Privacy is something that is always at the forefront in cryptocurrency conversations. Is privacy needed? Should it be allowed? Does it go against the idea of an open and decentralized future? Whether true privacy is something that is a benefit to the public at large is debatable. What is almost guaranteed is that where privacy is possible, it will be sought. To that end, enter Aztec.
Touting itself as the “Privacy Layer for Web3”, what is it exactly that Aztec does? The Aztec Network essentially allows users to privately access their favorite Layer 1 (or potentially a different Ethereum Layer 2) apps in a faster, cheaper way.
Aztec offers privacy-first zero-knowledge (zk) rollups. As we have explored in this series, rollups aim to solve key scalability challenges of Ethereum, including increasing transactional throughput and reducing end user transaction fees to a commercially viable level. ZK-rollups bundle hundreds of transfers off-chain and generate a cryptographic proof using Merkle Trees. These proofs can come in the form of SNARKs (succinct non-interactive argument of knowledge) or STARKs (scalable transparent argument of knowledge). Merkle Trees are an important mathematical structure that allow blockchains to ensure that no one can fake data in the on-chain records of a zk-rollup. Usually, a zk-rollup consists of two Merkle Trees which are both stored on a smart contract, or in other words, on-chain. One tree is dedicated to storing accounts, while the other stores all balances. Any other type of data generated and used by the zk-rollup is stored off-chain.
Unlike optimistic rollups that force transactions to wait a period of time for fraud proofs, when a ZK-SNARK is sent to Ethereum the receiving smart contract can instantly verify if the proof is valid or not on-chain. Because ZK-SNARKs are verified instantly, funds are able to be withdrawn on ZK-rollups as soon as the ZK-SNARK transaction is validated on Ethereum (approximately 13 seconds), rather than waiting days or weeks for the dispute period to end.
Why Aztec Is Unique
While mixers like Tornado Cash allow for the obfuscation of funds in transit from one address to another, they have not allowed for the direct encryption of generalized Layer 1 computation until Aztec. Users can use DeFi apps like Lido, Curve, and Element with complete privacy and up to 100x cost savings.
In the simplest of terms, Aztec Connect works like an on-chain VPN. By using Aztec’s rollup contract as a proxy, users interact with Ethereum services from within the Aztec network. Encrypted instructions are passed to Aztec’s rollup contract on Layer 1, which executes those commands. Then, Aztec batches those transactions like a typical rollup, reducing user fees and enabling up to 100x cost savings over mainnet Ethereum. Common operations such as staking, swapping, lending, and even something more complex like DAO fund management and governance can all be performed with ease and privacy. Wallets that no longer want people copy trading them, or potentially front running opportunity will now have the ability to act privately without tipping off the general public.
Aztec Connect
The launch of Aztec Connect represents exciting new paradigms for DeFi and beyond, allowing users to make fully confidential DeFi actions, such as staking, vault entry, lending and swaps; significantly reduce costs for users using zk-rollup batching to lower transaction costs, and arguably the most enticing, Private treasury management, on-chain DAO governance, and NFT purchasing and trading.
Importantly, because Aztec Connect relies on Ethereum as its execution environment, protocols keep liquidity and contracts on mainnet while maintaining Ethereum ecosystem composability, while availing themselves of the privacy, costs, and throughput of Aztec.
That means partners can access the benefits of a private rollup with supposedly no liquidity fragmentation, contract redeployment, or re-audits of code and contracts, offering what Aztec proudly calls “scale and privacy without compromise.”
Only just getting its feet wet as a live protocol with $5 Million in TVL, the promise for Aztec far outweighs its current usage.
Why is Privacy Important?
As dApps replace centralized Web2 solutions, users can increasingly regain their privacy and the ability to store and own their data. Web3’s user to platform interactions are confidential and anonymous, both in principle and in practice. This lets individuals realize their self-sovereignty and rest assured about the security of their private information.
While not there yet, we are moving steadily towards a digital world where privacy, data and ownership are a right, not a luxury. The challenge now is to ensure the robustness of the key infrastructure. The social impact of Web3 empowers individuals at a fundamental level. And by securing privacy and ownership at this level, we can eventually establish these as the norm for human-to-human and human-to-machine interactions. Web3 is indeed the future that users deserve, the future that is now.
Not financial, legal or tax advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. All opinions expressed are solely those of the individual author. This newsletter is not legal advice and does not create an attorney-client relationship. This newsletter does not constitute tax advice. Talk to your independent attorney and/or accountant for any questions specific to you. Always do your own research and use caution when interacting with smart contracts or the blockchain.