In 2019, Charles Hoskinson posed a simple question: can a blockchain keep a secret? It turned out to be anything but simple. As Eran Barak, CEO of Shielded Technologies, explains, “keeping a secret, or privacy, really commands two parts. One is, can you protect the data? The other is, can you protect the metadata?”
That question became the foundation for Midnight, a protocol developed within IOHK and now housed in Shielded Technologies, led by CEO Eran Barak. Midnight was built to answer the growing need for privacy in Web3, not the secrecy of bad actors, but the discretion required for ordinary users and enterprises operating in an open digital world.
“Protecting data was the easy part,” Barak says. “We can encrypt. We can use zero-knowledge proofs or fully homomorphic encryption. People have solved this already.”
The real challenge, he explains, was protecting metadata, the patterns of interaction that reveal far more than the content itself. “If I wanted to do surveillance on Web3 apps, I wouldn’t bother trying to crack data,” he says. “Metadata is the good stuff. It’s generic, so it’s much easier as a surveillance mechanism to just look at metadata and understand behaviours.”
He illustrates the point with a simple example. “If you can see that someone hasn’t gone to the doctor for a year, and then this week they’ve gone twice to a cardiologist, you can correlate that with others showing a similar pattern and know exactly what’s happening, without ever reading the data.”
This insight reframed the entire privacy question. A famous case he mentions involved the US retailer Target, which correctly inferred that a teenage girl was pregnant purely from her purchase patterns. “They didn’t know who she was,” Barak says. “They just matched her metadata to known patterns. That’s how powerful it is.”
From this starting point, Midnight’s team faced what Barak calls their “monkey on a pedestal” problem. Astro Teller from Google X once said that when you try to teach a monkey to stand on a pedestal and recite Shakespeare, most companies start by building the pedestal, and then get stuck with the monkey.
“We had the same thing. Everyone else focused on encrypting data, the pedestal. We went after the monkey: protecting metadata.”
That focus soon brought them into the path of regulators. Privacy coins like Monero and Zcash had shielded both data and metadata, only to face accusations of enabling money laundering.
“Once Monero introduced shielded tokens,” Barak says, “regulators went down a level. They stopped looking at just applications and started looking at blockchains themselves. That was our dilemma, damned if you do, damned if you don’t.”
Midnight’s breakthrough came when the team stopped thinking about privacy as a one-token problem. “We realised it couldn’t be solved with one token,” Barak says. “You need two.”
The system they designed introduced Night and Dust. Night is the primary token, the one people buy, trade, stake, and hold. Dust is generated by Night and used to pay for transactions on the chain.
“Dust is the shielded token,” Barak explains. “It protects metadata, but because it can only be used to operate the network, not for peer-to-peer transfer or storage of value, it avoids the money laundering risk.”
Dust also decays automatically, ensuring it cannot accumulate or circulate outside the intended purpose. “Regulators can see that Dust is not a vehicle for illicit activity,” he says. “It’s just the fuel that powers the system.”
The design has another advantage: predictable cost. “One of the biggest barriers to adoption is volatility,” Barak says. “If you’re running a business on a blockchain, how do you plan your operating costs when the price of the token keeps changing?”
By separating the operational token from the market token, Midnight allows companies to plan ahead. “You don’t spend Night,” he explains. “You spend Dust. If I know I need a million transactions a month, I can calculate how much Dust I’ll need and how much Night to hold to generate it. The price of Night might go up or down, but I don’t need to buy more. My capacity is locked in.”
He likens it to energy. “Dust is like electricity,” he says. “Night is your subscription to the power company. It keeps charging your battery. You consume Dust, it regenerates. That means for the first time, Web3 businesses can build a proper business plan with predictable costs.”
And if a company holds more capacity than it needs? “Then we’ve created what we call the Capacity Exchange,” Barak says. “You can lease your unused capacity to others. They can pay for it in Bitcoin, in Solana, in whatever they use. That means Midnight becomes a friend to every blockchain. It can act as a layer two for any of them, letting users execute transactions on Midnight and pay with their native tokens.”
The dual-token model has already drawn regulatory approval. “We submitted the paper to MiCA,” Barak says, “and they gave it a thumbs up. It works.”
The broader ambition is measured. “Let’s have a little humility,” Barak says. “We’re solving a specific set of problems, privacy and cost predictability. Midnight isn’t going to replace everything else. Different tools for different jobs.”
He describes this as the fourth generation of blockchain. “Bitcoin was the first and the transfer of value. Ethereum was the second which included programmability. Cardano, Polkadot, Solana, that’s the third, with scalability and governance. We’re the fourth which looks at privacy and cost predictability.”
He predicts that in five years, the landscape will narrow. “We won’t have a thousand blockchains,” he says. “We’ll have twenty, maybe. The rest will fall away. The ones that solve real problems will stay.”
Barak ends with a quiet optimism. “When a handyman comes to my house,” he says, “he doesn’t bring one tool for every problem. Different tools for different jobs. Midnight is one of those tools, and for privacy, it’s the right one.”
In conversation at ZebuLive 2025
