Zero-Knowledge Proof: Ensure Privacy in Blockchain Transactions
Layer 1 blockchain protocols using proof of work consensus mechanisms, such as Ethereum and Bitcoin, are faced with multiple scalability issues due to the high volume of transactions per second, which causes a delay in transaction throughput, high gas fees, and miners’ extractable value (MEV).
MEV gives miners the ability to front-run and approve transactions with high gas fees thereby allowing transactions with the lowest gas fees to get dropped from the pool when all the node spaces are full.
Consequently, researchers and developers took it upon themselves to develop a scaling solution that would scale the Ethereum and bitcoin protocols' transaction throughput, finality, and reduce gas fees.
Layer 2 and sidechain protocols such as Polygon, Starkware, Arbitrum, Loopring, Lightening network, and Matter Labs have deployed the use of zero-knowledge proof to perform batch transfer processing rolled into a single transaction off-chain and verified with the on-chain Ethereum smart contracts.
What is Zero-Knowledge Proof?
Zero-Knowledge Proof is a cryptographic and computational consensus mechanism that allows one party (The Prover) to prove to another party (The Verifier) that a certain statement is true or meets the requirement without revealing any information beyond the validity of the statement.
Zero-knowledge proof in simple terms means one party (The prover) wants to prove a statement is true without revealing any sensitive information (The verifier).
True zero-knowledge proofs (ZKP) need to fulfill three complete criteria such as:
1. Completeness: The verifier should be convinced by the prover that they know what they say they know
2. Soundness: If the information is incorrect, the prover cannot convince the verifier that the information is right
3. Zero-knowledge-ness: No sensitive information should be revealed to the verifier
The zero-knowledge proof provides a technical approach to solving blockchain scalability difficulties through the arithmetic and cryptographic computational process through 2000 batch operations. Thus, providing additional evaluation, validation, security, privacy, transaction integrity, consistency, and efficiency.
Types of Zero-knowledge Proofs
There are 3 types of zero-knowledge proof developed that enhance transaction privacy and security on the blockchain.
- Optimistic rollups (Fraud Proof): is a layer 2 scaling solution that works in parallel with the Ethereum network that relies on off-chain computation to record transactions by optimistically accepting a transaction and assuming it’s valid, but validators can check the submitted transaction for a fraud-proof if they find a commitment to be incorrect.
- Zero-Knowledge rollups (Validity Proof): ZK-rollups could be used in explaining the non-interactive construction between the prover and verifier commitment relationship, which consists of binding and hiding. In binding, the prover will not be able to change the committed polynomial, and in hiding the verifier will not be able to deduce which is the committed polynomial constraint just by looking at the commitment, thus, ZK-SNARK leaves a non-interactive argument between the prover and the verifier.
- State Channels: State channels are a scaling solution that scales peer-to-peer blockchain interactions and transactions.
ZK-rollups Layers 2 scaling protocols
- ZK-SNARK
ZK-SNARK: Stands for Zero-Knowledge succinct Non-Interactive Argument of Knowledge a cryptographic proof that allows one party to prove it possesses certain information without revealing it. ZK-SNARK utilizes a cryptographic method to enforce better data integrity and privacy.
Protocols that are using SNARKs:
· Loopring
· Polygon Hermez
· ZKSync
· Zcash
· ZKsync2.0 (EVM-based programming model and composability)
· ZKSwap
· Hermez (EVM-based programming model and composability)
- ZK-STARK
ZK-STARK: is a zero-knowledge proof scaling solution that stands for a zero-knowledge scalable transparent argument of knowledge scaling Ethereum ecosystem and other protocols.
ZK-START applies a secure cryptographic function that uses Zero-Knowledge proof (ZKP) principles to create encrypted and easily verifiable data without revealing sensitive information about such data. STARKs rely on hash functions to solve scalability and privacy issues and resistance to quantum computing.
Protocols that are using STARKS
· Starkware/StarkEx
· Immutable X (StarkEx)
· DYDX (StarkEx)
· Starknet
· Polygon Miden
Some zero-knowledge proofs are not EVM compatible, meaning their sidechain interacts with Ethereum smart contracts while the likes of Hermez and ZK-sync 2.0 are EVM compatible.
ZKP enhances Ethereum ecosystem scalability, transactions throughput, transaction efficiency, data integrity, and privacy.
Ethereum Virtual Machine (EVM) is a computation engine that serves as a decentralized computer that has millions of executable projects known as DApp.
Zero-Knowledge proof and its privacy application
You might be wondering; how zero-knowledge can be applied to cryptocurrency and blockchain technology aside from scaling the Ethereum ecosystem?
Zero-knowledge-proof cryptographic applications can be implemented in various aspects of the blockchain including:
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Messaging: End-to-end encryption
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Sharing Data: Sharing data without third party involvement
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Authentication: Authenticating information without exposing any sensitive data
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Complex Documentation: Authorized access to complex documents can be prevented
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Security for Sensitive Information: The sensitivity of transactions and information can be protected
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Storage Protection: Storage utilities can be securely protected
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File System Control: The file system can be protected using the zero-knowledge proof protocol
The permission-less nature of the public blockchain is inherently transparent, which could be a disadvantage to transaction privacy; thus, with zero-knowledge proof, privacy can be achieved. Consequently, the zero-knowledge proof uses cryptographic and computational encrypted methods to achieve transaction anonymity, censorship resistance, and data security to prevent on-chain surveillance, thus, at the same time, solving the blockchain trilemma. With On-chain surveillance becoming a threat to crypto traders, investors are starting to explore alternative privacy projects that will provide transaction integrity.
A few days ago, Coinbase announced that it will be tracking off-platform crypto transfers to a non-Coinbase wallet in Canada, Singapore, and Japan. This announcement has raised a lot of concerns as regards privacy and transaction integrity. Hence, information integrity and on-chain transaction privacy become exposed due to off-chain and on-chain surveillance by organizations such as chainalysis. Know Your Customers (KYC) and Anti-Money Laundering (AML) requirements.
Other notable security and privacy Token and coins:
Monero ($XMR)
Dash ($DASH)
Zcash ($ZEC)
Haven Protocol ($XHV)
$Secret
$Zilliqa
$ImmuntableX
$Zcoin
$Suter
$TornadoCash
$BlockWallet ($Blank)
Conclusion
The underlying use of zero-knowledge as a consensus proof for scaling solutions and privacy mechanisms is revolutionizing the blockchain ecosystem in a way that enforces transaction integrity and resists quantum computers. However, privacy-oriented protocols might face a lot of regulatory measures.
One such example is Monero which is currently being investigated by the IRS due to its strict privacy features. It’s clear given a relative inability to allow private blockchains to operate without corporate or government interference that blockchains’ future may potentially have to become less private unless Zero-Knowledge Proofs become more prevalent.
Also published here