Understanding Aleo in One Article: A Modular Zero-Knowledge Privacy Application Platform

Author: CYC Labs

Aleo is dedicated to building a modular and compliant zero-knowledge privacy application platform, serving as the ultimate toolkit for creating private applications. It leverages decentralized systems and zero-knowledge cryptography to protect user data on the Web to achieve this goal. The core is to provide users and application developers with unlimited computational space and absolute privacy. With Aleo, users can access a personalized world of web services without relinquishing control over their private data.

Motivation of Aleo

1) Existing blockchains are insufficient for real-world applications

The concept of building smart contract mixers and dark pools on Ethereum still has flaws. Without privacy, these applications cannot fully protect user activities. It simply does not work. For companies, the benefits of running business logic and data on a globally consistent platform are compelling. However, the lack of privacy is a fundamental barrier to compliance with operational guidelines. To achieve real-world adoption, we need blockchains that are private by default.

2) New technologies attract participants that complicate the technology value proposition

We have seen this situation in many ecosystems, including our own. For example, the recently emerged closed-source scalable engines represent the second wave of the "permissioned blockchain" initial era. Undoubtedly, vendor lock-in is rarely a good thing, especially when it relates to "trustless" solutions. However, by building technology that is entirely controlled by one company and can only be used by that company, it is, by definition, a "trusted" solution. To demonstrate the value proposition of new technologies, solutions should be open-source and permissionless.

3) The importance of private network data in the development of web services

In the next decade, web services will evolve into truly personalized services, living in more places than just your browser, and capable of reasoning about every private detail of our personal lives. There are already examples to prove this point. For instance, in the past five years, the number of smart home assistants has grown from zero to 5 billion connected devices. Our private lives have become a public commodity, and as web services become more personalized, we need to rethink how we control our data.

If it’s online, others have it. The business model of the web is to provide free services in exchange for personal data. This model is outdated and creates a rift between users and providers. Users are forced to give up their data in exchange for the services they want, at the cost of personal privacy. Providers bear the risk of managing user data to provide services, facing implications for storage, processing, and reporting. It doesn’t have to be this way, and it shouldn’t be.

Instead, users should be able to run their data on transparent algorithms from providers. Providers should not need to store, process, or report user data. Instead, they should be able to offload their work to users and only verify responses. By providing services in this way, neither users nor providers learn more than they should know, and control over personal data remains in the hands of the users.

Goals of Aleo

Privacy is crucial for a complete user experience in Web3. While public blockchains offer tremendous financial channels, the transparency of transactions and the fact that everyone can see this leaves opportunities for exploitation and arbitrage.

One proposed solution is absolute privacy. However, by completely obfuscating everything about transactions, absolute privacy excludes programmability. Examples from decentralized finance (DeFi) illustrate the importance of programmability for any expressive blockchain network. So far, users have had to choose between the two: privacy or programmability.

For example, Zcash offers users complete privacy but limited programmability. Ethereum provides strong programmability but limited privacy. What we want is a protocol that is both private and programmable. Such a protocol would ensure that users are not exploited while enabling powerful on-chain applications and their composability. This is why we are building Aleo.

Achievements of Aleo

1) Aleo Studio

Aleo Studio is the first IDE for writing zero-knowledge applications.

To intuitively and easily write private applications on Aleo, Aleo has developed a programming language called Leo (introduced below). Leo looks and feels like a traditional programming language. However, behind the scenes, Leo is much more complex. It abstracts low-level cryptographic concepts and can easily integrate private applications into your stack.

For developers, Aleo Studio is designed to simplify the development cycle. Behind the scenes, Aleo Studio connects applications to the network, allowing applications and users to easily and quickly test and publish transactions on the network.

To simplify bundling and sharing work, Leo has built a package manager. Aleo Package Manager is the first package manager for zero-knowledge circuits. It includes collaborative features such as teams and organizations, making it easy to work with friends and colleagues on private applications. Additionally, Aleo Package Manager integrates with Aleo Studio, allowing easy import and publication of new packages without leaving the editor.

Aleo is the first decentralized open-source platform that supports private and programmable applications.

By default opting out of privacy, Aleo achieves a sustainable and fair Web3 world that meets the needs of developers, consumers, and businesses.

Aleo uses zero-knowledge cryptography to achieve privacy and programmability. Zero-knowledge cryptography and zero-knowledge proofs allow third parties to verify the authenticity of a piece of information without us directly revealing it. Aleo uses this as the foundation for a system called ZEXE (Zero-Knowledge Execution).

In ZEXE, users perform state transitions offline. This process generates a proof that is bundled into an on-chain transaction. The transaction updates the system state by consuming/creating on-chain records. Like Zcash, this system provides us with strong privacy guarantees, as transactions only contain proofs and not the inputs that generated the proofs. Like Ethereum, ZEXE can support smart contracts, allowing users to interact or transfer value in predefined ways.

For a concrete example, let’s consider a decentralized exchange (DEX) on a public smart contract blockchain. A DEX is a decentralized application that allows users to buy and sell tokens on-chain without having to look for specific buyers or sellers. Unlike centralized versions (like Coinbase or Binance), a DEX enables users to maintain custody of their own assets.

Decentralized finance (DeFi) exploded in growth in 2020, bringing DEXs into the spotlight. To date, the largest on-chain DEX, Uniswap, processed over $25B in transaction volume in 2021. However, on public blockchains, they create opportunities to reveal personal identities (and complete financial histories). But the transparency of the system makes users vulnerable to exploitation.

Of course, you can cycle accounts to make it harder to associate your real identity with your on-chain identity. However, doing so is complex and inconvenient for users. Even at best, there are many ways to associate your identity with on-chain pseudonymous addresses. Since data stored on the blockchain is permanent, once an association is made, it can never be undone.

Aleo applies privacy to the most fundamental components of any application—users and transactions. Simply put: every application on a decentralized network consists of a series of users (people or smart contracts) trading with each other at varying levels of complexity. Therefore, any privacy solution must ensure that these two atomic components of any application are private. For DEXs, this means making counterparties anonymous. This means that user activities cannot be tied to a specific address or account on the Aleo blockchain. By hiding the details of any transaction, Aleo ensures that even broad financial activity profiles or patterns do not leak any identifying information.

When trading on Aleo's DEX, the off-chain updated account balances are calculated based on the exchange rate. The transaction is completed by submitting a zero-knowledge proof to the Aleo network as a transaction, indicating that an operation has occurred. The proof alone does not include any information about what the operation was, where it was executed, or who was involved. However, the underlying cryptography should allow all participants to trust that the transaction has been executed and that all balances are correctly updated.

For example, suppose Alice wants to trade token A for token B on an Aleo-based DEX. First, Alice needs to prove to the DEX that she has enough token A to complete the trade. However, this information can be shown through a zero-knowledge proof without revealing her wallet balance or transaction history. Instead, she can reference on-chain proofs (records) of previous transactions to demonstrate that she has sufficient balance for the trade. In this process, the exchange will never know:

• The amount of tokens Alice holds
• Where Alice got those tokens from
• Whether Alice has previously traded on the DEX

In summary, this creates a DEX ecosystem that is not only completely private and scalable for users but also replicates a key feature of smart contract blockchains like Ethereum: composability.

The idea that applications can interleave in increasingly complex ways on an open platform is called composability. Composability is a powerful concept that supports ecosystems like Ethereum's DeFi. While Aleo ensures complete privacy, certain applications can leverage public data sources (published with proofs in records, or off-chain) to make private smart contracts composable. This opt-out privacy model eliminates many of the cost-extraction consequences of transparent blockchains. However, it allows users to control when and how they interact with applications while only revealing what they choose. Thus, Aleo supports programmable, composable, and private applications.

2) Leo Language

Decentralized ledgers that support rich applications are constrained by three limitations. First, applications are configured to operate in a micro-execution environment with limited runtime, minimum stack size, and restrictive instruction sets. Second, applications must reveal their state transitions, allowing miners to perform front-running attacks and consensus instability. Third, the guarantees of correctness and security for applications are weak.

Aleo designs, implements, and evaluates Leo, a new programming language specifically designed for formally verified zero-knowledge applications. Leo provides a powerful execution environment that is not constrained by runtime, stack size, or instruction set. In addition to providing application privacy and mitigating miner extractable value (MEV), Leo implements two fundamental properties. First, applications are formally verified against their high-level specifications. Second, anyone can succinctly verify applications regardless of their size.

Leo is the first general-purpose programming language for zero-knowledge applications to introduce testing frameworks, package registries, import parsers, remote compilers, formally defined languages, and theorem provers.

3) PoSW Consensus Mechanism

Proof of Simple Work (PoSW) is a consensus protocol that generates proofs of system validity as a useful subprocess of executing proof of work.

Encoding predicate verification will include transactions in a given block update while ensuring that the underlying proof computation remains a time-locked puzzle.

PoSW is a variant of Bitcoin's SHA-based difficulty adjustment algorithm, with the main difference being that the underlying computation is not an arbitrary hash function but a proof of knowledge. This allows PoSW solutions to serve not only as PoW to ensure system consensus but also to verify that transactions are included in a given block. PoSW operates in an asynchronous model and assumes that the majority of miners (or provers) are honest.

Conclusion

The main purpose of the Aleo project is to advance the security and privacy layer of web applications (or blockchain projects) by promoting the application of zero-knowledge proofs in practical fields through the IDE compiled with the Leo language—Aleo Studio. Overall, it aligns with the trend of blockchain development, and the current achievements are promising, with satisfactory funding amounts. The only downside is its consensus mechanism; in the author's view, PoSW still needs further examination, as its majority honest assumption raises some concerns.

References
1. Aleo Official: Aleo | Where Applications Become Private.
2. CypherHunter: Aleo — CypherHunter
3. Leo White Paper: https://eprint.iacr.org/2021/651.pdf