Circle, the issuer of the popular USDC stablecoin, has joined forces with Inco Network to create a privacy-enhanced version of the ERC-20 token standard, dubbed the “Confidential ERC-20 Framework.” This initiative, outlined in a whitepaper released on October 28, aims to boost user privacy while ensuring adherence to regulatory standards.
Confidential ERC-20 Framework: Enhancing Privacy with Compliance
Unlike traditional ERC-20 tokens, which publicly display transaction details and account balances, the Confidential ERC-20 Framework employs a wrapped version of tokens to obscure this information while still allowing wallet address visibility. Circle refers to this as “on-chain confidentiality,” balancing user privacy with effective risk management. This partial privacy approach is designed for various financial applications, including payroll, vendor payments, and peer-to-peer transfers, while mitigating risks associated with complete anonymity.
To facilitate regulatory oversight, the new standard includes “delegated viewing” capabilities, enabling authorized entities, like regulators and auditors, to access account details when permitted. Additionally, it incorporates programmatic rules to enforce Know Your Customer (KYC) compliance, maintaining control over asset transactions.
The framework retains the composability of ERC-20 tokens, allowing assets created under this standard to interact seamlessly within Ethereum Virtual Machine (EVM)-compatible ecosystems. The privacy enhancements rely on Fully Homomorphic Encryption (FHE), a technology that protects data without requiring decryption, a key feature of Inco Network’s confidentiality solutions.
While the Confidential ERC-20 Framework has garnered attention for its innovative approach, some privacy advocates have expressed skepticism. One critic, Chaserxy, warned that the standard’s privacy features could still be compromised, suggesting potential backdoor access for authorities.
Circle Expands Collaborations with Hong Kong Telecom
In a related development, Circle has signed a memorandum of understanding with Hong Kong Telecom (HKT) to explore blockchain-based customer loyalty solutions, leveraging Circle’s expertise in Web3 Services and HKT’s extensive merchant engagement capabilities.
Additionally, Circle has launched its Compliance Engine, a platform designed to streamline regulatory compliance for businesses utilizing its programmable wallet services. The initial beta version includes a “Transaction Screening” feature, which performs real-time checks to identify suspicious activity, allowing businesses to customize rules based on risk and receive instant reporting through a dashboard or webhooks.
Circle emphasizes that stablecoins can play a vital role in global financial inclusion and humanitarian aid. The company’s Impact Report 2024 highlights how traditional financial systems often leave billions unbanked and hinder efficient aid distribution due to high costs and slow processes. “Global finance is now beginning to build solutions for a world where billions can access portable bank branches in the palms of their hands,” the report states.
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