Note: If you’re not familiar with Chainlink, make sure to go through my previous article first: “Chainlink: A Fundamental Analysis”.

Before we start, here are some key terms to know:

Blockchains are essentially very secure, distributed, and decentralized databases.

Smart contracts are lines of code that automatically execute a function when given an input — just like a vending machine.

Chainlink is a form of digital infrastructure that secures data transmission.

Smart contracts, such as high-value smart derivatives, need real-world data from off-chain sources in order to execute. They need a software called an oracle to fetch said data, parse it, and feed it to contracts on the blockchain. All oracles are currently centralized, thereby negating all the advantages that come from using a decentralized blockchain. Chainlink is a decentralized oracle network that eliminates any single point of failure in a smart contract by utilizing multiple oracles. For a more in-depth look on how the network works, check out my other article: “An In-Depth Look at the LINK Token”.

How Town Crier works.

Before Mixicles, Chainlink had acquired Town Crier, which essentially enables node operators to use secure hardware, such as trusted execution environments (TEEs) like Intel SGX, to compute resources off-chain, while also minimizing attack vectors. This greatly enhanced the amount of privacy allowed in smart contracts, reduced the amount of resources needed for on-chain computation, and ensured that the data being relayed by Chainlink nodes is secure and tamper-proof.

Chainlink went the extra mile by releasing a non-TEE solution for privacy called Mixicles which enables smart contracts to be private, while still being auditable to regulators. The word Mixicles is a play on “mixers” and “oracles”.

Mixicles enables privacy by executing part of the contract off-chain, so the terms of the contract are not revealed to outside parties. It also uses a mixer/tumbler design to obscure the payments that happen on-chain to settle the contract. It’s important to note that while Mixicles doesn’t require trusted hardware, they can be combined to work together to ensure privacy of the contract’s terms, even to the nodes relaying the data.

The way it works is that multiple entities, say Alice and Bob, send transactions to a tumbler which mixes the transactions such that the outputs cannot be traced back to the inputs. Because transactions on public blockchains are available to be analyzed by anyone and traced back, this makes it very difficult for smart contracts to be adopted for high-value contracts where certain data will always be sensitive, such as personal information. Mixicles solves this problem by allowing for these private internal operations in the tumbler to be routed to their respective parties taken from the inputs of the oracle involved. For more on how Mixicles work, check out this article.

This will be the genesis for the creation of confidentiality preserving Decentralized Finance (DeFi) instruments. Mixicles blend security with compliance, making them perfect for high-value financial transactions that require a certain degree of privacy for them to be viable. This will enable private contracts to be available on public blockchains, eliminating the need for private blockchains entirely.

High-value institutions will now be able to shield their smart contracts from blockchain analysts while being able to leverage the immense trust and security of public blockchains without needing the oracles to use trusted execution environments.

An interesting piece of the Mixicles whitepaper is the following:

Most closely related to our work here on Mixicles is the Discreet Log scheme of Dryja, a pioneering work in oracle-based DeFi. The objective of that scheme is to support an oracle-based DeFi contract in Bitcoin that is indistinguishable from an ordinary Lightning Network transaction.

The whole purpose of Chainlink is to be able to be used by any platform; the goal of blockchain agnosticism. The above quote implies that the team wants to integrate Chainlink with Bitcoin Core or the Lightning Network as a long term goal. Allowing public blockchains to use oracles opens up far more possibilities than if they were closed off from accessing off-chain resources in a reliable and secure manner.

LinkPal

The winner of the Chainlink Virtual Hackathon is LinkPal, which allows Peer-to-Peer Ethereum to fiat decentralized escrow via PayPal. A smart contract uses Chainlink oracles to confirm that the PayPal invoice has been paid. The contract can confirm with multiple oracles, making it more decentralized and therefore more secure.

However, there is a possibility that PayPal freezes the transaction. This is where Mixicles comes into play. By shielding the transactions in a tumbler, the outputs cannot be correlated back to the entity that initiated the inputs. Normally, the invoice API triggering the event which is coming from the smart contract is how PayPal will know which account to freeze, since the oracle is doing that part which is traceable. This is no longer an issue when the contract uses Mixicles which shields the crucial data that could be used to trace where the inputs of the contract originated. Without the use of Mixicles, this data is easily accessible, due to the nature of public blockchains.

Key Takeaways

Mixicles will enable smart contracts on public blockchains to be private yet auditable to regulators.

Mixicles will be the genesis for the creation of confidentiality preserving Decentralized Finance (DeFi) instruments.

Mixicles are agnostic and will be used for Bitcoin and other public blockchains.

A successful implementation of Mixicles will make private/permissioned blockchains obsolete.