Behind the Mask of Privacy: Unveiling the Centralized Control in Confidential ERC-20 (CERC-20)

The Confidential ERC-20 (CERC-20) framework, introduced by Inco Network and Circle Research, presents itself as a game-changer for blockchain privacy. By incorporating cutting-edge cryptographic methods like Fully Homomorphic Encryption (FHE) and programmable compliance, CERC-20 promises to safeguard user transactions while complying with regulatory demands. However, beneath the surface of this so-called privacy innovation lies a complex web of centralized control that undermines the very essence of blockchain's decentralized vision. What appears to be a technological leap forward is, in fact, a step backward for user autonomy and blockchain's original promise of privacy.

The Illusion of Confidentiality

At the core of CERC-20 is FHE, a cryptographic technique that allows operations on encrypted data without needing to decrypt it. This is presented as a breakthrough for preserving transaction privacy. However, the devil is in the details. While FHE ensures that sensitive data remains encrypted, it also introduces a feature known as delegated viewing—a mechanism that grants regulators, auditors, or law enforcement agencies the ability to decrypt and inspect transaction data.

This feature, though marketed as an essential tool for compliance, effectively creates a backdoor that can be exploited. Even if the data is encrypted during the transaction process, the ability for selected parties to access this information when necessary puts the privacy of blockchain transactions into question. Here's why this is a serious concern:

Original post can be found at: https://medium.com/coinmonks/behind-the-mask-of-privacy-unveiling-the-centralized-control-in-confidential-erc-20-cerc-20-ea25b3bc3d88