Nym: On the Frontlines of Blockchain Privacy

One unique blockchain business area, which rarely gets written about, is specialized security and privacy services. Among its most outstanding startups is Nym Technologies, whose developers claim that their network is superior to VPN and even Tor. Are they right?

The race between “shields” and “swords” in cyberspace is everlasting. Back in 2017, when cryptocurrencies first went mainstream, many of their supporters talked about the anonymity the blockchain provides – if you do not accidentally flash your crypto wallet, no one can track your financial transactions.

But then we saw a real boom of companies and services involved in blockchain analytics. Their algorithms easily broke through even well-hidden, multi-layer procedures to conceal transactions. The response was bitcoin mixers and anonymous cryptocurrencies like Monero. It led to further improvements in blockchain analysis algorithms, specialized services, etc. What became clear was that real security and anonymity in Web 3.0 required fundamentally new solutions.

European security startup Nym Technologies has developed an open-source, decentralized infrastructure that aims to outperform well-known privacy services, including virtual private networks (VPNs) and the Tor network. The creators hope to achieve this by using mix network protocols, which obscure traces of individual metadata to avoid digital tracking. Third-party developers can use Nym’s solutions to build anonymous and private online applications.

Digital Currency Group Platform Manager Samantha Bohbot used the following words to describe Nym Technologies’ investment potential: “Nym has built a one-of-a-kind privacy layer, capable of protecting even against the fiercest adversaries, and fueled by a crypto-economic incentive structure. We envision its technology to set a new standard for user privacy on the Internet.”

This next-generation global decentralized privacy network was built by leading academic researchers and developers from world-class universities such as MIT, the KU Leuven, and University College London.

The system’s mix network provides overall security, application-level privacy credentials, and a NYM token to reward those who run the service, ensuring its resilience and scalability.

Nym Mixnet is a grid of mixed nodes made out of overlay routers that transform and reorder messages so that their inputs cannot be matched to their outputs, whether by appearance, time, or other metadata. It is based on the Loopix anonymization network with various modifications and extensions. If necessary, nodes can inject dummy data packages, making it even harder for third parties to decode the information.

According to the developers, Nym Mixnet is “a decentralized three-layer network of computers. Your communication traffic goes through it wrapped in multiple layers of encryption using the Sphinx packet format, which makes every piece of data passing through Mixnet look exactly the same. At every level of Mixnet, your internet traffic is mixed with other people’s traffic, so metadata that uniquely identifies your posts, i.e., your IP address, time, and destination, is obscured. It means that your traffic gets “lost in the crowd,” and both the content and the metadata of your communications are protected and kept private.”

Nym operates based on a simple principle: the more data is mixed together, the more private each network user’s information is. So, for example, DeFi service developers can connect their applications to Nym to secure their users at the network level through the Mixnet and protect them at the application level with the system’s privacy credentials. The Mixnet provides layer 0 privacy, which adds metadata protection for Layer-1 (e.g., Bitcoin and Ethereum) and Layer-2 (most DeFi systems) blockchain projects.

Other Nym components of include:

– Nym Credentials. These allow third-party applications to anonymize any random key-value pairs so that users can privately disclose some or all of their data as they see fit for any matching and authentication required.

– Nym Token (NYM) is a utility token used to access Mixnet and designed to protect user privacy and serve as a reward for the nodes that manage the infrastructure. The total supply of NYM is 1 billion tokens.

NYM gives out traffic mixing and privacy rewards to Nym network users. The collected token fees go into a reward pool and are then distributed among the mix nodes based on their performance. NYM can be delegated to mix nodes, signaling approval of their reputation and receiving a share of their rewards. The coin distribution supports decentralization and incentivizes Mixnet to provide a high quality of service. NYM is not a universal payment mechanism or cryptocurrency – it is used exclusively within the network

The value of the NYM token will ultimately be driven by global demand and the need for privacy, which has only been increasing so far. It is one of the key differences between Nym and the one comparable global privacy system – Tor. Tor is limited by operating on a voluntary basis, which prevents it from scaling.

At this point, the Nym project is still in its development stages. The team’s plans for 2022 involve improving the Sphinx and SURB formats; creating Nym client apps and graphical interfaces, including wallet and toolbar; implementing authentication services using Nym Credentials; supporting personal messaging and cryptocurrency transaction apps.

In 2023, the platform is looking at business use cases and institutional implementation. These include high-speed mixing for everyday private Internet use, supporting decentralized VPNs, and standardization of the Nym’s core components in organizations like the IETF.

The history of investment in Nym Technologies deserves a special mention. Seed funding of $2.5 million was concluded in May 2019. Series A, led by Polychain Capital, raised $6 million in July 2021. The third round of financing, which took place recently, amounted to $13 million. It was coordinated by well-known crypto investor Andreessen Horowitz and involved such venture capital companies as Digital Currency Group, Tayssir Capital, Huobi Ventures, HashKey, and Fenbushi.

However, the project is not without criticism. So far, the main complaint has been a lack of experience in the face of real opposition (intelligence services, criminals, etc.) In other words, we cannot yet say how effective Nym Technologies are in “digital war” conditions when big money and prison terms are at stake. Figuring this out can take many years. Recall only that the Tor-based darknet was long considered impregnable for law enforcement agencies, but still its largest criminal marketplace – Hydra – was recently brought down by criminal police.

The weaknesses of established privacy services are already known. For VPNs it is unscrupulous services that keep logs and share information with law enforcement. With Tor, the intelligence services can create their own network nodes while simultaneously cutting off functioning independent ones.

The vulnerabilities of the Nym network, on the other hand, are yet to be discovered. And the related question is whether Nym is flexible enough to quickly close the identified security gaps? This would require not only a considerable developers team, but also a large and stable community of project users. Such a support base does not exist yet – the project simply did not have time to establish it.

For now, all that remains is waiting for Nym’s success or failure.