what assets the user has transferred or spent. The user could also have received tokens privately from other Railgun addresses. There is no way to know what remains in the user’s wallet. This adds a layer of anonymity to the whole protocol as accounts on Railgun can potentially hold any amount of any digital asset that has been added to the protocol from any source.
Relayers
Railgun private balances establish the privacy of users’ transactions with other Railgun accounts. Relayers ensure this privacy is maintained when interacting with external protocols.
The relayer network forwards transactions on behalf of Railgun users and pays their gas fees. This is what enables Railgun accounts to interact with smart contracts and DeFi protocols anonymously, as the recorded transactions show gas fees paid by a relayer rather than the user, severing all links to their wallet address.
Relayers are unable to see the contents of the transactions they are facilitating, including the user’s addresses. They are incentivized by receiving fees for completing the transactions on behalf of the users. Relayers set their rates and tokens they are willing to accept for performing the service. Users select the relayer they wish to use which keeps the incentive structure in check.
NFT Support
The Railgun privacy protocol’s code supports the user privately holding, transferring, buying, selling, and exchanging NFTs within the Railgun system, with front-end integration coming soon. Additionally, Railgun allows for the possibility of private auctions, transactions, and transfers of NFTs. Similar to coins and tokens transacted within the Railgun system, NFT transactions within the Railgun system are non-custodial so users maintain full control over their digital assets.
NFT private auctions can be conducted where NFT IDs are revealed but their owners and accounts bidding on them, along with the price of their bids, can remain anonymous. This has additional implicaions for airdrops and DAOs, whereby recipients of airdrops do not have to be revealed. For DAOs, this can additionally facilitate members demonstrating their membership through NFT or other token ownership without having to dox their identity or the size of their stake.
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Source: https://blockonomi.com/features-that-make-the-railgun-smart-contract-system-so-powerful/