Privacy of rollup transactions: how to ensure anonymity in second-level networks

With the development of blockchain scaling technologies, more and more users are turning to second-level solutions, such as rollups. However, along with the advantages of speed and reduced commissions, an important question arises - how to maintain the privacy of rollup transactions at the proper level. With growing regulatory pressure and increased analysis of blockchain data, ensuring privacy is becoming not just a desirable option, but a critical necessity for many participants in the crypto economy.

In this material, we will analyze in detail what privacy protection mechanisms exist in rollups, what vulnerabilities remain relevant, and how users can increase their level of anonymity when working with these protocols.

What are rollups and why the issue of privacy becomes critical

Rollups are a scaling technology in which many transactions are combined into one package (batch) and recorded in a compressed form on the main blockchain. There are two main types of rollups: Optimistic Rollups and ZK-Rollups (Zero-Knowledge Rollups). Each of them has its own data processing features and, accordingly, its own approaches to ensuring confidentiality.

Architectural features of optimistic rollups

Optimistic rollups, such as Arbitrum and Optimism, work on the “trust but verify” principle. Transactions are considered valid by default, but any network participant can challenge them within a certain period (challenge period). From a privacy perspective, optimistic rollups do not hide data by default—all information about transactions is available for analysis.

This means that specialized analytical companies, such as Chainalysis or Elliptic, are able to track the movement of funds between levels, identify user addresses and build graphs of connections. For users who value the privacy of rollup transactions, this poses a serious problem.

Operating principles of ZK rollups

ZK rollups use zero-knowledge proofs, which allow you to confirm the correctness of transactions without disclosing their contents. In theory, this provides a higher level of privacy, but in practice, many ZK rollups (for example, zkSync and StarkNet) still publish a significant part of the transaction information on the main network to ensure verification.

Thus, even the use of modern ZK solutions does not guarantee complete anonymity without the use of additional security measures.

Main threats to privacy in rollups

Before considering protection methods, it is necessary to clearly understand exactly what threats exist to the privacy of roll-up users.

Sequencer-level data analysis

The sequencer is a key component of any rollup, responsible for collecting, ordering and batching transactions before sending them to the main blockchain. Most existing rollups use a centralized sequencer, which creates a serious failure point from a privacy perspective.

The centralized sequencer has a complete picture of all transactions on the network: it sees sender and recipient addresses, transfer amounts, timestamps and metadata. This information may be:

• Used to censor certain transactions;
• Transferred to third parties, including government agencies;
• Become the target of hacker attacks, which will lead to data leakage of millions of users.

Linking addresses between levels

When funds are deposited into a rollup (deposit) and withdrawn back to the main blockchain, characteristic patterns are created that allow analysts to link addresses between levels. For example, if a user sent 1.5 ETH from address A to the rollup bridge and then received 1.49 ETH (minus fees) to address B, there is a high chance that addresses A and B belong to the same person.

This creates the so-called “bridge problem,” which is especially acute when using the privacy of rollup transactions to ensure complete anonymity.

Mempool analysis and MEV attacks

In the rollup mempool, as in the main network, transactions are waiting to be included in the block. Attackers or validators can:

1. Analyze the contents of the mempool to identify large transfers;
2. Carry out front-running - place your transactions before the target ones;
3. Use sandwich attacks to profit from other people's transactions.

All this not only violates privacy, but can also lead to direct financial losses for users.

Methods for increasing privacy in rollups

There are a number of technical solutions and practical recommendations that can significantly increase the level of privacy when working with rollups.

Using private mempools

Private mempools are specialized services that allow you to send transactions directly to validators or sequencers, bypassing the public mempool. This significantly reduces the risk:

• Frontrunning;
• Sandwich attack;
• Censorship from other network participants.

Examples of such services include Flashbots Protect and similar solutions tailored for specific rollups. However, it is important to understand that private mempools only partially solve the privacy problem - they protect against MEV attacks, but do not hide transaction data from the sequencer.

Applying Mixing Techniques

One of the most effective ways to break ties between addresses is to use mixers and mixing protocols. Although classic mixers primarily operate on the Layer 1 Ethereum network, there are specialized solutions for rollups.

The way mixing works is to pool the funds of many users and then distribute them in such a way that keeping track of the final recipients becomes a computationally complex task. To increase the privacy of rollup transactions, it is recommended:

• Use mixers both before depositing funds into the rollup and after withdrawing them;
• Apply delays between operations to break time correlations;
• Break large amounts into several parts.

Zero-Knowledge protocols with complete privacy

Some modern protocols are designed with maximum privacy in mind. These include:

• Aztec Protocol - ZK rollup with built-in support for private transactions through the use of recursive proofs;
• zk.money (from Aztec) - an interface for making completely private transfers;
• Polygon Miden is a rollup with support for private smart contracts.

These solutions use advanced cryptographic techniques, such as recursive SNARK proofs, to hide transfer amounts and participant addresses even when the data is published on the main blockchain.

Decentralization of sequencers as a path to privacy

One of the key problems of modern rollups is the centralization of sequencers. A solution to this problem is being actively developed by leading teams.

Espresso Sequencer Concept

Espresso Systems is developing a decentralized sequencer that will distribute the responsibility for ordering transactions among many independent validators. This will make the task of censorship and collection of user data much more difficult, since no one participant will have a complete picture of the mempool.

Similar projects such as Astria and Radius are working on creating shared sequencers that can be used by multiple rollups at the same time.

Threshold encryption of the mempool

A promising direction is the use of threshold encryption to protect the contents of the mempool. In this case:

1. The user encrypts his transaction before sending it to the mempool;
2. Decryption is possible only with the agreement of a certain threshold of validators;
3. The sequencer cannot see the contents of transactions until they are included in a block.

This approach practically eliminates the possibility of MEV attacks and significantly increases the privacy of rollup transactions, since the sequencer technically does not have the ability to analyze the contents of transactions at the stage of their processing.

Privacy Practices

In addition to technical solutions at the protocol level, there are practical steps that each user can take to increase their own privacy when working with rollups.

Using fresh addresses

One of the basic rules of privacy is to use new addresses for every significant transaction. This can be implemented via:

• Hierarchical deterministic (HD) wallets that automatically generate new addresses;
• Creating separate accounts for different purposes (for example, a separate address for DeFi operations, a separate one for NFTs);
• Avoiding address reuse, especially when interacting with rollup bridges.

Metadata Management

Transaction metadata (transfer time, commission amount, sender's IP address) can be as informative as the transfer data itself. To reduce the risk of metadata leakage, it is recommended:

• Use VPN or Tor to mask the network address;
• Change transaction sending patterns (for example, do not send transactions every Tuesday at 15:00);
• Use different RPC providers to send transactions.

Combining rollups and private networks

For users with increased privacy requirements, it is recommended to combine rollups with private networks such as Monero or Zcash. For example:

1. Convert ETH to XMR through decentralized exchangers;
2. Making a private transfer to Monero;
3. Reverse conversion to ETH to a new address;
4. Rollup deposit from a clean address.

This process greatly complicates the task of analysts, although it requires additional time and money.

The future of privacy in roll-ups

Privacy technologies in roll-ups are actively developing, and new solutions can be expected to appear in the coming years.

Fully Homomorphic Encryption

Fully homomorphic encryption (FHE) is a technology that allows computation to be performed on encrypted data without decrypting it. Integrating FHE into rollups will open up the possibility of creating private smart contracts, the logic of which is executed on encrypted data. Projects like Fhenix and Inco Network are already working on the practical implementation of these ideas.

Regulatory Aspects and Compliance

It is important to note that the development of privacy technologies occurs against the backdrop of tightening regulatory control. Many jurisdictions require crypto service providers to implement AML/KYC procedures. This creates a contradiction between:

• Users' right to financial privacy;
• Regulatory requirements to combat money laundering;
• The need to protect against the use of cryptocurrencies for illegal purposes.

It is likely that in the future, so-called “programmable privacy” will be developed, allowing users to choose the level of privacy depending on the context and requirements of counterparties.

Cross-rollup privacy

Another important trend is the development of cross-rollup privacy - the ability to make private transfers between different rollups without disclosing data on the main blockchain. This is especially true in the context of increasing fragmentation of liquidity between different second-tier solutions.

Ensuring the privacy of rollup transactions is a complex task that requires both technical solutions at the protocol level and a conscious approach on the part of users. The use of modern ZK solutions, mixers, private mempools and proper metadata management can significantly increase the level of anonymity when working with second-level networks.

As the industry develops, we can expect more and more advanced privacy protection tools to emerge, but it is important to remember that absolute anonymity in the blockchain is almost unattainable. A competent combination of technical means and conscious behavior allows you to achieve an acceptable level of privacy for the majority of people.