Zero-Knowledge Proofs Show Potential From Voting To Finance – Cointelegraph Magazine

In a world worried about privacy and the exploitation of personal data by governments, corporations, social media platforms and banks, zero-knowledge authentications can offer some relief.

Indeed, this emerging cryptographic protocol may partially address two rapidly growing global deficits: privacy and truth.

ZK-evidences have already found a home in the cryptocurrency and blockchain sector – enabling measurement protocols to make Ethereum transactions faster and cheaper. But this might just be the beginning.

One day, ZK-proofs will be used to convince your bank that your income is above a certain threshold – for example to qualify for a mortgage – without revealing your actual income. Or prove to election officials that you are a resident or citizen without giving them your name, driver's license or passport.

ZK-evidence opens up new potential applications, including “anonymous voting, decentralized games, verifying personal information without fully revealing your personal information, and fighting fake news by verifying a news source,” Polygon founder Jordi Bylina said. Magazine says.

To this point, some in the cryptographic community see ZK-proofs as a potential tool in the fight against fake information, including AI-altered documents, images and identities.

“We may have a true technological battle in which ZK will play an important role,” award-winning cryptographer Jens Groth told the magazine. “There's this idea of ​​proof-of-concept data,” meaning data that proves its validity, including original and verified data, “so Nirvana means that all the data we get is verified data.”

In some industry sectors, such as finance, ZK-proofs can profoundly change how business is conducted. “We see this revolutionizing the audit industry,” said Rich Dewey, Verified co-founder and CEO, of the ZK-enabled verification protocols the technology firm has developed. “The only question is the timeline.”

Fewer resources are required.

Although ZK-evidence was first presented in the 1980s by researchers Shafie Goldwasser, Silvio Micali and Charles Rakoff, it was only in the last decade that they had their “big breakthrough,” Bailina said.

“Now any general statement can be verified.” This statement — sometimes called a circuit — “can be written in a specific language and be anything,” Baylina says.

ZK-proofs are computationally complex, which made their development slow, but the main idea seems simple. As stated in the following paper by the Federal Reserve Bank of St. Louis:

“Using zero-knowledge proof (ZKP), one party can prove to other parties that a calculation has been performed correctly. There is no need to duplicate the calculation – only the proof needs to be verified. Ideally, proving ZKP requires far less resources than re-executing the calculation.”

The following promising ZK-proof use cases are on the table today – beyond the strict confines of the crypto sector – which may or may not involve the use of blockchains.

Ensuring digital voting

Electronic voting has been slow to take off globally, but if and when it does, chances are ZK-proofs will play a big role. Dahlia Malki, a prominent scientist at Chainlink Labs, told the magazine that ZK-proofs are being used in trials in e-voting systems in several Swiss cities and cantons.

“ZK-proofs add verification to online voting, allowing anyone to verify that the votes were counted correctly,” Malki says, without revealing how individuals voted — a key issue in electronic voting.

Cryptographic electronic voting systems have been around for decades, Malki added, but their adoption has been moderate. On the technical side, one challenge is “convention of end-user devices that ZK-proofs do not protect.”

There are also other barriers beyond the ZK-evidence's view or ability to control – which may suggest limitations.

Electronic voting requires a reliable “digital identity” system, that is, a link to “real-world” information, if not always secure. (Think of all the ballots in those old paper books.) “ZK can't initiate e-voting by itself,” Malki said.

Cryptographer Groth, like Malki, notes that some kind of “anchor of faith” is needed to make ZK-proofs effective in everyday life. “Zero-knowledge assertions often require a hook with reality.”

Perhaps one day ZK-proofs will be able to prove someone is over 18 or a UK citizen without taking out a driver's license or passport, Groth told the magazine, but “you can't prove you're over 18, you're out of thin air.” You need an anchor of credibility to prove your age,” he said, ie, some authority to prove your nationality or year of birth. He added:

“In the future, organizations may provide trust anchors that align with ZK, but right now that's not the norm, so you have a chicken-and-egg problem.”

Privacy protections for CBCCs

Today, the world seems awash with central bank digital currency projects. According to the Atlantic Council, 130 countries representing 98% of global GDP are now exploring government-issued digital currency.

But CBCCs have been dogged by privacy concerns, and some fear they could be misused by the government to monitor its own population.

That's why high privacy guarantees “are currently in most CBCC projects,” Jonas Gross, chairman of the Digital Euro Association, told the magazine.

ZK-proofs can be part of the solution, and that is why “different central banks are studying. [ZK-proof] Apps – eg in the UK, Japan and South Korea.

“ZK-evidence should be considered if privacy is a priority,” Remo Niffnegger, co-author of the aforementioned St. Louis Fed paper and research assistant at the Center for Innovative Finance at the University of Basel, told the magazine.

In fact, the European Central Bank published a regulatory proposal for the digital euro at the end of June and said that zero-knowledge proofs should be considered in the CBCC tech stack.

Again, there may be limits to what exactly ZK-proofs can do on their own. “I don't see them using ZK-proofs. [alone] It is enough because if ZK-evidence is used in ongoing political discussions, not all information related to CBCC will be hidden. “Higher privacy should also be supported by CBCC's regulatory and educational efforts around the appropriate level of privacy.”

Exposing a changed photo

AI applications are now so powerful that distinguishing between machine-generated images or documents and human-generated ones is already problematic. Things get worse, but ZK-evidence can provide at least a partial solution.

“Blockchain tech and ZK-proofs can be used as built-in defenses in these systems to verify the origin, authenticity and ownership of AI-generated files and manage some of the risks associated with AI-generated content,” Malki said. Groth added:

“There's a new study to show ZK-evidence, for example, that they don't change photos much – that is, fighting fake news.”

High-end cameras are on the market that digitally sign photos with information such as location and timestamps and can ensure authenticity, Malki says. The problem now is that these digital files are often huge – too big to post on a news service website, for example.

But with ZK-proofs, their file size can be significantly reduced, making them practical for online use while preserving critical proof elements. “It can confirm that the recording or image has not been altered. [including] Even the day is the whole day, regardless of identity or location or any of that,” says Beylina.

Solving proof with ZK-proofs?

Many believe that finance will be the first major business sector to be influenced by ZK-proofs. In fact, 41% of respondents to the Mina Foundation's “Zero Knowledge Report 2022” agreed that the finance industry “needs ZKPs the most,” followed by healthcare (12%), social media (5%) and e-commerce (3%).

In March, the Mexican cryptocurrency exchange Bitso announced a partnership with the technology firm to implement a “proof of liquidity” solution based on ZK-proofs. This protocol will soon allow investors, regulators and others to know whether an exchange is solvency – that is, its liabilities are less than its assets – based on daily reports.

One of the more intelligent aspects of the Proven protocol is that it involves the clients of the exchange in the process of maintaining the integrity of the exchange. It's a crowd-sourced version of Audition.

Co-founders Davey and Agustin LeBron publish proofreading solutions for the magazine Daily Exchange (eg Bitso). And when it does, each individual customer/user of the exchange is issued a “receipt” that reflects that individual's unique holdings. Millions of digital receipts can be issued every day.

What if one day a customer doesn't receive a daily invoice or it's wrong? That user can take to Twitter or another social media site to complain or ask questions. Has anyone else experienced the same thing? Thread may grow.

This protocol is based on the law of large numbers. Bitso, for example, has nearly five million users, and the assumption is that many complainants may emerge quickly, collectively raising a red flag that may warrant further investigation.

This ZK-based protocol has another advantage, according to Bitso. It provides a verifiable proof of solution without disclosing all that information to a third party. All an auditor needs to do is run the zk-SNARK protocol to come to the conclusion that the evidence is true.

According to Groth, the use of ZK-proofs to demonstrate financial efficiency “gained more attention after the FTX implosion.” Indeed, had such a protocol been in place last year, the Bahamas-based exchange's inefficiencies could have been avoided, some say – or at least the fallout would have been revealed sooner.

Interestingly, FTX Japan, now rebranded as Liquid Japan, has been using Proven's proof-of-solution technology since its recent relaunch in early September. “Having received proof of resolution, we can now verify [solvency] In a cryptographic way that can be verified by 3rd parties,” the company added.

By the end of 2023, we have started working on increasing the frequency of publishing the proof of solution to 1x a day.

Tracking “immutable” items

“ZK-proofs can be issued by both public and private entities in the context of digital identities,” Niffnegger added. For example, you can confirm that you are not on some government sanctions list without revealing who you are.

The potential use of ZK-proofs in supply chains is also frequently mentioned. But the problem here is that, like e-voting, this requires connecting to a trusted source of “real-world data”, which can confirm, for example, the date an order was shipped from the factory.

“ZK-evidence-based supply chain tracking systems have not been tested in living environments for a long time,” Malki said, adding that this may soon change.

“Here, the potential of ZK-proofs is very broad – to improve transparency and reduce the potential impact of fraud by enabling consistent and real-time commodity tracking.”

What should be added is that while blockchains present some of the first interesting use cases of ZK-proof, the technology does not require blockchain technology to work – but they are certainly helpful.

“They are a very suitable tool for blockchains because they provide precise computational proofs – which fits well with proof-of-principle on blockchains – while hiding as much information as possible,” Johannes Seidelmaier, a researcher at the Luxembourg International Center for Security, Trust and Trust, tells the magazine.

With a blockchain platform, a validator can verify if a certain “hash” appears somewhere on the blockchain, “so that binds me as a prover,” he added.

Blockchain is not required for Proven's proof-of-solution protocol to work, LeBron told the magazine, although having validators on-chain is always useful. It sounds like “like” rather than “want”.

Obstacles remain

What obstacles still need to be overcome before ZK-proofs become commonplace? Malki mentions the challenges of “connecting it to the real world” and this, in her view, proves to be the biggest hurdle to overcome before ZK technology becomes mainstream.

However, other hurdles remain that require laws and regulations to overcome. For example, will ZK's claims be accepted in court?

Malkey says scaling remains a challenge in many cases because there is currently no “standard way to ‘program',” Malki said, making it difficult for developers to integrate authentication into their applications.

As of this last point, Proven's protocol with Bitso requires it to issue about five million unique “receipts” to Bitso users every month (though soon daily), but Proven says this isn't a problem. “We knew how to scale,” says co-founder LeBron.

Complexity is another sticking point. “We already have a good ZK system with small and medium-sized proofs,” said cryptographer Groth. “We still need to improve efficiency for larger proofs.” ZK-proofs like SNARKs can be cheap to prove, “but the professor pays a huge performance penalty compared to native computation,” he adds.

Being “cheap”.

The user experience should also be improved. “Using ZK-proofs secure technology for everyday activities like grocery shopping should be seamless and the user doesn't even know,” says Baylina.

“The other thing we need is time,” says Beylina. Protocols like Polygon's zk-Ethereum virtual machine are still new, but they're getting more and more used all the time. “As Polygon zkEVM continues to grow, next year, we expect the price to become cheaper.”

Given these roadblocks, how long can it take before the technology becomes mainstream?

I believe five years is too short because of the current TRL. [technology readiness levels] The ZK-proofs,” says Sedlmeier, referring specifically to the financial sector. Although ZK-proofs have matured rapidly in recent years, “they are still complex to implement and performance is still a significant bottleneck.

There may be a transition period when ZK-proof works with traditional protocols such as financial audits. Proven Div intends to work “hands-on” with traditional Big Four audit firms for some time.

Wide capacity

Overall, ZK-proofs still face challenges. They cannot work in isolation. They must still be connected to the source or “word” of truth. Doubts also remain about computational complexity, usability, and scalability.

But if these hurdles are overcome, ZK-proofs may offer a 21st-century solution not only to the “fake news” challenge, but also to the privacy problem of CBDCs, providing just enough anonymity for users to comfortably use government-issued digital currency. Adequate accountability so that governments can ensure that fraudsters or counterfeiters do not gain access to their networks.

As the technology and underlying infrastructure continue to improve, Malki summarizes, “ZK-evidence has the potential to enable an Internet where most contracts are backed by cryptographic guarantees.

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Andrew Singer

Andrew Singer has been a regular contributor to Cointelegraph since October 2019. He has been a professional business writer and editor for more than 30 years, including 25 years as the founder and editor-in-chief of Ethics: The Journal of Practical Business Ethics, which he still publishes. In the year In 2017, he received a master's degree in statistics from Columbia University – which sparked his interest in AI, machine learning and blockchain technology. He currently lives in Peekskill, New York and enjoys hiking in the Hudson Highlands.