L2 solutions are the solutions that have an important place in the Ethereum roadmap and enable Ethereum to scale together with sharding.
Aztec Network is an L2 solution built on the Ethereum mainnet using zero-knowledge proof.
Aztec Network allows its users to make confidential payments and DeFi transactions with low transaction fees.
The misconception that Ethereum will decrease gas fees with The Merge update is quite common lately. Actually, The Merge update has no effect on gas fee. The Merge refers to the transition of the validation method Proof of Work, Proof of Stake.
The real decrease in Ethereum gas fee will be experienced with the realization of improved sharding with rollups. Rollups are critical as Ethereum adopts a rollup-centric Ethereum roadmap in 2020. Ethereum later changed its sharding plans to include rollups. Proto-Danksharding, ie EIP-4844, is an example of this, with the goal of creating an extra data area so that rollups can be used in Ethereum blocks. The Merge delay and Ethereum’s integration of rollups into the roadmap caused sharding plans to be delayed until 2023.
Rollup and other L2 solutions will contribute to the scaling of Ethereum until sharding occurs. With the emergence of the first working rollup samples in 2021, L2 solutions started to attract the attention of the ecosystem. Rollups combine many transactions in a single transaction and distribute it among gas fee stakeholders and can reduce the gas fee by as much as 100x. Aztec Network follows this approach, providing low gas fees, high speed and privacy compared to the main network.
Aztec Network is an L2 solution that uses zk-Rollup technology and offers low gas fees and privacy to its users.
Aztec Network emerged with the motto of ‘confidentiality to the penny’. It aims to create a smart contract layer with programmable privacy by default, DAOs, NFTs, DeFi and Web3 applications.
Aztec Network has expert names such as Zachary Williamson, Joe Andrews, Jonathan Wu in its staff. In addition to the 2.1M USD core investment it received under the leadership of ConsenSys in 2018, it received another core investment in 2019. Finally, in 2021, under the leadership of Paradigm, it collected an additional 17M USD in the A series investment round and received a total investment of ~20M USD.
In the general operation of zk-rollups, an operator collects the transactions made in the rollup chain and creates a zero-knowledge proof for these transactions. The generated zero-knowledge proof and compressed data is sent to the Ethereum mainnet. In this way, hundreds of transactions are processed off-chain with low gas fees and high speed.
The working structure of Aztec Network is the same as all zk-Rollups, with a few exceptions. One of the biggest differences from zk-Rollups is that in Aztec, unlike other zk-Rollup solutions, zero-knowledge proof creation is applied twice. Internal rollups create a zero-knowledge proof for the transaction group with 28 transactions. In this structure, where a total of 32 internal rollups take place, the evidence created by the internal rollups is collected and a final zero-knowledge proof with a maximum of 896 transactions is created by the external rollup and sent to the main network.
Aztec Network is still under development and has a central operator controlled by the team. It uses a UTXO-like model inspired by BTC. In the account-based model in Ethereum, each account has a balance. The balances of the accounts are updated each time a transfer is made. In the Aztec Network UTXO-based model, instead of an account, there are notes corresponding to a certain amount and the notes have an owner, and the notes can be considered as objects whose ownership can change. Ownership of the note corresponding to a certain amount changes when a transfer transaction occurs. The UTXO-based model is easier to encrypt as it depends on two parameters that indicate what amount the note corresponds to and who owns it.
Aztec Network uses zk-PLONK zero-knowledge proof, a variant of zk-SNARK based on Groth16 and Sonic developed by its CEO, Zac Williamson. zk-PLONKs can eliminate or keep to a minimum size the need for reliable installation, which is a disadvantage of zk-SNARKs.
Aztec Network is not compatible with EVM. It uses Rust programming language-based, specially developed Noir language to use zero-knowledge proof circuits. DAO, NFT and DeFi applications that will take place in Aztec’s privacy layer must be created with the Noir programming language with smart contracts.
zk.money allows L2 confidential payments and allows you to interact with DeFi protocols via Aztec Connect SDK. As of launch, zk.money has 75K+ registered users, 225K+ transactions, and a total transaction volume of 80M USD+, all with a lower gas fee than its mainnet counterparts.
zk.money supports depositing ETH, DAI and renBTC. Deposits to Aztec Network can be viewed on-chain, but transactions made on Aztec Network cannot be viewed on-chain.
Have Alice send Bob 1 ETH from his funds in Aztec Network.
AztecNetwork creates a zero-knowledge proof for 1 ETH sending transaction. That is, a zero-knowledge proof is created for every transaction that takes place on the network to ensure confidentiality.
Another zero-knowledge proof is created for this group of transactions by combining many transactions, such as the transaction where Alice sent 1 ETH to Bob.
The final zero-knowledge proof created is sent to the Aztec Verifier contract on the Ethereum mainnet and approved by the contract. Thus, privacy is ensured by creating zero-knowledge proof twice.
zk.money not only provides support for confidential payments, it also allows confidential DeFi transactions with Aztec Connect. The newly integrated Aztec Connect allows interacting with protocols on the Ethereum mainnet. Aztec Connect works like a VPN. Using the Aztec rollup contract as a proxy, users interact with Ethereum services from within the Aztec network.
Aztec Connect currently supports ElementFi and Lido protocols. Users can evaluate the possibility of flat rate returns by valuing their DAI on ElementFi, or the possibility of earning daily returns by valuing their ETH on Lido. Thus, the L2 transacting user can access Ethereum liquidity with complete privacy and a gas fee as low as 100x from the mainnet.
Aztec Network has a limited presence on the network as it is still under development and does not include native protocols written in Noir. The total value of locked assets in the Aztec network is close to 5M USD. Although most of the assets are ETH, there are also low rates of DAI and renBTC on the network.
Aztec Network user analysis shows that 80% of users only use it once. It can be seen that the rate of users using Aztec Network 10+ times is only 0.2%. The vast majority of users (~70%) prefer to deposit between 0.01–0.1 ETH. The rate of deposits larger than 1 ETH seems to be quite low.
Users use Aztec Network with low frequency and in small amounts. This can be explained by the fact that Aztec Network is still under development, programmable privacy is not yet active on it, the network poses various risks and early users are likely to be rewarded with a possible airdrop.
Because Aztec Network is still under development, some aspects of the system pose a risk to its security. (Possibility of Theft of Funds, Censorship and MEV(Miner Extractable Value) etc.)
The zk-PLONK cryptography that Aztec Network uses is still experimental and requires a trusted setup. Incorrect application of cryptography or any mistake that may have occurred in the trusted setup may result in theft of funds, in a low probability.
Aztec Network can be updated in smart contracts and updates can be applied instantly. That is, in existing Aztec contracts, codes can be changed by assigning a different contract instead. Existing Aztec contracts are managed by a multi-signature wallet with two wallet stakeholders. The contract is updated instantly when one of the two stakeholders of this team-managed wallet approves the changes. If the update contains a malicious function update, there is a possibility that funds will be stolen.
The management of the network by a central operator also brings some risks. The operator can censor the transactions of any user by arbitrarily using his powers. Users can circumvent this censorship by suggesting new blocks in a special timeframe where anyone running their own node against this censorship can propose new blocks. However, proposing new blocks requires generating zero-knowledge proof. The cost and complexity of producing zero-knowledge proofs can be another disadvantage for standard users.
Another risk originating from the operator is the Miner Extractable Value. By taking advantage of its central location, the operator can see the transactions of the users in advance and take profitable positions based on these transactions.
These risks involved in Aztec Network are quite similar when compared to the risks of other rollup solutions. Since most rollups are still in development, they have updatable smart contracts and a central operator. So most rollups have similar risks as Aztec Network.
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