The release of the whitepaper encourages innovation in blockchain technology, providing a roadmap for developers to create privacy-focused applications.
Circle, the issuer of the second-largest stablecoin USD Coin USDC $1.00 24h volatility: 0.0% Market cap: $75.99 B Vol. 24h: $21.54 B , has released its long-anticipated whitepaper focused on enhancing the privacy and confidentiality of blockchain applications.
The whitepaper titled “Confidential ERC-20 Framework” aims to improve the privacy of ERC-20 tokens on blockchains while complying with global regulatory standards. According to the announcement on Monday, the framework will transform existing ERC-20 tokens into confidential wrapped versions directly on Ethereum Virtual Machines (EVM) networks.
Key Benefits of the Framework
Its goal is to conceal users’ balances and transaction amounts from unwanted scrutiny, providing additional privacy protections while maintaining compliance controls. The framework was co-authored by Circle Research, the research arm of the stablecoin issuer, and Inco Network, a decentralized network powered by Fully Homomorphic Encryption (FHE). It leverages the FHE technology to enable computations on encrypted data without decryption.
The authors explained that the whitepaper lays the groundwork for software developers to create privacy-focused blockchain applications that address lingering challenges within the crypto ecosystem, specifically “anonymity” and “confidentiality”.
The framework offers several significant benefits. It enables composability over encrypted data, allowing for the integration of confidential information without leaking sensitive details to the public. Developers can create applications that grant permission to view information to authorized individuals and third parties, such as law enforcement and auditors, without compromising user privacy.
Additionally, it serves as a modular building block for privacy-focused decentralized finance (DeFi) applications, similar to how the ERC-20 standard has shaped the existing landscape. Furthermore, regulatory compliance measures, such as anti-money laundering (AML) rules and transfer limits, can be programmed directly into the application at the smart contract level.
Applications and Use Cases
The framework will be especially beneficial for businesses exploring blockchain solutions for employee payroll, supply chain vendor payments, and peer-to-peer (P2P) payments, where complete anonymity is required.
According to the announcement, the framework provides the architecture for legitimate users to maintain their privacy while implementing appropriate risk management controls to prevent misuse.
The whitepaper acknowledges that while “confidentiality” and “privacy” are crucial for businesses, these features can be exploited by bad actors if not properly managed. Consequently, Circle CEO Jeremy Allaire emphasized that regulated financial institutions—including banks and crypto companies—have a legal obligation to combat illegal activities such as money laundering.
The Circle boss stressed the importance of finding a balance between regulatory compliance and the principles of open software and user privacy. He believes that privacy should be a core component in the design and circulation of dollar-backed stablecoins.
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