The paper indicates that the researchers developed Zether, a “fully-decentralized, confidential payment mechanism.” The newly developed system is integrates well with both Ethereum and other smart contract platforms.
Furthermore, the developers created a different kind of smart contract that can function on its own or be operated by other smart contracts that saves the encrypted account balances, while facilitating the deposit, transfer and withdrawal of funds through cryptographic proofs.
The research paper claims that transactions remain confidential on Zether. However, a charge of 0.014ETH or ~$1.50 is levied for performing a transaction. Improved privacy is achieved through the option that allows funds to be locked in an account linked to a smart contract.
The report states that the type of anonymity guaranteed by Zether is very much similar to Monero (XMR):
“We describe an extension to Zether that can also hide the sender and receiver involved in a transaction among a group of users chosen by the sender. Though the overhead associated with anonymity scales linearly with the size of the group, no trusted set-up is needed and no changes to the underlying smart contract platform are required.”
The report further specifies that “The Zether contract will never transfer funds without first checking an appropriate burn or transfer proof, even if the request comes from another smart contract whose rules do not permit illegal transfers. This design decision ensures that the security of Zether only depends on itself and not on any outside smart contract. Even a maliciously written or insecure smart contract cannot cause Zether to misbehave.”
Privacy coins that offer a high level of anonymity are generally seen suspiciously by both the community and governments. In January, Litecoin (LTC) creator revealed his intention to make the crypto more private and fungible. Lee elaborated by saying that facility to transact privately could be added to Litecoin through a soft fork and would be incorporated “sometime in 2019.”
Last April, executives of Japanese Financial Services Authority (FSA) recommended banning cryptocurrency exchanges from listing anonymity focused altcoins such as Monero (XMR) and Dash (DASH). At that time, an unidentified member of FSA said “It should be seriously discussed as to whether any registered cryptocurrency exchange should be allowed to use such currencies.”