The business that created the popular USDC stablecoin, Circle, has partnered with Inco Network to create a more private version of the ERC-20 token standard.
The new “Confidential ERC-20 Framework” was created to improve user privacy and preserve regulatory compliance.
As described in a whitepaper published on October 28, the new “Confidential ERC-20 Framework” seeks to improve user privacy while upholding legal compliance.
Tokens in Wrapped Form Are Used in the Confidential ERC-20 Framework
The Confidential ERC-20 Framework employs a wrapped version of ERC-20 tokens to conceal account balances and transaction details, in contrast to standard ERC-20 tokens publicly showing these facts on-chain.
However, it differs from completely anonymous transactions in that it maintains wallet address visibility.
Because it protects transaction contents and balances without completely hiding wallet addresses, Circle refers to this method as “on-chain confidentiality.”
Circle contends that efficient risk management and user privacy can coexist with partial privacy.
“Many financial use cases, including payroll, vendor payments, and peer-to-peer transfers, offer adequate privacy through confidentiality,” Circle stated, implying that this method lowers the risks of complete anonymity, occasionally facilitating illegal activity.
The Confidential ERC-20 standard permits “delegated viewing,” which gives authorized bodies, such as regulators and auditors, access to account details to preserve oversight capabilities.
A layer of control over asset transactions is further ensured by its support for programmatic rules, which enable issuers to implement KYC and other compliance procedures.
Because the framework preserves ERC-20 token composability, assets developed by this standard can still function flawlessly in ecosystems compatible with Ethereum Virtual Machines (EVMs).
The privacy improvement is based on Fully Homomorphic Encryption (FHE), a key component of Inco Network’s confidentiality features that protect data without decryption.
Some privacy advocates are still dubious, despite the Confidential ERC-20 Framework’s innovation in the Web3 space earning them praise.
Chaserxy, one such critic, contended that the standard privacy measures are inadequate and that there may still be a backdoor for authorities to obtain sensitive transaction data.
Circle and Hong Kong Telecom Sign an MOU
Another change is that Circle and Hong Kong Telcom (HKT) have partnered to investigate blockchain-based consumer loyalty programs.
The solution would use HKT’s broad merchant-customer engagement capabilities and Circle’s proficiency with Web3 Services.
In the meantime, Circle introduced Compliance Engine, a technology that uses its programmable wallet platform to make regulatory compliance more accessible for companies.
The “Transaction Screening” function, which enables real-time checks to identify potentially suspicious activities, is the main emphasis of the initial beta release.
Companies can receive real-time reporting via a dashboard or webhooks and modify rules according to the nature or level of risk.
Stablecoins can be used for humanitarian help, global financial inclusion, and international commerce.
The Circle’s Impact Report 2024 states that because traditional financial institutions are slow, expensive, and inaccessible, they frequently leave billions of people without access to banking and impede the effective distribution of humanitarian help.
According to the paper, global finance is starting to develop solutions for a future in which billions of people will have access to portable bank branches.