Private, composable accounts on Ethereum
Everyone is spying on Ethereum.
While an open and transparent blockchain was innovation, the lack of transactional privacy opens up opportunities for MEV, front running, back running and other complex arbitrage strategies. If you are a large fund or trader on ETH, bots are watching your transactions with a fine tooth comb. A whole swath of privacy solutions are emerging to help obfuscate on-chain activities and increase anonymity. But in the wake of Tornado Cash's OFAC sanctions, balancing privacy with compliance is a delicate act.
This past month Nocturne announced closing of its Seed round to build a new set of tools to keep Ethereum accounts private. We reached out and were able to interview XXX from Nocturne to learn more about what they are build and how it will enable confidential transactions.
What is Nocturne?
Nocturne is a protocol that integrates privacy at the account level on the Ethereum blockchain. This platform permits users to engage with stealth addresses to receive and deposit funds confidentially within Nocturne contracts. Leveraging zero-knowledge proofs, users can affirm asset ownership anonymously, enabling private transactions or stealth transfers within the broader Ethereum network.
How does Nocturne work?
Nocturne operates through a high-level mechanism that involves depositing assets into stealth addresses. Users can, at a subsequent time, validate ownership of these assets through zero-knowledge proofs, which allow for private interaction with smart contracts or the execution of confidential payments.
It's an account abstracted wallet with ZK integrations enabling trustless, private execution. Think of if Tornado Cash allowed any asset to be deposited and then could execute trades to and from any DeFi protocol.
Users deposit assets into the Deposit Manager contract, which acts as a holding area while an offchain entity, the screener, approves the deposit. The screener ensures the wallets pass AML checks and achieve a certain risk scoring. This mechanism helps mitigate the risk of illicit funds entering the system.
With funds deposited, users interact with their private funds via a Teller contract, which bundles operations and verifies their proofs. The actual execution of these operations is managed by another contract, the Handler. This two-tiered structure ensures precise control of assets during transactions and maintains privacy through stealthy handling of funds.
How does Nocturne keep transactions private?
Transactions are kept private through a suite of methods:
- Stealth Addresses: Users can create numerous one-time addresses that mask the real recipient or sender's identity.
- Notes, Commitment Tree, Nullifiers, and JoinSplits: These tools and mechanisms ensure that transaction details remain concealed, while maintaining the integrity of the transaction and preventing double-spending.
How does Nocturne implement compliance?
In a post Tornado Cash world, compliance is a requirement not to be thrown in jail by the US Feds for enabling North Koreans to launder stolen funds. Nocturne implements rate limits and filters to deter the influx of high-risk deposits. They will use address risk scoring to prevent illicit deposits. Furthermore, Nocturne plans to advance towards more permissionless models while retaining essential compliance measures in the future.