September 6, 2023
Arjun Padmajan

What is Aleo and How Does It Work?

What is Aleo and How Does It Work?

Key Takeaways

— Aleo is a privacy-first blockchain for developers to build internet applications powered by smart contracts that enable truly private user interactions online.

— Some of the most crucial components that power the Aleo ecosystem are zero-knowledge proof (ZKPs), snarkVM, snarkOS, Leo programming language, and Aleo SDK.

— Unlike other blockchains, Aleo brings together privacy, decentralization, programmability, and scalability to make blockchain-powered applications actually practical to use.

Bitcoin launched in 2009 and was the first real-life application of blockchains. It was developed to offer a global digital payment network that worked without a central entity like a bank or a state-backed currency.

But Bitcoin was limited to one application — payments. To solve this, a team of developers launched Ethereum. It used the concepts of Bitcoin but also introduced the ability to build autonomous and decentralized blockchain-based software algorithms called smart contracts.

Since Ethereum, we have a host of blockchains that aim to build a decentralized and secure internet ecosystem. And very often, people assume that these networks are completely private because of their pseudonymous crypto wallet addresses.

The truth is far from it. Tools like Chainalysis have helped unmask most users on a blockchain. That’s because existing blockchains don’t enable truly private internet interactions.

That’s a concern we cannot undermine given that every internet user has a significant amount of personally identifiable information online.

Besides, on web2, every link we click, every purchase we make, and every interaction we have online is tracked, linked to our identity, and stored on centralized servers to offer users personalized experiences.

The challenge with solving the privacy crisis right now is that developers face a difficult choice: they can either offer their users ultimate privacy or personalized experiences.

Aleo is a layer-1 blockchain that aims to solve this problem. But what is Aleo and how does it work?

This article explores what Aleo is, how it solves the user privacy challenge, and how it is different from existing blockchains. Let’s dive in.

What is Aleo?

Aleo is a privacy-first layer-1 blockchain that helps developers code and deploy applications that enable truly private user interactions online. It integrates zero-knowledge cryptography and programmable smart contracts to ensure developers can offer their users both privacy and personalized experiences.

Zero-knowledge cryptography is a complicated technology that has taken years of research to be integrated into blockchain. To make it easy for developers to build zero-knowledge-powered private applications, Aleo has defined a new Rust-based programming language Leo.

Leo abstracts the underlying cryptography and lets developers build ZK-powered applications on Aleo without understanding zero-knowledge technology. But that’s not all. There are multiple other components that allow Aleo to integrate privacy, decentralization, and programmability into internet applications all at once.

To understand that, let’s take a closer look at how Aleo works.

How Does Aleo Work?

Any blockchain needs three core elements:

  • An operating system: To create blocks, process transactions, and network communication.
  • A virtual machine environment: To execute smart contract computations, and
  • A consensus mechanism: To securely verify state changes in a distributed network setup.

Within Aleo, snarkOS, snarkVM, and AleoBFT are responsible for these three aspects respectively.

In addition to these, there’s one more crucial element in Aleo: zero-knowledge proofs or ZKPs.

Let’s check out each of these to understand what exact roles they play in the Aleo ecosystem.

Zero-knowledge proofs

Zero-knowledge proof is a cryptographic technology that allows one party to prove to another party that they know a secret without revealing the secret itself. ZKPs achieve this by using mathematical proof that can be verified by the other party without requesting any identifiable detail about the secret.

Aleo uses ZKPs to achieve both privacy and programmability.

On the privacy side, ZKPs allow users to perform off-chain computations on their data without revealing the data to anyone else.

On the programmability side, ZKPs let developers build applications that can attain on-chain verification without revealing any sensitive information.


snarkOS is Aleo’s decentralized operating system that verifies transactions and state transitions and stores the encrypted state of applications on-chain in a publicly-verifiable manner.

To do this, snarkOS uses a specific type of ZKP called zk-SNARKs (Succinct Non-Interactive ARgument of Knowledge). Every time a user or application performs computation off-chain, they must submit a zk-SNARK to snarkOS to prove that the computation was valid.


snarkVM is the virtual machine that executes computation on behalf of zero-knowledge applications and their users.

Contrary to existing chains that keep computation on-chain and limit their scalability, snarkVM operates off-chain to introduce unlimited compute for Aleo applications.

Aleo Byzantine Fault Tolerance (AleoBFT)

Aleo relies on a network of third parties (proving services) to execute computation off-chain and generate zero-knowledge proofs. To do this in a foolproof manner, Aleo employs AleoBFT, a hybrid consensus mechanism that combines the security of proof-of-work with the scalability of proof-of-stake.

In proof-of-stake, a blockchain uses validators to verify transactions based on their stake in the network. In proof-of-work, a blockchain chooses validators to verify transactions based on their ability to solve computationally difficult puzzles.

AleoBFT combines these two approaches by requiring validators to stake their tokens and also solve a succinct proof-of-work puzzle. This ensures that the network is secure and scalable, while also preventing any single entity from gaining too much control over the network.

These four elements of Aleo work together to enable the Aleo ecosystem. The VM performs all computation tasks, the OS maintains a verifiable state of the network, and the consensus mechanism ensures that proofs can be generated and agreed upon in Aleo’s distributed setup.

Apart from this, Aleo also has a full suite of development tools and APIs, creating a one-stop solution for developers who want to build privacy-first internet applications.

Now, let’s take a step back and look at a brief history of Aleo.

History of Aleo

Howard Wu, Raymond Chu, and Collin Chin, the three co-founders, officially established Aleo in 2019.

Although Aleo was established in 2019, the co-founders had been closely involved with multiple early zero-knowledge cryptography projects like ZCash and Monero. They have also closely contributed to critical research that today forms the basis of zero-knowledge technology.

Over the last four years, Aleo has come a long way in terms of technological advancement. Here’s an overview of the key milestones hit by Aleo:

  • 2019: Aleo is officially established.
  • 2020: Aleo releases Testnet 1.
  • 2021: Aleo raises $28 million in funding from a16z, Coinbase Ventures, and Variant Fund, among others.
  • 2021: Aleo releases Testnet 2.
  • 2022: Aleo raises Series B funding of $200 million led by Kora Management LP and SoftBank Vision.
  • 2022: Aleo releases Testnet 3, with the introduction of Provers.
  • 2023: Aleo plans to launch its mainnet.

Aleo vs. ZK Rollups

One might argue as to why we need a separate zero-knowledge layer-1 network when there already exist multiple Ethereum-compatible zero-knowledge rollups. Well, there are multiple reasons.

1. Independent of other chains

ZK rollups rely on an underlying chain such as Ethereum for security and finality. Aleo, on the contrary, is an independent chain and has better control over its security and privacy.

2. Privacy-first design

Ethereum wasn’t designed for privacy or to be compatible with zero-knowledge proofs. So, when ZK rollups publish their transactions on Ethereum, the transaction details are shared across the network.

Aleo solves this problem as it is compatible with ZKP. That means, validity proofs submitted on-chain do not share any private detail related to the user or the transaction with the network.

3. Easy Programmability

Aleo has defined a new programming language Leo, which abstracts away the complexities of ZKP and lets developers easily code ZK-powered private applications. Contrarily, ZK rollups usually require existing contracts on Ethereum to adapt to the ZK environment.

Use Cases of Aleo

Based on everything we’ve discussed so far, there are two Aleo features that stand out the most: privacy and unlimited computing.

That means developers can build any kind of application on Aleo, irrespective of how much computing power it needs. And in doing so, they can also keep the interactions within the application completely private. While the possibilities are endless with Aleo, here are some common use cases where Aleo is best-suited:

1. Machine learning models

Machine learning (ML) heavily relies on data. This data comes from users and devices, which compromises the security of both. And there is no way for users to confirm that their data isn’t compromised or abused.

ZK-powered ML models change this. With the help of ZKPs, developers can run ML models that can prove valid computations without revealing any data. This alone can help across every aspect of our online interactions where AI and ML are used.

For example, this can help assign credit scores to users without revealing any financial records online. This can create highly efficient and reliable decentralized lending-borrowing marketplaces.

2. Private Identities and Verification

Identities and their verification are crucial parts of the internet. Aleo applications can leverage ZKPs to create identities where users can verify their identity without revealing any information at all. Or, they may choose what specific details they want to reveal.

3. Financial Services

In traditional finance, a central entity has the ultimate control over our financial transactions. Contrarily, DeFi offers users control over their assets and transactions, but it publishes all transaction records in a public ledger.

Aleo solves this problem. Financial service applications on Aleo can perform the same tasks as regular DeFi applications but without revealing any private information about the transaction, such as the transacting parties, the amount of transaction, or the platform used.

These are only a few of the use cases of Aleo. In general, developers can use Aleo to build any type of application that we use today. What’s unique about building apps on Aleo is that all applications are private by default.

Drawbacks of Aleo

While Aleo is a bold attempt to solve the internet’s privacy issues, it comes with its own challenges and drawbacks. Let’s take a look at some of the significant problems with Aleo.

Slow Proof Generation

Proof generation on Aleo is a compute-intensive process and it takes a lot of time to generate a validity proof of any transaction. This tends to slow down the network.

To solve this, applications like Leo Wallet are using technologies like browser-based GPU acceleration. With this, they speed up proof generation while still maintaining user privacy.

New Programming Language

Aleo requires developers to build using a new ZK-compatible programming language called Leo. While Leo abstracts low-level cryptography from app development processes, it also means developers need to adjust to a new language.

Besides, as Leo is new, the documentation around it is still not very vast compared to other more popular languages like Solidity.

Relatively Smaller App Ecosystem

Aleo is new on the blockchain street. Developers are still learning about ZK-powered applications and how Aleo can create a truly private internet. That means the ecosystem of applications on Aleo isn’t very diverse, limiting a user’s options.

This will likely change as Aleo attracts more developers to the network.

Aleo FAQ

Does Aleo have a native token?

Yes, Aleo has a native token called Aleo Credits (ALEO). It is a utility token and is also used to incentivize validator nodes to participate in the network and secure the blockchain.

Aleo users can use ALEO  to pay for a variety of services, including:

  • Deploying smart contracts
  • Running computations
  • Storing data
  • Executing transactions

Is Aleo EVM-compatible?

No, Aleo is not EVM-compatible. Aleo uses its own virtual machine called snarkVM and a programming language called Leo. This is because Ethereum Virtual Machine is not designed to support zero-knowledge proofs, which are a key part of Aleo’s privacy-first design.

How to participate in the Aleo ecosystem?

As the Aleo Testnet 3 is live, developers can start building and testing apps on Aleo. Or, they can simply join the Aleo community and contribute to the project by participating in testing, development, or documentation.

To start exploring the Aleo ecosystem or build apps on Aleo, you first need to set up an Aleo-compatible wallet. Leo is the first crypto wallet on Aleo and you can download it here to get started.

Aleo: Future of Internet Privacy

There’s no denying that data privacy and the centralized control over data economy is one of the biggest concerns of internet users today. While existing blockchains tend to solve the problem with centralization, they fail to address privacy concerns.

Aleo, on the other hand, uses zero-knowledge cryptography to address data privacy and enables truly private internet interactions. Not only has Aleo designed a blockchain that supports private applications but it has also created a set of tools and a programming language that help developers easily code ZK-powered applications.

Altogether, Aleo creates an ecosystem that is set to change how data privacy works on the internet.

If you want to explore the growing testnet ecosystem on Aleo or want to develop Aleo apps, you can get started by creating a non-custodial Leo wallet — the first privacy-centric wallet on Aleo.