The Confidential ERC-20 Framework uses advanced encryption to balance privacy with regulatory compliance.
Inco Network and Circle Research have introduced the Confidential ERC-20 Framework, a pioneering system designed to add compliant privacy features to public blockchains.
Released in a whitepaper on October 28, this framework transforms standard ERC-20 tokens into confidential, encrypted versions, concealing transaction details and balances from public view. This enables compliance with privacy regulations without sacrificing security.
Importance of Privacy
The whitepaper describes how the framework employs Fully Homomorphic Encryption (FHE) to secure transaction data on Ethereum-based public blockchains, adhering to regulatory requirements. This method allows secure transactions by concealing sensitive information, while still performing operations on encrypted data directly within the Ethereum Virtual Machine (EVM).
Circle CEO Jeremy Allaire highlighted the need for regulated financial institutions to uphold privacy while adhering to anti-money laundering rules. The Confidential ERC-20 Framework addresses this by allowing authorized auditors and regulators selective access to transaction data, providing oversight without compromising user privacy. This approach mitigates misuse risks, promoting transparency without forfeiting confidentiality.
Broad Applications
The Confidential ERC-20 Framework is versatile, supporting use cases across payroll, supply chain, and peer-to-peer payments. It embeds compliance measures, such as transaction limits and anti-money laundering controls, directly into its smart contracts, making it valuable for enterprises and individuals who prioritize secure, compliant transactions on public networks.
Its modular design simplifies integration for developers seeking to create privacy-focused financial applications. Unlike traditional zero-knowledge proof systems, this FHE-based framework provides robust encryption without exposing transaction data, enabling smooth composability.
Inco Network and Circle Research have made this framework open-source, encouraging developers to enhance and expand the system. This openness fosters innovation in decentralized finance, inviting the blockchain community to build on this foundation for improved privacy in financial services.