VPN for Crypto: What is Special about Aztec Network?

Aztec Network is a privacy-oriented, zero-knowledge rollup on Ethereum.

It is like an enhanced version of Tornado Cash. The primary function is similar - a mixer for funds. But Aztec allows users to interact with other smart contracts like Aave or Lido Finance while their funds are inside Aztec. Aztec also developed the underlying zero-knowledge technology and offered a suite of tools, including an SDK and a programming language.

While Tornado Cash gradually faded out of sight, Aztec closed a massive round of $100 million led by a16z, not to mention Paradigm led its previous round. What's unique about Aztec that the most prominent crypto investors rush to get on its cap table?

This article will first explore what Aztec is and then examine its unique value proposition by combining privacy and zk rollups.

What is Aztec

Aztec's vision is "encryption for all." Headquartered in London, it was founded in 2017 by Zac Williamson and Thomas Walton-Pocock. Zac currently serves as the CEO, but Thomas has stepped down and redirected his energy to other ventures. Other significant team members include Joe Andrews, co-founder and head of product, and Ariel Gabizon, chief scientist.

Aztec was founded initially as a platform for institutional finance on blockchain and later pivoted to developing zk technology. It released PlonK in 2019, zk.money in 2021, and Aztec Connect in 2022, and plans to launch Noir in Q2, 2023.

PlonK

PlonK stands for Permutations over Lagrange-bases for Oecumenical Noninteractive arguments of Knowledge.

If you know what the f*** is going on, you may read more about it in the whitepaper. But if you are like me, who had to google every word and still could not understand anything, just remember that PlonK is an efficient zero-knowledge technology used by not only Aztec but also Mina, Dust, zkSync, Polygon Zero, etc.

PlonK is a SNARK type of zero-knowledge technology. There is also STARK, which is more scalable and resilient in theory but also more premature. Their relationship is similar to optimistic rollups vs. zero-knowledge rollups. Optimistic rollups may be technically inferior to zk but have gained much more significant traction, and the technology is more battle-tested. (Related Reading: zkSync vs StarkWare - What's the difference between the top two ZK Rollups?)

zk.money

After releasing PlonK, Aztec developed zk.money, an application that provides Ethereum DeFi users complete privacy and up to 100x cost savings.

Users send funds to zk.money and create private notes on Layer 2. Private notes can be traded, staked, and used to earn yield, just like normal Ethereum assets. But all transactions are privacy-shielded via zero-knowledge proofs.

The entire system accounts for users' assets on the Ethereum mainnet via a fully encrypted state system. When users deposit funds into Aztec, Aztec generates cash-like encrypted notes through its off-chain UTXO state system. The state tree updates new encrypted notes as transactions are submitted and executed. Only the owner can see the content of the notes. Thus user identity and account balance are fully preserved.

zk.money batches user transactions, executes them on Ethereum mainnet, and returns the funds pro-rata to the users on Layer 2, effectively splitting gas costs among users. Such saving is typical among rollups.

zk.money is not decentralized at the moment. The current version relies on Aztec as the sole rollup provider. Aztec is responsible for relaying transactions between Ethereum mainnet and Layer 2. But zk.money plans to integrate more rollup providers, making the system more decentralized.

zk.money attracted regular volume and users even before the Tornado Cash sanction, but the sanction did drive up its deposits in the short term. zk.money experienced another massive influx of users following the announcement of their fundraising, but the deposit volume didn't increase much. New users deposited tiny amounts hoping to receive an airdrop in the future and will probably not be frequent users of the platform, which is reflected in user deposit amounts. Close to 90% of the users deposited less than 1 $ETH, and 49.5% deposited less than 0.1 $ETH.

As of December 28, 2022, zk.money's total $ETH deposited is 69,779 $ETH from 93,889 users. The average deposit is 0.37 $ETH, and the top user deposited 1,236 $ETH.

Because zk.money allows users to mix funds, there is a material risk that what happened to Tornado Cash will happen to Aztec. And it has already happened on a smaller scale. Cointelegraph reported that FTX blocked user accounts that had moved funds through zk.money. FTX identified the DApp as a mixer - a service it deemed a “high-risk activity” prohibited by the exchange.

Aztec Connect

Aztec Connect is an SDK (software development kit) that allows any Ethereum protocol to be integrated into Aztec’s private rollup. It enables users to create and submit transactions to the Aztec rollup and empowers the Aztec rollup to talk to Ethereum smart contracts.

Aztec Connect functions like a proxy service for DeFi. Anyone can deposit into Aztec and still interact with Ethereum mainnet protocols while enjoying added privacy and reduced costs.

When users send funds to another zk.money account, the recipient will get shielded $ETH. If the recipient is a regular Ethereum address, the wallet will receive regular $ETH, and Etherscan will show the funds were sent from Aztec’s contract.

Noir

Noir is a Rust-based programming language for creating and verifying zero-knowledge proofs.

Right now, zero-knowledge developers need to understand cryptography, which is challenging. Noir plans to solve that problem and allow any developer, not just those with cryptography knowledge, to build zero-knowledge applications.

Noir does not affect Aztec UI/UX directly. But it is instrumental in fostering a robust developer community around its zero-knowledge technology. More developers building more applications is a prerequisite for attracting more users.

Aztec in the Privacy Landscape

Users can achieve privacy on three levels in crypto, a) blockchain, b) rollup, and c) smart contract. We summarized the major privacy-focused solutions in crypto below.

Zcash and Monero are the pioneers, but they need smarter contract functionality. Other sovereign blockchain solutions have yet to gain much traction. For all sovereign blockchain solutions, users, both the sender and the recipient, must be on the blockchain. They can only transact in the native currency and pay gas fees with it, which limits interoperability, hurts the user experience, and increases security risks in bridge hacks.

Aztec is the leading privacy rollup. Competitors include Polygon Nightfall, Obscuro, and Intmax. Rollup solutions enable private transactions while reducing costs. Rollup is the most promising solution, although it is limited to the ecosystem of Layer 1.

Smart contract solutions offer more native interoperability with other contracts but suffer from gas costs during high usage times. Tornado Cash is the most well-known solution at the smart contract level. It is available on Ethereum and other chains like BNB Chain, Polygon, Avalanche, etc.

Aztec in the Rollups Landscape

In terms of rollups, Aztec is a smart contract rollup. It interacts with the Ethereum mainnet via smart contracts deployed on the Ethereum mainnet. There is only one application, zk.money, on Aztec at the moment, and its functionality could be improved. With the release of Aztec Connect and Noir, more developers might be able to build on Aztec. Aztec will assign dedicated funding, such as an ecosystem fund, to encourage developers to come to the platform.

Smart contract rollups are the most popular type at the moment. But there are other solutions. For example, the Ethereum Foundation has a team dedicated to developing the so-called enshrined rollups, where interaction with Layer 1 is built-in. Settlement rollups are rollups on rollups or layer 3s. Aztec may invite developers to build another layer on top of it, where Aztec will serve as a settlement layer, and execution takes place on layer 3s. Aztec could also move data availability off-chain to increase transaction speed further and reduce transaction costs.

Closing Thought

Aztec has not yet released a token. But it probably will, given its decentralization roadmap. If you want to become an early user, head to its official website and set up a new account to try it out.

VPNs have exploded in popularity. Aztec functions as a VPN for crypto users. They can keep Aztec running in the background while interacting with DApps privately on the front end. Aztec's unique value proposition, a private Ethereum layer 2, makes the team stand out and is likely the reason that both Paradigm and a16z hopped on board. Privacy has always been a hot topic in crypto, and Aztec is well-positioned to turn that into reality.