Donovan Choy

This is a segment from the Supply Shock newsletter. To read full editions, <a href="https://blockworks.co/newsletter/supplyshock" target="_blank" rel="noreferrer noopener">subscribe</a>.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Privacy on the blockchain is a nice idea, but it’s hard to build.



Applications like <a href="https://blockworks.co/news/defi-privacy-zero-knowledge-proofs">Railgun</a> on Ethereum enable that today, but it’s computationally expensive. You could opt for a chain like <a href="https://blockworks.co/tag/monero">Monero</a>, but it lacks smart-contract programmability.



So the holy grail of onchain privacy looks a little like this: opt-in privacy, native smart-contract programmability and, ideally, a bridge into the EVM world of DeFi. All while keeping the protocol decentralized.



The Aztec team may be closest to cracking that code.



Enter Aztec Network, a zk rollup built on Ethereum (not to be confused with Aztec Connect, which was sunset in 2023). The public testnet launches today.



By leveraging zero-knowledge technology, user balances and transactions on the L2 are encrypted to ensure privacy around details such as the sender, recipient or the transaction itself.



Aztec’s programmability is enabled by <a href="https://blockworks.co/news/dappicom-web3-gaming-nintendo">Noir</a>, the company’s Rust-like language for zero-knowledge circuits. Noir lets developers write smart contracts that can perform shielded loans or private voting without needing to learn cryptography.



&#8220;Developers can use Aztec to build dapps with privacy features that seamlessly blend with Ethereum&#8217;s existing infrastructure, and they won&#8217;t need to struggle implementing complex cryptography,” said Aztec Network co-founder Zachary Williamson in a press release.



<h2 class="wp-block-heading">Aztec’s differentiation</h2>



Unlike most L2s (one exception is <a href="https://blockworks.co/news/arbitrum-stylus-testnet">Arbitrum’s WASM</a>), Aztec makes some significant modifications to the chain’s execution layer.



Public transactions on Aztec are executed through its custom Aztec Virtual Machine (AVM). Private transactions, however, are offloaded to a client-side environment known as the <a href="https://docs.aztec.network/aztec/concepts/pxe">Private eXecution Environment</a>. PXE is used to generate proofs and run smart contract logic privately.



Transaction proofs are then aggregated into single proofs for Ethereum settlement.



Client-side generation of <a href="https://blockworks.co/news/brief-history-zk-tech">zk proofs</a> is typically expensive. Yet, Aztec’s new L2 keeps costs down. That’s largely thanks to its PLONK proving system, which makes it “simpler to generate client-side proofs on expensive hardware,” according to the company’s&nbsp; <a href="https://aztec.network/blog/history-of-aztec-pioneering-privacy-in-web3#:~:text=In%20tandem%2C%20the%20team%20also,%E2%80%9Cmakes%20the%20blockchain%20real%2C%E2%80%9D%20bringing">blog</a>. PLONK was <a href="https://vitalik.eth.limo/general/2019/09/22/plonk.html">co-invented</a> by Aztec co-founder and CEO Zachary Williamson himself.



“Our client-side Prover incorporates the latest in PLONK research with the Protogalaxy folding scheme and a unique technique we call Goblin Plonk to accelerate recursion. We also built our own programming language, Noir, from scratch to compile programs directly into zero-knowledge circuits, which allows us to bypass the overheads seen with zero-knowledge virtual machines,” Williamson told Blockworks.



Contrary to popular belief, most zk rollups do not actually leverage zero-knowledge tech for the purposes of privacy encryption, making it somewhat of a misnomer. Zk rollups today use the tech primarily for the size compression of transactions —&nbsp;<a href="https://blockworks.co/news/zk-rollups-cheaper-with-scale">for scaling throughput</a> — without encrypting user data.



Aztec applies zk proofs not just for verification, but also to enable end-to-end encryption of transaction metadata. Privacy is optional, however, tying into Aztec’s goals of developing a chain that has flexible privacy and selective disclosure.



That architecture is not possible on the Ethereum L1 today, where all details would be publicly exposed. Neither is it possible on other L1 chains like Monero or Zcash, which allow for private payments but lack smart contract programmability.



&#8220;We currently view blockchain privacy as all or nothing, but it doesn’t have to be,&#8221; Williamson said.



Aztec’s testnet already has over 100 sequencers in its Devnet and Provernet networks, paving the way for decentralization starting from day one.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Get the news in your inbox. Explore Blockworks newsletters:



<ul class="wp-block-list">
<li><a href="https://blockworks.co/newsletter/the-breakdown">The Breakdown</a>: Decoding crypto and the markets. Daily.</li>



<li><a href="https://blockworks.co/newsletter/0xresearch">0xResearch</a>: Alpha in your inbox. Think like an analyst. </li>
</ul>

0xResearch Newsletter

ZK rollup Aztec launches testnet today

Bessie Liu

Aztec has revealed a new testing environment for developers who want to build privacy-focused smart contract apps.



Joe Andrews, Aztec’s co-founder and head of product, told Blockworks that the Aztec Sandbox brings together software pieces that represent “a full implementation of the future execution environment that the Aztec rollout will have.”



Developers will have access to a private execution environment, or an RPC server, which can generate proofs.&nbsp;



This means developers can construct a transfer transaction that will create a zero-knowledge proof, which mutates the encrypted data, and change it in a way that can not be observed — proving to the network that a transaction is accurate without revealing the information.



According to Zac Williamson, co-founder and CEO of Aztec, there are three privacy categories when it comes to blockchains.



“You have user privacy, data privacy and code privacy,” Williamson explained. “User privacy is hiding the identity of the transaction center. Data privacy is hiding the information and encrypting the information that they are transacting with. Code privacy is hiding the actual knowledge of the contracts that they are communicating with.”



Williamson went on to note that Aztec is designed to achieve these privacy categories. This means that when a transaction is sent on the network, the only thing that will be visible from the observer&#8217;s perspective, is that the encrypted information would be added to the network state.&nbsp;



“All of this gets bundled together into an easy-to-use package that you can download as a developer, open up Visual Studio code, and start writing contracts on Aztec and test it against the Sandbox,” Andrews said.



Aztec’s major focus is building a platform for engineers who want to write smart contracts with strong privacy guarantees but lack the complicated mathematical know-how typically required.



“We’re creating a lot of patterns and designs from scratch, which has made our roadmap more complicated than other [layer-2s],” Williamson said.



The Sandbox is the first step on the development roadmap for Aztec.&nbsp;



The team is currently working toward a testnet launch with the goal of going live next year. Aztec’s execution environment, fee model, sequencers and provers are future points on the roadmap.



“We want to launch Aztec as a fully decentralized [layer-2],”&nbsp; Williamson said. “You can’t have identity on blockchains without strong user privacy guarantees.”



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Get the news in your inbox. Explore Blockworks newsletters:



<ul class="wp-block-list">
<li><a href="https://blockworks.co/newsletter/the-breakdown">The Breakdown</a>: Decoding crypto and the markets. Daily.</li>



<li><a href="https://blockworks.co/newsletter/0xresearch">0xResearch</a>: Alpha in your inbox. Think like an analyst. </li>
</ul>

Aztec

Aztec advances privacy product roadmap with test environment launch

Aztec Labs is creating a hybrid zero-knowledge rollup designed to execute smart contracts in a private, trustless and scalable manner.&nbsp;



Developers built the Ethereum blockchain to optimize public consensus at the cost of native privacy, and privacy solutions often do not support a complicated ecosystem of decentralized applications.



Aztec’s hybrid zero-knowledge (ZK) rollup solution is aimed at solving this problem. In an interview with Blockworks, Joe Andrews, the head of product at Aztec Protocol, said that&nbsp; “we’re trying to build the privacy layer that we wish had existed when we set out all those years ago to put corporate debt onto Ethereum…the exciting part is, we think we can now actually do it.”



Aztec intends to combine private and public execution in one single ZK rollup. This is one of the fundamental differences between it and other Ethereum ZK rollups, Andrews notes.



“I think of Ethereum or other rollups in a way that is like — here’s my transaction request, please do this off-chain and create a proof that you’ve done it correctly, on Aztec, it’s here is the proof that I’ve done a transaction, please include this in your next rollup of transactions,” Andrews said.



This means that an encrypted transaction is happening solely on a user&#8217;s device, unlike other ZK rollups today, he said.



In practice, the use cases of this type of hybrid zkRollup could be used to enable confidentiality in various dapps — not just privacy apps, Zachary Williamson, the chief technology officer at Aztec Protocol, told Blockworks.&nbsp;



“What it does is it expands the design space of what you can build…you can build applications where the goal really isn’t just privacy, but requires information hiding to do what you need to do,” Williamson said.



Gaming could be one of these things, alongside private voting in DAOs or executing private trades on public automated market makers (AMMs), he claimed.



To ensure the enablement of private smart contract computation, the team is also developing its own privacy focused smart contract programming language, known as “Noir.”



Noir is completely open source and will be a general zero-knowledge circuit language designed to prove any cryptographic backend.



“The reason we want to be programmable and why we have a language is because the ideas that we can come up with as a first-party builder are going to be pale in comparison to what is going to be unlocked by just giving these tools to the entire community,” Williamson said.



In its current state, users can deploy private contracts on Aztec’s local system, with the public side of the technology still in the works.&nbsp;



The team said it is currently targeting a Q3 local developer testnet, and fully remote testnets at the start of next year.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Get the news in your inbox. Explore Blockworks newsletters:



<ul class="wp-block-list">
<li><a href="https://blockworks.co/newsletter/the-breakdown">The Breakdown</a>: Decoding crypto and the markets. Daily.</li>



<li><a href="https://blockworks.co/newsletter/0xresearch">0xResearch</a>: Alpha in your inbox. Think like an analyst. </li>
</ul>

Aztec’s New Hybrid ZK Rollup Is Focused on Privacy and Compliance

Bear market conditions have plagued the crypto industry, and the recent demise of crypto exchange FTX has cast oceans of doubt for day to day consumers.&nbsp;That hasn&#8217;t stopped crypto funding rounds.



Singaporean based crypto trading firm Amber Group this month closed a $300 million Series C led by Fenbushi Capital US.



“Prior to the collapse of FTX, Amber was in the process of completing an extension to our Series B+ at a $3B valuation in preparation for a potentially prolonged crypto winter,” the company <a href="https://twitter.com/ambergroup_io/status/1603608618216984576" target="_blank" rel="noreferrer noopener">tweeted</a>. “Post the FTX collapse, we paused after a partial closing and instead moved forward on Series C.”



According to a <a href="https://twitter.com/ambergroup_io/status/1603608618216984576" target="_blank" rel="noreferrer noopener">Twitter post</a> from Dec. 16, Amber Group had less than 10% of its capital on FTX prior to its collapse. It reportedly laid off <a href="https://blockworks.co/news/amber-group-fraught-with-turmoil" target="_blank" rel="noreferrer noopener">300 staff</a> at the start of the month — roughly 40% of its workforce — and terminated sponsorship deals with Chelsea Football Club.



Amber said the fresh round of funding will help it focus on serving institutional and high-net-worth clients.&nbsp;



Another significant fundraise this month was secured by Aztec Network, an Ethereum security layer geared towards privacy.



Aztec&#8217;s $100 million Series B was led by prominent venture capital firm Andreessen Horowitz (a16z), with participation from A Capital, King River and Variant, among others.



The incoming cash will be used to develop its blockchain encryption architecture, which will allow “users to verify that blockchain rules were followed correctly without revealing any underlying information,” the company <a href="https://medium.com/aztec-protocol/aztec-raises-100-million-to-build-encrypted-ethereum-dd5062ba949c" target="_blank" rel="noreferrer noopener">said</a> in a Dec. 15 blog post.&nbsp;



&#8220;In the current public blockchain paradigm, users and entities unknowingly broadcast data in the public, compromising privacy and security to get trustlessness,&#8221; Aztec wrote.



Finally, the third largest funding round this month went to Fleek, a developer platform for crypto companies.



The company secured a $25 million Series A led by Polychain Capital. A handful of other investors, including Coinbase Ventures, Digital Currency Group and Protocol Labs participated in the round.



Fleek hopes to continue building its platform and growing its team, the company <a href="https://techcrunch.com/2022/12/01/web3-developer-platform-fleek-raises-25m-led-by-polychain-capital/" target="_blank" rel="noreferrer noopener">told</a> TechCrunch.&nbsp;



Other funding rounds this month include:



<ul class="wp-block-list">
<li>Nillion, a blockchain-less decentralized file storage network, nabbed $20 million in its latest funding round led by Distributed Global.</li>



<li>Tax and accounting software for digital assets, Bitwave closed a $15 million Series A co-led by Hack VC and Blockchain Capital.</li>



<li>Blocknative, a company building web3 infrastructure, also secured $15 million in its Series A led by Blockchain Capital and a few other investors.</li>
</ul>



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Get the news in your inbox. Explore Blockworks newsletters:



<ul class="wp-block-list">
<li><a href="https://blockworks.co/newsletter/the-breakdown">The Breakdown</a>: Decoding crypto and the markets. Daily.</li>



<li><a href="https://blockworks.co/newsletter/0xresearch">0xResearch</a>: Alpha in your inbox. Think like an analyst. </li>
</ul>