Espresso-sys : Customize the privacy of your Ethereum assets and…

Espresso-sys : Customize the privacy of your Ethereum assets and EVM

July 23rd, 2022

Blockchain technology is rapidly evolving today. Whether it is the emergence of new chains or the cutting-edge innovations being developed around the world, the ultimate goal is for humans to be able to make the most of blockchain technology. Either to replace an inefficient old system or to solve problems that cannot be solved by currently available technologies.

The rise of Ethereum and smart contracts has given rise to so many new ideas and possibilities in our world. Whether it's the introduction of DeFi (Decentralized Finance), dApps (Decentralized Applications), NFTs (Non-Fungible Tokens), and other technologies. All of these technologies are incredible.

There is also the system's transparency, which allows us to see other people's transactions. All of this has enticed new players to use it incessantly, to the point where the system is becoming unable to support it and causing a variety of issues, such as slow transaction speeds or higher transaction fees.

Many developers and scientists have solved this problem by developing new chains. Some use new consensus systems, while others try to use alternative solutions, one of which is ZK-rollup.

What is ZK- Rollups ?

ZK-rollups, or Zero-Knowledge rollups, are commonly implemented as layer 2 chains. The idea is to combine multiple transactions into a single transaction and then generate a zero-knowledge proof to validate the validity of those transactions. When only a portion of the data is used for validation, the data size is reduced. Calculation and inspection complications are reduced. As a result, transaction times are much faster, and gas fees are significantly lower.

Although there are numerous benefits, there is still a data availability issue because the creation of new transactions requires previously valid data. While a zero-knowledge proof can convey a transaction block's validity without revealing its raw data content, it does not guarantee the availability of the data required to build future transactions. The current solution is to either attach the raw transaction together or to have a third party verify the information's validity. These methods, however, have some trade-offs, such as performance loss due to data size or loss of decentralization.

While transparency is one of the benefits of blockchain, it is also a disadvantage and a barrier to adoption in many cases because our transactions can be seen by anyone. For example, if a company wants to use cryptocurrency to pay for goods, transparency allows competitors to access this company's information such as product cost, trading partners, or for serious traders, transparency is bad for them because their strategy or some secret data is no longer secret. All of this transparency data can be used to launch attacks or be exploited by malicious individuals.

The examples above are just a few of the constraints that make cryptocurrency or blockchain implementation less feasible than it should be. So this is one of the important topics that many people are attempting to solve at the moment, and one solution is to make the transactions private so that others cannot see the details.

However, these solutions are still insufficient to meet the needs. Because of the lack of transparency, we are unable to verify those transactions and determine whether they are being used properly. This makes it difficult for agencies and corporations to accept and implement.

This is where EspressoSYS, the giant project, comes in.

Espresso is a layer 1 blockchain project that integrates the ZK-Rollup into its consensus from the beginning, allowing the ZK-Rollup to work flawlessly with Espresso. As a result, it can complete the transaction faster while keeping the gas fees low. In other words, it can be considered Decentralized ZK-Rollups, and ZK-Rollups can be used without any disadvantages when compared to other methods.

Espresso has also created the Configurable Asset Privacy (CAP) protocol, which allows users to add custom privacy to digital assets. The first CAP application is CAPE (Configurable Asset Privacy for Ethereum), a smart contract application that can run on any EVM blockchain, including Espresso.

CAPE allows users to create new assets independently of other existing assets (domestic CAPE assets) or to wrap existing assets (ERC-20s and ERC-721s). During the creation process, creators can configure the asset's viewing policies to specify what information they want a specific group of people to be able to read and review, for example:

The sender's and receiver's addresses
The amount of assets to be sent, received, or held
The asset type to be sent, received, or held

Furthermore, the asset's creator can specify a party that can suspend transactions via freezing policies.

CAPE can meet the needs of both general users who want transaction privacy and asset issuers who want the benefit of transparency and the ability to suspend suspicious transactions. This allows us to prevent money laundering, fraud, and a variety of other issues that the current solution cannot address.

With CAPE, ERC-20 and ERC-721 assets can now instantly add privacy property to their transactions by wrapping and can unwrap to the original asset whenever they no longer require the CAPE protection. CAPE also supports credential issuers, so we can use it to enable activities with a much broader scope (e.g. usage for Permissioned DeFi).

UTxO is the next Model ?

CAPE uses the UTxO (Unspent Transaction Output) model, which takes existing unspent outputs (or records) as input and generates new unspent outputs (UTxO) from the transaction. The user will be the owner of the records, which will include the type of asset, amount, and owner address. CAPE also creates the commitments associated with these records and stores them in the CAPE’s Records Merkel Tree.

The CAPE Wallet creates the new transaction before passing it on to the Relayer, who will then submit it to the CAPE Smart Contract for verification and submission to Ethereum. The Relayer will pay the gas fees and activate the CAPE Smart Contract, preventing others from linking the transaction to the user. Furthermore, the CAPE Wallet will save the user's records as the local state and will update them as needed. This lets users know when someone has sent them something.

When creating a transaction, the sender must use his own private key to consume his own unspent records in order to generate new records. The records will contain the record commitments, a list of nullifiers (used to mark the records as spent without disclosing the record content), a zero-knowledge proof to verify that the transaction has computed correctly, and owner memos that contain some of the transaction's data, such as the type and number of assets. The owner memos are encrypted with the encrypted public key (obtained from the CAPE Address Book, the component that maps the wallet address to the encrypted public key) of the receiver (the new owner of that record), allowing the receiver to decrypt and view the record content.

Aside from the receiver, the person holding the viewing key can read owner memos as well. This enables the viewing key holder to observe the asset's usage (in the scope that was specified by the viewing policies).

CAPE is Espresso's first application, but it can instantly add the privacy property to all existing ERC-20 and ERC-721 assets when it goes live. Regular users like us can send and receive without worrying about our privacy, and the asset issuer can also monitor how their own assets are being used and suspend improper transactions. Of course, this can greatly broaden the scope of blockchain because it removes one of the major barriers to blockchain adoption.

As a result, Espresso could be a significant step toward increasing blockchain adoption and could be used to create many new products in the future. Furthermore, it may play an important role in the unprecedented application of blockchain.
This is only the beginning of Espresso's history, and we are all witnesses to this beginning.