Several crypto startups want to develop the very first privacy-focused Ethereum L2.
On Ethereum today, transactions and other smart contract executions are all publicly visible. Transparency is a core principle of blockchain technology, intended to enable verification of systems and establish trust, but it can also be a double-edged sword.
While transparency ensures accountability, it also means that the details of these transactions and contracts are known to everyone, including malicious actors and hackers who can analyze transaction patterns, identify vulnerabilities in smart contract code, and exploit these weaknesses for nefarious purposes.
Privacy solutions allow dapp developers to build applications that support these shortcomings without compromising security.
In doing so, these privacy-first applications must attempt to prevent malicious actors from concealing their identities while protecting the rights of law-abiding citizens. In short, to avoid the fate of crypto mixer Tornado Cash, which was allegedly used to launder more than $455 million stolen by sanctioned North Korean hackers.
Read more: The arrest of Tornado Cash developer leads to protest in Amsterdam
Here are a few teams hoping to build a functioning, privacy-focused L2:
- Aztecs
Aztec is a privacy layer of Ethereum. It is called a hybrid solution that uses zkSNARKs and its own programming language, Noir, to offer private transfers, meaning the network is designed to validate transactions without revealing any sensitive information about them, such as the amount and the amount involved parties.
Unlike other zero-knowledge (zk) rollups on Ethereum, Aztec combines private and public execution into a single zk rollup. This means that a user’s own device is responsible for encrypting the transactions before they are processed by the blockchain.
The primary focus for now is on designing a platform that allows engineers to write private smart contracts without requiring in-depth mathematical knowledge of zk-proofs. It recently unveiled a new testing environment, Aztec Sandbox, for interested developers and plans for a testnet launch early next year.
- Phoenix
Encryption start-up Fhenix hopes to bring fully homomorphic encryption (FHE) to smart contracts.
Unlike privacy startups that use zero-knowledge technology, which requires data to be moved off-chain and decrypted before a prover can verify its accuracy, FHE encryption performs computations directly on encrypted data.
By maintaining on-chain data, the network will be able to process calculations coming from different sources, such as an on-chain poker game or a sealed bid auction contract.
Fhenix launched a testnet for developers in July and plans to launch a full testnet launch of its FHE suite in early 2024.
- COTI
COTI is a privacy L2 building on Ethereum. Unlike Aztec, which uses zkSNARKS and Fhenix with FHE, COTI V2 will use so-called Garbled Circuits to enable private transactions.
Corrupted circuits allow two different parties to evaluate information even if they distrust each other. The parties can each submit their ‘garbled’ or encrypted input, calculations are performed on this input and a result is obtained.
COTI will launch a developer testnet V2 in the second quarter of 2024, with the mainnet launch taking place shortly thereafter.