EY updates privacy L2 as nixed Tornado Cash sanctions ease fears

Big Four accounting firm EY, formerly Ernst & Young, has changed its enterprise-focused Ethereum layer-2 blockchain Nightfall to a zero-knowledge rollup design as it says corporate clients are more comfortable with privacy solutions with easing US sanctions.

EY said in an April 2 announcement that Nightfall’s new source code, “Nightfall_4,” simplifies the network’s architecture and offers near-instant transaction finality on Ethereum while making it more accessible to users than its previous optimistic rollup-based version.

EY’s global blockchain leader, Paul Brody, told Cointelegraph that switching to a ZK-rollup model “means instant finality, but it also makes operations simpler since you don’t need a challenger node to secure the network,” which verifies the correctness of transactions.

The move away from optimistic rollups means Nightfall users won’t need to challenge potentially incorrect transactions on Ethereum and wait out the challenging period, leading to faster transaction finality.

No such feature is present with zero-knowledge rollups, meaning that a transaction becomes final as soon as it is added into a Nightfall block, EY said. 

Nightfall enables the firm’s business partners to transfer tokens privately using Ethereum’s security while being cheaper than the base network. It also uses a technology that binds a verified identity to a public key through digital signatures to try to stem counterparty risk.

Brody said the US Treasury’s Office of Foreign Assets Control (OFAC) sanctions on the crypto mixing service Tornado Cash “had a chilling effect on legitimate business user interest.”

“Even though we long ago took steps to make Nightfall unattractive to bad actors, since it cannot be used anonymously, the removal of OFAC sanctions has really helped people feel comfortable that using a privacy technology will not be risky,” he added.

While Nightfall’s code is open source on GitHub, Nightfall_4 has not gone live yet.

Brody said that EY’s blockchain team is working toward “a single environment that supports payments, logic, and composability.”

Currently, the firm requires Nightfall and Starlight, a tool that can change smart contract code to enable zero-knowledge proofs “to enable complex multiparty business agreements under privacy,” he added.

“We’ll spend some time supporting Nightfall_4 deployments initially,” Brody said. “Then we’ll move on to the development of Nightfall_5.”

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