Circle has introduced a new encrypted ERC-20 framework to enhance privacy on the blockchain. The Confidential ERC-20 Framework utilizes advanced encryption techniques to strike a balance between privacy and regulatory compliance.
This innovative solution, developed by Inco Network and Circle Research, aims to bring compliant privacy to public blockchains. The whitepaper for the framework, released on October 28, transforms standard ERC-20 tokens into encrypted versions that protect transaction amounts and balances from public view, meeting the regulatory requirements for privacy while maintaining security.
By utilizing Fully Homomorphic Encryption (FHE), the framework conceals transaction data on Ethereum-based public blockchains, ensuring compliance with regulations while allowing users to securely transact without revealing sensitive information. This encryption method also enables the framework to perform operations on encrypted data directly within the Ethereum Virtual Machine (EVM), preserving both privacy and security.
Jeremy Allaire, the CEO of Circle, stresses the importance of privacy for regulated financial institutions in upholding anti-money laundering responsibilities. The Confidential ERC-20 Framework enables authorized parties such as auditors and regulators to selectively access transaction details, providing necessary oversight without compromising user privacy. This feature minimizes the risk of misuse by keeping certain transaction aspects hidden yet accessible for official review, enhancing transparency without sacrificing confidentiality.
The framework has broad applications across various sectors, including payroll processing, supply chain management, and peer-to-peer payments. By incorporating programmable compliance measures, such as transaction limits and anti-money laundering controls, into its smart contracts, the framework enhances privacy for both enterprises and individual users. This makes it particularly valuable for businesses handling sensitive financial data, facilitating secure and compliant transactions on open networks.
In addition to its technical advantages, the Confidential ERC-20 Framework offers a modular structure that allows developers to easily integrate privacy-focused financial applications. Unlike traditional zero-knowledge proof protocols, the FHE-based framework ensures robust data encryption, supporting seamless composability without exposing transaction details.
By making the Confidential ERC-20 Framework open-source, Inco Network and Circle Research encourage developers to enhance and expand the system. This transparency promotes innovation in privacy-focused decentralized finance and financial services, inviting the blockchain community to build upon the framework’s foundation and drive further advancements in blockchain privacy technology.