Confidential transactions have arrived, a dive into the AZTEC Protocol

Posted on Dec 8, 2018

Confidential transactions have arrived, a dive into the AZTEC Protocol

Transaction privacy is a fundamental requirement for many kinds of financial services, and the inability to provide this privacy has prevented Ethereum from providing compelling alternatives to traditional financial instruments. There are several blockchains and blockchain projects that use cryptographic techniques to provide this privacy, but this privacy is reserved for the ‘native’ cryptocurrency of the blockchain in question. This transaction privacy is not accessible for digital assets built on top of blockchain protocols.

For example, I can’t code up a corporate bond smart contract on Ethereum, where ownership notionals are private. This curious jumble of characters is a form of DAI, the dollar-pegged stablecoin created by MakerDAO. But it looks a little odd, doesn’t it?

This would normally just be an ethereum address, and a number representing how much DAI that ethereum address has. But this isn’t normal DAI. You see, when I sent this transaction, my ethereum address (zac.creditmint.eth) became the owner of this DAI, but here’s the thing: nobody can figure out how much DAI I have.

Unlike almost every other DAI holder in the world, my DAI balance is encrypted and represented in the form of zero-knowledge AZTEC notes. I can spend this DAI at will by sending some to a different address, but when I do nobody will be able to figure out how much of it I’m sending. For example, I sent a colleague some of my DAI in this transaction and good luck figuring out how much they have.