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Imagine a scenario where Fluton Labs would like to pay salaries on-chain for automation and provability purposes. They would like to pay $5000 to Alice, $6000 to Bob and $7000 to Carol every month. If they use normal ERC20 USDC, anyone who knows how to read transactions can see the following actions:
  • Fluton Labs paid Alice $5000
  • Fluton Labs paid Bob $6000
  • Fluton Labs paid Carol $7000
This causes:
  • Private information leakage (employees can see each others’ salaries)
  • Wallet profiling (everyone can see employees’ history)
Confidential ERC20s solve this by using encrypted handles to keep the balances and values hidden from public view. Users can receive confidential ERC20s by wrapping (which is also called shielding) their tokens into cERC20s in 1:1 ratio. At this point, when they conduct a transaction using their shielded tokens, the transferred value is never shown publicly.