Inco Network and Circle Research introduced the Confidential ERC-20 Framework, an innovative solution aiming to bring compliant privacy to public blockchains

The whitepaper of the new framework, published on Oct. 28, transforms standard ERC-20 tokens into confidential, encrypted versions that shield transaction amounts and balances from public view, meeting regulatory demands for privacy without compromising security.

Importance of privacy

The framework, outlined in a co-authored whitepaper, uses Fully Homomorphic Encryption (FHE) to conceal transaction data on Ethereum-based public blockchains while maintaining compliance with regulations.

This encryption approach allows users to perform transactions securely without exposing sensitive information. It also permits the framework to execute operations on encrypted data directly within the Ethereum Virtual Machine (EVM), ensuring both privacy and security remain intact.

Circle CEO Jeremy Allaire emphasized the importance of regulated financial institutions maintaining privacy protections while fulfilling their anti-money laundering responsibilities.

The Confidential ERC-20 Framework addresses these needs by enabling authorized parties like auditors and regulators to access transaction details selectively, providing necessary oversight without jeopardizing user privacy.

This capability helps reduce risks of misuse by keeping certain aspects of transactions concealed yet available for official review, enhancing transparency without sacrificing confidentiality.

Wide application

The Confidential ERC-20 Framework serves various sectors by supporting applications in payroll processing, supply chain management, and peer-to-peer payments.

By embedding programmable compliance measures—such as transaction limits and anti-money laundering controls — within its smart contracts, the framework strengthens privacy for enterprises and individual users alike.

These features make the framework particularly valuable for businesses handling strategic financial data, enabling secure and compliant transactions on open networks. In addition to its technical benefits, the framework provides a modular structure that allows developers to integrate privacy-focused financial applications easily.

Unlike typical zero-knowledge proof protocols, the FHE-based framework ensures data encryption remains robust, supporting seamless composability without exposing transaction details.

Inco Network and Circle Research have made the Confidential ERC-20 Framework open-source, encouraging developers to expand and refine the system. This transparency fosters innovation in privacy-oriented decentralized finance and financial services by inviting the blockchain community to build upon the framework’s foundation.

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