Understanding Aztec, led by Paradigm: Huge potential in the Layer 2 privacy trading space

Source: IOSG Venture

Original Title: "Privacy Trading Competition Heats Up, L2 Comprehensive Privacy Protocol Aztec Breaks Through Strongly"

Mars Finance Note: The Ethereum Layer 2 privacy solution Aztec Network completed a $17 million Series A funding round on December 16, led by Paradigm, with participation from IOSG Ventures, Variant Fund, Nascent, imToken, Scalar Capital, Defi Alliance, ZK Validator, and angel investors Anthony Sassano, Stani Kulechov, Bankless, Defi Dad, Mariano Conti, and Vitalik Buterin.

Introduction

The term "cryptocurrency" can easily be misunderstood as implying that the technology has a high degree of anonymity, but the unique data transparency of blockchain can potentially expose user privacy. Few people can enhance the privacy of their assets like hackers or experts; instead, they often incur additional costs. Various privacy solutions showcase their capabilities in the quest for the holy grail of privacy trading, among which Aztec, with its combination of privacy, security, and low cost, has found a very clever entry point starting from the product.

The Aztec team believes that blockchain should be 100% private. No one should be able to track users' financial activities on-chain. Currently, financial products on Ethereum all have privacy issues: every action a user takes within a product creates a profile of user behavior. These "breadcrumbs" of financial activities can attract malicious actions, such as front-running that harms users' interests and diminishes the value of decentralized financial systems. So, is it possible to use Layer 2 scaling solutions to address privacy protection and blockchain performance issues? To solve this problem, the Aztec team has integrated Aztec Private Rollup into DeFi applications, actively improving users' privacy experience.

The Quest for the Holy Grail, Battle of the Titans

As blockchain has developed, many projects have continuously attempted to enhance blockchain privacy. Some of these attempts utilize TEE hardware for privacy protection (hybrid blockchain architecture), while others focus on using ZKP (zero-knowledge proof data) solutions to create privacy-independent chains and privacy tokens.

Comparison of Layer 2 Privacy Solutions

Aztec vs. Starkware/Zk-Sync

The aforementioned projects all use zero-knowledge proofs and Rollup structures to address data invocation issues. Starkware and ZK-Sync focus on solving scalability problems, achieving higher TPS (transactions per second) compared to Aztec. Since Aztec is currently the Layer 2 solution in the Ethereum ecosystem that pays particular attention to privacy issues, we believe that these projects in the image are not competitors; there is room for collaboration between Aztec and Starkware/ZK-Sync. Aztec can integrate more Layer 2 projects to enable them to have privacy features.

Aztec vs. Tornado Cash

Tornado Cash is a privacy trading middleware implemented on Ethereum based on zero-knowledge proofs. It uses the zk-SNARK mechanism to send ERC20 tokens to any address in a non-traceable manner. The Aztec protocol provides developers with the tools needed to create the next generation of decentralized financial services, reconstructing digital assets with absolute privacy and private governance.

Tornado Cash is currently the most popular privacy application on Ethereum, but its transaction processing capacity is limited. Firstly, Tornado Cash is a set of smart contracts on Ethereum, while Aztec is a Layer 2 protocol. This means that Tornado Cash achieves anonymization by mixing tokens and wallet addresses, while Aztec provides programmable privacy contracts, establishing completely private applications and opening new design spaces for privacy-focused applications. Secondly, regarding transaction fees, Tornado Cash has expensive transaction fees, but Aztec can reduce transaction costs by moving the computation off-chain and utilizing the zero-knowledge proof technology Plonk (PLONK is a zero-knowledge proof technology that balances performance and security, and is highly influential in this field; many other teams' zero-knowledge proof technologies are based on PLONK, such as another Layer 2 scaling solution zkSync based on the ZK Rollup concept).

In summary, compared to other Layer 2 ZKP solutions, Aztec is particularly focused on privacy issues as a Rollup solution. Additionally, with the support of the Noir language, Aztec can design new apps based on different privacy needs, which increases the likelihood of mainstream adoption and even changes the cryptocurrency application market. Aztec can handle larger orders more efficiently and at lower transaction fees than current privacy apps like Tornado Cash.

Aztec Breaks Through Strongly, Restructuring Privacy Trading

The Aztec protocol uses zero-knowledge proofs to implement encrypted transactions on Ethereum, allowing transaction logic to be verified while maintaining anonymity and privacy. Aztec Private Rollup can hide Layer 1 DeFi transactions with just one Rollup. This privacy protection makes it impossible to track when users trade tokens and which protocols they use for trading.

We believe that privacy is the most fundamental need for blockchain users. However, given the transparency of all actions on the current Layer 1 blockchain, all on-chain behaviors of users are publicly traceable, essentially exposing all their transactions, which lacks privacy protection compared to traditional internet applications.

In addition to privacy issues, the high gas fees in the current market are also a significant pain point, deterring ordinary users. Aztec combines homomorphic encryption and range proofs, choosing a unique scheme for encrypting data that can quickly and effectively verify zero-knowledge range proofs, reducing gas costs for transactions on Ethereum. Even the Aztec DeFi bridge can batch process thousands of transactions in each Rollup, saving at least 10 times the gas fees across various operations.

Aztec's Positive Impact on the DeFi World

Two months ago, the Aztec team made further improvements to Plonk and launched zk.money. The Aztec team is actively working to apply Ethereum's privacy and scalability to DeFi applications. The Private Rollup they use will make transactions more private and reduce costs, providing users of DeFi applications with a brand new experience.

After the launch of the Aztec protocol, assets based on Ethereum can achieve rapid anonymous conversion. Aztec will bind to the original tokens at a 1:1 ratio, allowing users to deposit 10,000 DAI in Aztec and convert it into 10,000 zkDai for anonymous DeFi activities. This is significant for DeFi. It means that once Aztec is fully implemented, it will bring disruptive changes to the DeFi ecosystem and the Ethereum ecosystem, such as:

1. Private Decentralized Exchanges: Users will be able to trade different Aztec assets in complete confidentiality, with no transaction amounts or prices retrievable during the trading process. Decentralized exchanges will use a relayer pattern and preset Aztec DeX zero-knowledge proofs to achieve this functionality.

2. Private Weighted Voting: In broader financial applications, mechanisms to ensure voter privacy are crucial, and the effective range proof of the Aztec protocol makes this possible.

3. Anonymous Identity Sharing Solutions: In many scenarios requiring commitments and KYC, users of Aztec can prove their belonging to a group without disclosing their identity, which has significant application value; the Aztec token standard can support such identity verification systems.

Since Satoshi Nakamoto wrote the Bitcoin white paper in 2008, we can see that the development of the crypto punk world is quite similar to the early internet, both emphasizing privacy and anonymity. Today, with increasingly strict global regulatory frameworks and increasingly complete internet infrastructure, the privacy that was widely promoted in the early days of the internet has been severely compromised. With the rise and rapid growth of the crypto world, the demand for privacy among the natives of the crypto world continues to grow. During transaction transfers, most users are unwilling to expose the sources and destinations of their funds, while the complete transparency of the blockchain exposes the transactional relationships between accounts.

The Ethereum community has spent five years educating the market and allowing the world to appreciate the charm of decentralized finance. In the years that followed, many projects began to focus on the privacy financial services track. It is well known that ensuring the privacy of transactions is a fundamental requirement for many financial services. However, due to the inherent difficulty of the Ethereum blockchain in providing such privacy protection, a convincing alternative to traditional financial tools has yet to emerge in the crypto world.

We believe that the emergence of Aztec brings more imaginative possibilities for privacy trading. We believe Aztec has great potential in solving privacy trading issues and that more and more innovative projects will continue to explore this direction in the future. Aztec allows us to see more possibilities for DeFi privacy trading scaling solutions, and we will continue to pay attention to this niche track and provide our support when appropriate.

Coming Soon: Aztec 2.1 +

New Assets

In the coming weeks, Aztec will gradually launch rollups for new assets such as WBTC, BAT, and AAVE.

Increasing Limits

As the network gradually expands, the Aztec team will gradually raise the transaction limits, which are currently set at 1 ETH for security purposes.

Mainnet DeFi

The team will also upgrade the network to allow users to conduct DeFi transactions smoothly without leaving the Aztec network.

The DeFi bridge zk.money can enable privacy trading on existing DeFi applications, but it can also create privacy apps on Aztec Private Rollup using the Noir language. This will allow applications to be deployed on Aztec Rollup in a completely private manner.

Operation Tips

Transaction Types

Using Zk.Money, you can submit ETH to the Aztec rollup contract and perform the following actions:

• Privacy Protection
• Private Sending
• Remove Privacy Protection
• Emergency Remove Privacy Protection (Escape Hatch)

Username

You can create an account with or without linking an Ethereum address to your Aztec account, and you do not need to conduct on-chain transactions to receive funds initially.

Now Aztec also supports recognizable address aliases (@name) ------ but rest assured, your transaction activities are encrypted, so your financial transaction records will not be made public.