Zero-knowledge proof (ZKP) is a type of cryptographic system that allows someone to verify the accuracy of information without revealing its content. This technology has been gaining traction in the world of blockchain, cryptocurrencies, and DeFi, as it helps to enhance both privacy and security.
As the utilization of ZKPs in DeFi projects continues to grow, users can be assured of their privacy and security when it comes to activities such as lending, borrowing, and trading. Furthermore, many Layer 1 blockchains are taking things one step further by introducing ZKP-based roll-ups or zkEVMs. It's expected that ZKPs will become increasingly important in the blockchain and Web3 space as more organizations begin deploying zero-knowledge proof applications.
What Is the Mechanism Behind a Zero-Knowledge Proof?
A zero-knowledge proof enables a party (the prover) to confirm the truth of a statement to another party (the verifier) without revealing any extra information. This technique is beneficial when the underlying data is private and the prover desires to protect it from the verifier.
The prover generates a mathematical proof that only they possess, and the verifier can use this proof to confirm the correctness of the statement. But, it is impossible to reconstruct the original data using this proof.
What Are the Benefits of Utilizing Zero-Knowledge Proofs?
As blockchain technology and cryptocurrency become more prominent, the need for advanced privacy and security features in digital transactions is increasing. Zero-knowledge proofs are becoming increasingly popular as a means to achieve this, allowing for transactions to be verified without having to divulge any sensitive information.
ZKPs have seen a spike in popularity in recent years, with many protocols utilizing them having arisen and blockchains taking advantage of zero-knowledge roll-ups. It was further highlighted at the DevCon 2022 conference, where over a fifth of all presentations were related to this technology.
The development of zero-knowledge proofs has seen a lot of focus on zk-SNARKs, a specific ZKP, which has seen widespread adoption in various DeFi applications, such as private token transactions and shielded lending and borrowing. Furthermore, scalability and performance via zkRoll-ups are becoming an increasingly important focus for zero-knowledge proofs.
Zero-knowledge succinct non-interactive argument of knowledge (zk-SNARKs) is a form of zero-knowledge proof, enabling statements to be confirmed without divulging any details about the statement itself.
Applications such as Zcash and JP Morgan Chase's blockchain-based payment system already utilize zk-SNARKs. In addition, it has been used as a secure way to verify the identities of clients connecting to servers.
zkRoll-ups are the solution that involves batching various transactions into a single, larger transaction, which is then inscribed on the blockchain.
With zkRoll-ups, hundreds of transactions can be bundled off-chain into a single batch, and cryptographic proof can be generated to guarantee their accuracy and security. This technology is optimal for instances requiring high scalability and low latency.
ZKP Use Cases
Zero-knowledge proofs have numerous applications, some of which are already functional and more anticipated to be possible in the near future. Primary use cases for ZKP include:
Electronic Verification of One's Identity
By using zero-knowledge proofs, user identities can be confirmed without divulging any confidential information. This technology is beneficial in areas such as online voting, where users' identities must be validated without compromising their anonymity.
Transactions That Protect Personal Data
Zero-knowledge proofs are one of the most popular technologies in cryptocurrency, allowing for privacy-focused transactions. A prime example of this is Manta Network's MantaPay DApp which relies on ZKPs to securely and privately facilitate transactions on their DEX, protecting users' identities and transaction details. It enables users to transact on the platform anonymously yet remain totally secure.
Zcash utilizes zero-knowledge proofs to make possible its shielded transactions, which obfuscate sender and recipient addresses and transaction amounts on the public blockchain for increased privacy.
Verifying the Ownership of Tokens
Zero-knowledge proofs can be utilized for tokenizing assets and authenticating possession of them. For instance, tokenizing a property can allow any party to establish its ownership without making any other data public.
Adhering to Global Regulations
In certain countries, collecting and disseminating financial details is strictly regulated, posing a challenge for decentralized platforms. To comply with applicable laws, zero-knowledge proofs can be employed to furnish regulators with the appropriate data while keeping it confidential for everybody else.
This technology can narrow the divide between decentralized platforms and conventional financial institutions, allowing DeFi to comply with the various regulations in different locales.
What Will ZKPs Bring to Blockchain?
Zero-knowledge proofs are expected to spur on novel technological advancements in the coming years. It is worthwhile to watch out for various Zero-Knowledge Proof-related innovations, such as:
Private Cross-chain Transactions
As blockchain and DeFi become more expansive and intricate, there is a greater need to connect different blockchain networks securely. Cross-chain privacy layers answer this need by allowing privacy-protected transactions between blockchain networks.
Another area worthy of attention is the increasing utilization of zk-STARKs (zero-knowledge scalable transparent argument of knowledge), a newer kind of zero-knowledge proof that is thought to be more efficient and secure compared to zk-SNARKs. Zk-STARKs also have the added benefit of being quicker to validate and do not demand a reliable set-up.
Toolkits for Easy Use
The complexity of zero-knowledge proof technology can make it difficult for people with limited knowledge of cryptography to incorporate into such projects. To make the technology more accessible, user-friendly ZKP toolkits provide developers of all backgrounds with the tools to utilize it effectively.
Limitations of Zero-Knowledge Proofs
ZKPs are a method that allows one to confirm the truthfulness of certain information without revealing confidential details. However, it is essential to note that this technique is not absolutely fail-proof. Although the chance of success when the prover is lying is extremely small, users should be aware that ZKPs don't come with a 100% guarantee.
The complexity of algorithms for zero-knowledge proofs necessitates significant computing resources. Some ZKPs require multiple interactions between verifiers and provers, which leads to the necessity of intensive computing. Others have exceptionally computationally intense algorithms, which may potentially restrict the application of ZKPs.
Due to their privacy-preserving nature and scalability, zero-knowledge proofs have recently received a lot of attention. Utilizing this technology in blockchain, cryptocurrency, and decentralized finance brings a range of innovative services that could greatly benefit its users. Ultimately, ZKPs could form the basis for a more secure, private, and efficient DApp ecosystem.