Zero-Knowledge Privacy With Baked-In Compliance: The Great Enabler For Blockchain Adoption? | Bitcoinist.com

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Simply put, if big business is going to embrace digital assets, it cannot do so while transacting on a public ledger that everyone can see. What’s needed is a private blockchain, where they can transact in privacy. Yet at the same time, there’s also a need to make private blockchain transactions regulatory compliant

We talked to Aleo Founder and Provable CEO Howard Wu to discuss how these two apparently diametric goals can be accomplished, using cryptographic zero-knowledge proofs as the enabling technology

1: Aleo is designed to enable privacy-preserving Web3 applications. But why does Web3 need such a high degree of privacy and anonymity?

A: Fundamentally, because blockchain transactions are public by nature, revealing transaction amounts and the details of which wallets are involved in them. Although the users of wallets are supposed to be pseudonymous, it can be fairly simple to link an individual to a wallet, which leads to risks that the individual can be surveilled or have their transaction data mined

For businesses, that’s a significant concern. If they use a blockchain like Ethereum, they’ll be publishing information about their customers addresses, balances, their revenues and other business intelligence that could be mined by competitors. This makes them very reluctant to use the chain.

Privacy-preserving applications are about preventing this from happening and enabling greater trust in critical use cases such as DeFi, payments, and identity

2: You have previously stated that Aleo introduces programmable privacy as a core principle. What do you mean by “programmable privacy” exactly, and what new applications does it enable?

A: Programmable privacy means giving developers and users the tools needed to customize the privacy settings of decentralized applications, so they have more flexible control over who data is shared with and who can access it. It’s about maintaining confidentiality while still enabling data to be verified when required

Aleo aims to simplify the underlying mechanics of these privacy controls by abstracting away the complexity so it’s just a case of selecting the parameters you desire.

3: Why do you think Aleo’s novel combination of ZK-proofs is the best technique for private blockchain transactions? How is it superior to other techniques such as homomorphic encryption, Monero’s ring signatures, or coin mixing services?

A: Aleo uses zero-knowledge proofs (ZKPs) to enable private smart contracts and compliance tech on-chain. We chose to use ZKPs because they were the most performant and trustless solution that is available today and capable of running in real-time on consumer-grade devices.

Unlike Monero’s ring signatures, ZKPs are general-purpose, meaning they allow developers to express any logic they wish, beyond just payment details. This flexibility allows developers to build applications that simply are not possible on blockchains like Monero, from stablecoins to DEXs, and Web3 games on-chain.

4: Aleo’s approach to privacy is based on a vertically integrated stack that provides everything developers need to create private applications, including the Leo programming language, snarkVM, and snarkOS. What’s the advantage of this all-in-one developer experience?

A: We want Aleo developers to enjoy a simplified user experience without being held back by friction, and that means having everything in one place. With Leo, our domain-specific language based on Rust, snarkVM, and snarkOS, they have all of the components they need to build private applications in one integrated environment

By bringing all these tools together and abstracting away the complexities of cryptography, devs can focus on application features, even if they lack extensive knowledge of ZK-proofs

5: Why was it necessary for Aleo to design its own Proof-of-Succinct Work consensus mechanism?

A: PoSW is a novel consensus mechanism that incentivizes the development of hardware acceleration of SNARKs and introduces an equitable approach to distributing newly minted Aleo tokens to the Aleo ecosystem. This approach has enabled hardware developers to focus on improving the performance of Aleo applications across the board, while earning token-based rewards for their efforts and contributions to the network.

6: ZK-proofs are notorious for being computationally intensive, which presents challenges in terms of scalability, so how does Aleo aim to deal with this?

A: Aleo is designed to be extremely energy efficient by utilizing zero-knowledge proofs to enable off-chain computations once and ensuring the highest level of data privacy. Our zero-knowledge proof system is designed to allow proofs to be verified in under 5 milliseconds, with each proof being less than 1 kilobyte in size, so they occupy minimal space in each block

This design is quite different from other ZK systems, like rollups, as it allows us to scale Aleo dramatically by supporting batch processing and parallel verification of transactions. In addition, we’ve designed Aleo so it can be easily upgraded, future-proofing it so that it can incorporate new advances in blockchain scaling.

7: What are some of the more surprising or unusual benefits of ZK proofs for blockchain applications that most people probably haven’t conceived of?

A: ZKPs aren’t just about securing payment transaction details; they can also extend into areas such as identity verification. In Web2 scenarios, the typical identity verification process requires users to share sensitive documents, such as their passport or driving license, with a third party. This forces users to have to trust the organization they’re sharing that document with, and they can never be sure what will happen to it

With ZK, you can generate a proof of your passport without exposing the actual document, which significantly reduces the chance of it being misused. The proof will prove that you are who you say you are, without anyone seeing your ID.

As I said, ZKPs work well for compliance. With Aleo, transactions can be decrypted using a view key. Users can allow specific parties, such as a regulatory body, to access their transaction data to prove their financial activity is legitimate, without involving anyone else

8: Regulators appear somewhat nervous about privacy-preserving blockchains. Why is that, and what does it mean for Aleo’s ambitions?

A: The earliest privacy coins like Monero and Zcash had no ability to support strong notions of compliance or any concept of configurable compliance. Because of this, these assets were often used and misused for illegitimate purposes.

Regulators understand the potential of blockchain tech, and I believe they understand that mainstream adoption of crypto won’t take place until transactional privacy is a routine matter, especially in business and enterprise settings. I frequently talk about the benefits of using crypto for global payments, like almost instant settlement, lower costs, and it’s simpler for cross-border transactions. But the reality is that many businesses don’t want their financial activities sitting out there in the public domain, where their competitors can see it all

So I think regulators are starting to recognize not only the need for oversight, but also privacy. They know that regulatory frameworks must evolve to meet this reality

This means Aleo is positioned ahead of the curve, so to speak, ready to meet any future regulations around crypto payments while providing that greatly-needed privacy paired with granular compliance controls. All state data on Aleo is private by default, yet every transaction can be unlocked using an account view key for auditing purposes

9: Aleo recently announced a significant partnership, with Google Cloud becoming a validator*. Why did Google want to get involved with Aleo, and what does it bring to the project?***

A: Google understands the value that blockchain and crypto bring to the financial industry, and it wants to be involved in the new financial ecosystem and Web3

For Aleo, it’s a privilege to be working with such partners, and their involvement helps us to achieve our goals for greater decentralization. We currently have 35 validators on the Aleo Network, with plans to reach 40 validators by the end of the year

Google Cloud’s infrastructure helps to improve the stability of the Aleo Network and boost its scale in terms of transaction throughput. But it’s providing much more than that. The BigQuery integration provides Aleo developers with greater insights into transaction data, on-chain records, and other network operations, while One-Click Node deployments via the Google Marketplace makes network participation easily accessible to all developers

10: Where do you think Aleo will be in 5 years from now?

A: I believe that the use cases and demand for ZKPs are growing exponentially, and this technology will ultimately act as a bridge between Web2 and Web3, helping to onboard more consumers and businesses

Already, many major businesses and financial institutions have shown a lot of interest in crypto and use cases such as private crypto payments and tokenization, and as these applications grow in usage, others will follow, leading to broader global adoption. It’s hard to say how long this transition will take, but as demand for private blockchain applications grows, Aleo is well-positioned to play a critical role in bringing it to the world

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