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Overview

Aleph Zero stands out as a cutting-edge, scalable Layer-1 blockchain infrastructure, known for its swift transaction completion, advanced privacy capabilities, and emphasis on attracting businesses. The platform officially went live with its mainnet in 2021 but has maintained steady development since, rolling out network upgrades and new features regularly. Crafted as an open blockchain ecosystem, Aleph Zero is built upon the Substrate framework associated with Polkadot and employs ink!—a custom adaptation of the Rust programming language explicitly designed for crafting smart contracts. 

What sets Aleph Zero apart is its innovative AlephBFT consensus mechanism and its integration of zero-knowledge proofs (ZK-SNARKs) and secure Multi-Party Computation (sMPC) technologies. The combination of all these factors makes Aleph Zero beneficial for companies focused on protecting data privacy while striving to stay ahead in the competitive landscape. As our last report covered these critical features in the tech stack, this report will take the next step and discuss Aleph Zero’s latest developments and how they help position the project as a prominent figure in the privacy blockchain space.

Shifting Tides in the Crypto Privacy Market

Since the onset of privacy coins in crypto, the sector has always faced concerns regarding regulations and user adoption. Despite this, for years, privacy coins like Monero (XMR) and Zcash (ZEC) were able to remain relevant, get listed on various exchanges, and secure spots in the top-50 of crypto projects by market cap. However, recently, a significant shift has been observed in the market dynamics between privacy coins and privacy blockchains. Since 2021, privacy coins, like Monero and Zcash, have experienced a notable decline in market share and market capitalization. Concurrently, privacy blockchains, like Aleph Zero, have seen a meteoric rise, with their market share expanding from ~$160 million to ~$3 billion today. This transition underscores the technological advancements and changing preferences within the crypto privacy sector, moving from the initial privacy coins to more sophisticated privacy blockchains that offer a wider ecosystem, including smart contract capabilities and considerations for regulatory compliance.

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The appeal of privacy coins has steadily waned over the years as cryptocurrency has become more “mainstream” and adopted by TradFi. This shift in demographics increased regulatory scrutiny and placed less emphasis on crypto’s cypherpunk ethos rooted in self-sovereignty and privacy. This scrutiny has led to periodic delistings from major centralized exchanges, including notable instances like Upbit in 2019, Bittrex and Coincheck in 2021, Huobi in 2022, and more recently, OKX and Binance’s European operations in 2023. These delistings, coupled with regulatory actions such as the U.S. sanctions against the crypto mixer Tornado Cash in August 2022 and the impending stricter Anti-Money Laundering Regulation (AMLR) by the European Union, have posed significant challenges to the adoption and mainstream acceptance of privacy coins.

The decline in popularity of privacy coins is also attributed to practical considerations from the user's perspective, including complex wallet setups and limited liquidity, which diminish their appeal compared to more mainstream cryptocurrencies like Ethereum and Bitcoin. Meanwhile, the reluctance of financial institutions and regulated exchanges to engage with privacy coins amplifies these challenges, indicating that the scrutiny and regulatory hurdles facing privacy-centric cryptocurrencies are likely to persist.

Historically, the discourse surrounding the next generation of blockchains has predominantly focused on their speed, cost-efficiency, and transparency. However, looking to the future, the requisites of private sector enterprises conducting transactions on a blockchain necessitate a paramount level of confidentiality to safeguard sensitive information. This evolving market landscape, characterized by the declining dominance of privacy coins and the rise of privacy blockchains, reflects broader trends in the cryptocurrency sector toward innovation, regulatory compliance, and user-centric solutions. Aleph Zero is at the forefront of addressing this challenge, thereby unlocking the latent potential for commerce on the blockchain.

Technical Developments

Most Bridge

One aspect of Aleph Zero that has consistently made it unique among other blockchains is its lack of bridges and connectivity to other L1 chains. Since its launch, Aleph Zero and its users have been unable to bridge to and from other chains, severely limiting its user experience and reach within the crypto space. However, this looks to be a thing of the past as the launch of the MOST bridge signifies the network’s first bridge, which will connect Aleph Zero to Ethereum’s industry-leading TVL, liquidity, and DeFi ecosystem. With its intuitive design and accessible interface, MOST aims to provide a straightforward solution for users to seamlessly move assets across these platforms, enhancing the fluidity and efficiency of blockchain operations.

The operational framework of MOST is predicated on a guardian-based external validation architecture, where a total of eight guardians are responsible for maintaining the bridge’s integrity. External verification in blockchain technology involves using a network of external validators (Guardians) to facilitate communication and transaction validation between two different blockchain networks. This process is essential for executing cross-chain transactions, where a message or transaction initiated on one blockchain (the source chain) needs to be accurately and securely communicated to another blockchain (the destination chain) for completion.

The operation begins with a group of validators reaching a consensus on the transactions that need to be bridged from the source to the destination chain. Once consensus is achieved, the approved transactions are relayed to the destination chain, where they undergo a final approval process before the bridging transaction is completed. This method is favored for its straightforward implementation, making it a common choice for bridging designs.

Despite its popularity, this approach also has significant drawbacks, primarily concerning security, decentralization, and resistance to censorship. The reliance on a relatively small group of validators (eight) introduces a new level of trust that deviates from the security guarantees of Aleph Zero or Ethereum. There's an inherent risk that these validators could either collude or fail in their duties, compromising the security and integrity of the cross-chain transaction. For this reason, most will have three more backup guardians, ready to launch their nodes if any of the active guardians becomes offline.

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The governance of these validator groups can vary, employing mechanisms like multi-signature wallets, Proof of Stake (PoS) consensus algorithms, or other methods to achieve a quorum for decision-making. Ultimately, the control over the funds and the security of the transactions lie in the hands of these validator sets, highlighting the critical role they play in the ecosystem of cross-chain transactions.

In the case of MOST, the guardians wield control over governance keys for both Aleph Zero and Ethereum networks within a multi-signature wallet. This setup allows for adjustments in the guardian committee's composition, contract upgrades, and other critical governance activities.

Development of MOST began in September 2023, with a primary emphasis on security, simplicity, and user-friendliness. Currently, in its advanced stages, the project has plans to publicly release the source code shortly. A scheduled audit on MOST began on March 19th, at the same time as the Testnet went live. The launch of MOST's Mainnet really depends on how this review goes, with big issues possibly leading to a delay. They'll watch how well it works on the Testnets, making sure it's stable and secure, for about two to three weeks before they finally launch it.

This open development process aligns with the ethos of building in public, inviting scrutiny, contributions, and trust from the wider community. Following this phase, an external audit will ascertain the bridge's adherence to the highest security standards, reinforcing the platform's credibility and reliability. 

Aleph Zero’s Greater Bridging Strategy

Aleph Zero’s strategic approach to bridging is not confined to just the MOST bridge but rather, encompasses three primary components: the MOST bridge, the integration with Router Protocol, and the zParachain bridge to the Polkadot ecosystem. This tripartite framework illustrates the project's comprehensive vision for enhancing interoperability and offering users multiple pathways for asset transfer across blockchain networks.

The collaboration with Router Protocol introduces an alternative bridging solution to MOST, which extends to numerous blockchain ecosystems, including Ethereum, Polygon, and Binance Smart Chain, among others. The operational backbone of Router Protocol is the Router Cross Chain Intent Framework (CCIF), a sophisticated architecture that simplifies the process of executing transactions across different networks. For instance, when a user intends to stake a certain amount of cryptocurrency from one blockchain wallet to another, the CCIF translates this intent into an executable command. This command is then dissected into actionable steps by a series of orchestrators, encompassing the conversion of assets and their transfer across blockchains.

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The strategic integration of Router Protocol with Aleph Zero represents a significant advancement in the blockchain domain, offering numerous benefits:

• Cross-Chain Asset Bridging: This collaboration facilitates the effortless transfer of assets between Aleph Zero and other leading blockchain networks. This capability not only enhances asset management options but also broadens the scope of asset utilization across different blockchain ecosystems.
• Seamless Onboarding of External Liquidity: By leveraging Router Protocol, Aleph Zero streamlines the incorporation of external liquidity into its ecosystem. This development is a boon for both users and developers within the Aleph Zero platform, offering them enhanced flexibility and opportunities for innovation.
• Stablecoin Bridging: A pivotal element of this integration is the provision for stablecoin bridging to and from the Aleph Zero network. This feature is instrumental in cultivating a dynamic and resilient DeFi ecosystem on Aleph Zero, further enriched by the addition of multiple bridges.

Backed by prominent investors such as Coinbase Ventures and QCP Capital, Router Protocol's Alpha Gateway contract was released in January 2024. A move to full mainnet implementation is in the works.

Finally, the Aleph Zero team is leveraging a parachain slot for the zParachain bridge, linking the Aleph Zero and Polkadot ecosystems without converting Aleph Zero into a parachain. This bridge, based on the GRANDPA consensus and utilizing XCM messaging, underscores a light-client approach for verifying transaction finality across networks, eliminating the need for third-party verification and bolstering the bridge's efficiency and security. While not yet live, the team does currently own the parachain slot when the bridge is finally ready to ship.

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Testnet 13.0 Zahir

The recent launch on the Testnet marks a pivotal step in Aleph Zero's continuous evolution. After a period of rigorous testing, the stage was set for significant enhancements on the Mainnet. This update, dubbed Testnet 13.0 Zahir, introduces a suite of advancements aimed at refining the network's performance and user experience. 

One of the standout features of this release is the implementation of validator pruning. This crucial update allows validator nodes to operate more efficiently by reducing the disk space required for their operation. As the Aleph Zero network grows and processes transactions at an ever-increasing rate, the ability of validators to maintain smaller disk sizes without compromising their operational integrity is a significant step toward scalability and sustainability.

Additionally, the release also sees the debut of a new synchronization mechanism tailored to the AlephBFT consensus model. This innovation is designed to boost the chain's performance by ensuring that nodes can synchronize with the blockchain more effectively, thereby maintaining the network's integrity and speed. Moreover, Zahir brings an updated version of the AlephBFT consensus model, focused on enhancing the network's resilience against potential crashes, and includes minor code refactoring to improve overall efficiency. 

Finally, the introduction of a proxy pallet in Testnet 13.0 represents a transformative change in how users interact with the Aleph Zero blockchain. This feature enables the creation of proxy accounts, which act on behalf of the primary accounts, thereby enhancing security and flexibility. Users can assign specific permissions to these proxy accounts, allowing them to perform a range of actions such as staking, making transactions, and interacting with smart contracts, all while keeping the main account securely offline.

In more recent Testnet releases –13.1 and 13.2–Aleph Zero has also introduced a significant transaction fee reduction. Even though the transactions were at 0.003 AZERO already, with 10X reduction and an anti-spam dynamic fee adjustment mechanism, the network can compete with other blockchains and L2s even after the Dencun upgrade on Ethereum. 

MetaMask Snaps Deployment

Aleph Zero's capabilities have now been extended to MetaMask, one of the most widely utilized digital wallets within the blockchain ecosystem with 30+ million users. Aleph Zero now offers users the ability to transact with its native assets through the integration with MetaMask via MetaMask Snaps. This collaboration enables users to leverage their MetaMask wallets for various activities on the Aleph Zero network, enhancing the usability and accessibility of digital assets across different blockchain platforms. 

Officially unveiled in September 2023, the Snaps Open Beta revealed over 30 third-party audited additions. These JavaScript-based Snaps enable users to significantly enhance their MetaMask wallets by incorporating various new features, ranging from Layer 2 solutions like StarkNet to pseudonymity tools such as ZK-Nullifier and even extending to chains like Bitcoin and Aleph Zero.

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The key functionalities now available to MetaMask users include the creation and management of Aleph Zero accounts, the ability to send and stake assets, check balances, and interact with decentralized applications (dApps) on the Aleph Zero network, all within the familiar MetaMask interface.

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One of the most significant advantages of this integration is the facilitation of cross-chain interoperability, allowing for smoother transactions and interactions across various blockchain networks. Users can now approve or reject actions directly from their MetaMask wallet, streamlining the process and improving the overall user experience. 

To utilize the Aleph Zero functionalities within MetaMask, users are required to navigate through a straightforward setup process. By visiting the MetaMask Snaps Directory and installing the Aleph Zero Snap, users can seamlessly integrate their MetaMask wallet with the Aleph Zero network. Following the installation, users simply import their account via the "from Snap" option on the azero.dev platform and follow the MetaMask instructions to complete the integration. 

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Events, Partnerships, and Integrations

CTRL+Hack+ZK

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The inaugural self-hosted Aleph Zero virtual hackathon recently concluded, marking a significant milestone in the blockchain community's ongoing quest for innovation and development. This three-week event was meant to showcase the ingenuity and dedication of developers within the Aleph Zero ecosystem. The hackathon was a highly anticipated competition, preceded by a series of workshops that provided participants with educational resources, programming forums, and invaluable hands-on mentorship. The competition promised prizes totaling up to $75,000 in bounties, $500,000 in EFP funding, and a $10,000 award for the best overall project. 

The hackathon was organized into several tracks, each designed to target specific areas of development within the blockchain and cryptocurrency domains. These included Tooling and Infrastructure, aimed at enhancing the developer experience through the creation of applications, node providers, libraries, and tools; Degen/DeFi, which sought to leverage Aleph Zero's infrastructure for unique financial solutions; Digital Identity (DiD), focusing on secure and decentralized identity management solutions; Gaming, encouraging the development of innovative gaming solutions, including NFTs and smart contracts for in-game items and payouts; and Telco Innovate, challenging participants to revolutionize the telecommunications landscape using Aleph Zero's tools.

The panel of judges for the hackathon was as diverse as it was distinguished, featuring experts from across the blockchain and investment sectors. This included: 

• York Zhu from Generative Ventures, 
• Maciej Bielicki of block54 Capital, 
• Tomasz Głowacki from Franklin Templeton Investments,
•  Patxi Barrios of Telefónica, 
• Fabian Trost from Deutsche Telekom, 
• Michal Benedykcinski of Arca, 
• Ayush Patel from Buidlers Tribe, 
• Ben Horvath of Blockchain Founders Capital, 
• Richard Seiler from RR Capital, 
• Mohammed Imran Siddiqui of STC Bahrain, 
• Max Sarafin from WWVentures, 
• Jimmy Lin of Cipholio Ventures. 

Their expertise and insights were instrumental in evaluating the projects, ensuring that the most innovative and impactful solutions were recognized and rewarded.

In the General category, ZKRamp emerged as the winner, presenting an efficient onramp/offramp solution that leverages zero-knowledge proofs to ensure privacy and speed. This was closely followed by DeTelco, which aimed at decentralizing the phone number transfer process to mitigate issues arising during operator transitions. FairPetuals secured the third position by introducing a novel liquidation mechanism aimed at ensuring fairness and decentralization in perpetual platform operations.

In the Tooling & Infrastructure Category, GrantMe was recognized for its DAO-based platform that streamlines local government funding with transparent administration, earning it first place. Mysign.id, which enhances digital signatures with AI and zero-knowledge proofs for improved security, came in second. The third place was once again awarded to aleph-zero-login, for its contribution to secure digital identity verification.

The DeFi Category was dominated by ZKRamp, reinforcing its position as a standout project in the hackathon. FairPetuals claimed the second spot, with its innovative approach to decentralized perpetuals platform operations. Safe Send offers a decentralized payment gateway that integrates AZERO.ID for secure crypto transactions secured the third position.

In the Digital Identity (DiD) category, ZKRamp once again took the lead, highlighting its versatility and the broad applicability of its solutions. The Hunt3rs, a mobile app that gamifies networking at events to build community engagement, came in second. The third place was awarded to aleph-zero-login, which integrates OpenID Connect with blockchain technology for secure digital identity verification using NFTs.

The Gaming category was won by Doggo, a unique blend of gaming and blockchain technology, offering a dogfighting simulation card game where cards are NFTs. Additionally, The Hunt3rs received a Recognition Award, highlighting its innovative approach to gamifying networking at events.

The Telco Category saw DeTelco clinching the first place, underscoring its innovative approach to telecommunications. Bridgehead was awarded second place for its development of a secure blockchain-based certification system, facilitating proximity-based user communication. Demi, which incentivizes AI nodes to compete thus fostering a competitive and efficient AI development environment, rounded out the top three.

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Stablecoin Standard and Digital Euro Association Partnerships

Announced earlier this year, the strategic partnership between Stablecoin Standard, an authoritative global consortium of stablecoin issuers, and Aleph Zero cements a groundbreaking partnership aimed at bolstering commerce and privacy within the blockchain domain. The collaboration signifies Aleph Zero's engagement with a substantial segment of the world's leading stablecoin issuers, currently encompassing 17 distinct fiat currency denominations such as CAD, CHF, EUR, GBP, HKD, JPY, and USD. The partnership's primary goal is to furnish users within the Aleph Zero ecosystem with a diverse array of on-chain "safe harbors" for settlement, irrespective of their geographical location. As Stablecoin Standard continues to incorporate additional fiat-backed stablecoin issuers, the spectrum of on-ramp and settlement options, denominated in users' local currencies, is set to expand.

Both Stablecoin Standard and Aleph Zero uphold the principle that genuine privacy does not entail the obfuscation of all information but rather empowers individuals to exercise discernment over the details they choose to disclose. This perspective on privacy grants individuals dominion over their personal data, mirroring the autonomy afforded in traditional financial systems and everyday life. The expectation for inherently private transactions is becoming increasingly prevalent among consumers, thereby shaping the trajectory of stablecoin adoption on privacy-centric blockchain platforms. This paradigm shift promises to redefine the landscape of Web3 commerce.

Furthermore, the integration of stablecoins on platforms like Aleph Zero not only champions privacy but also diligently addresses regulatory mandates concerning anti-money laundering (AML) and the prevention of terrorism financing (CFT). By amalgamating price stability with intrinsic on-chain anonymity, these networks facilitate transactions that are private, compliant with legal standards, and resistant to censorship—attributes that are quintessential for e-commerce and payment applications.

Additionally, Aleph Zero also recently announced its partnership with the Digital Euro Association (DEA), a Frankfurt-based think tank focused on the advancement of stablecoins, central bank digital currencies (CBDCs), and other digital monetary forms. This collaboration signifies Aleph Zero's commitment to contributing to the future of digital currencies in Europe and potentially on a global scale. The DEA, recognized for its expertise in guiding the development of both private and public digital Euro iterations, values Aleph Zero's advanced blockchain solutions as pivotal to the evolving digital money landscape.

The DEA's recognition of Aleph Zero underscores the synergy between the two entities in enhancing digital currency integration, usage, and comprehension. This partnership promises a fertile exchange of ideas and knowledge, poised to influence the trajectory of digital finance significantly.

A key focus of the DEA, and now of Aleph Zero through this partnership, is the development and advocacy for privacy-centric stablecoin models. The DEA's stance, as articulated in one of its comprehensive whitepapers, champions the use of stablecoins that offer user-controlled privacy without reliance on central banks' assurances. This perspective aligns with the increasing demand for digital currency solutions that offer cash-like anonymity while navigating regulatory landscapes, including compliance with anti-money laundering (AML) directives and measures to combat the financing of terrorism (CFT), without compromising user privacy.

The DEA's collaboration with EU regulators aims to integrate private stablecoins and public CBDCs into the digital money ecosystem, a venture that Aleph Zero's technology and vision are well-equipped to support. The emphasis on ensuring that these digital currency solutions respect user privacy while adhering to regulatory requirements presents a forward-thinking approach to the challenges and opportunities within the digital finance domain.

Aleph Zero's involvement with the DEA positions it alongside notable members such as Ripple, Circle, and RTGS.global, in a collective effort to shape the future of digital money. This partnership, coming at a critical time ahead of the anticipated Markets in Crypto Assets (MiCA) framework, highlights Aleph Zero's role in fostering stablecoin and CBDC development that prioritizes user privacy and regulatory compliance. Furthermore, the engagement of core team members in the European Blockchain Services Infrastructure (EBSI) initiative reflects a broader commitment to advancing blockchain adoption across the European Union, reinforcing the strategic importance of this collaboration in the broader context of digital currency evolution.

Conclusion

In conclusion, Aleph Zero's trajectory in the blockchain space is marked by its innovative approach to privacy, scalability, and interoperability. Through the integration of cutting-edge technologies such as the AlephBFT consensus mechanism, zero-knowledge proofs, and secure Multi-Party Computation, alongside strategic developments like the MOST bridge, MetaMask Snaps deployment, and partnerships with Router Protocol, Stablecoin Standard, and the Digital Euro Association, Aleph Zero is not only addressing the current demands of the privacy blockchain market but is also setting new standards for the future. The shift from privacy coins to privacy blockchains, underscored by Aleph Zero's rising prominence, reflects a broader trend towards more sophisticated, user-centric, and regulatory-compliant blockchain solutions. With its continuous technical advancements, strategic partnerships, and commitment to fostering a secure and private ecosystem, Aleph Zero is well-positioned to lead the charge in the next wave of blockchain innovation, offering a compelling proposition for businesses and users alike in the quest for privacy-preserving, efficient, and interoperable blockchain infrastructure.

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Disclaimer: This report was commissioned by Aleph Zero. This research report is exactly that — a research report. It is not intended to serve as financial advice, nor should you blindly assume that any of the information is accurate without confirming through your own research. Bitcoin, cryptocurrencies, and other digital assets are incredibly risky and nothing in this report should be considered an endorsement to buy or sell any asset. Never invest more than you are willing to lose and understand the risk that you are taking. Do your own research. All information in this report is for educational purposes only and should not be the basis for any investment decisions that you make.

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