Circle releases ‘Confidential ERC-20’ whitepaper

Circle plans to combine regulatory compliance with on-chain privacy by using a new Ethereum token standard.

According to Circle’s “Private ERC-20” whitepaper, the concept will enhance privacy features for existing and new cryptocurrencies issued on Ethereum (ETH) and EVM chains without exceeding legal limits set by regulatory authorities.

This framework converts standard ERC-20 tokens into secret-wrapped versions that mask balances and transaction amounts, providing users with additional privacy protections while maintaining compliance controls.

In addition to encrypted balances and transfers, the white paper also introduces authorized viewing and programmable transfer rules. Developers can assign viewing privileges to auditors and editors while protecting user privacy.

The paper’s co-authors, Circle Research and Inco Network, claim that compliance measures can be hard-coded into the smart contract, eliminating regulatory uncertainty from the initial distribution of the token.

The private ERC-20 standard is supported by Fully Homomorphic Encryption (FHE), which improves privacy on public blockchains within the EVM ecosystem, according to the document.

The composability over encrypted data and the modularity of the framework is achieved by being partially encryption-based rather than commitment-based (like most zero-knowledge proof-based protocols)… The Secret ERC-20 Framework marks a step towards ensuring confidentiality while preserving confidentiality. Regulatory compliance for blockchain transactions.

Confidential ERC-20 white paper

Since the inception of blockchain, much debate has centered around the juxtaposition of privacy-focused applications built on public decentralized networks. Crypto users around the world advocated for private on-chain transactions. However, anti-money laundering laws and other reporting requirements in places like Europe have often led to scrutiny of crypto privacy practices.

If successfully tested and adopted by financial institutions, crypto operators, and end users, Private ERC-20 could reduce tensions between regulators and the digital asset industry.