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In the crypto world, where anonymity is a top priority, it is hard to prove that transactions are conducted by the right persons and announce to the world that genuine transactions have occurred.

This is where Zero Knowledge Proof comes into play.

Zero Knowledge Proof, also known as ZKP, is a protocol that proves the validity of a statement without revealing the statement itself.

In contrast to Blockchain, ZKP helps ensure transaction privacy on blockchains without offering information that may compromise privacy.

In this article, we will provide an overview of how zero-knowledge proofs work, explain some of the math behind them and their types, and discuss their applications in cryptocurrencies like Zcash and Ethereum.

What Is Zero Knowledge Proof?

Zero Knowledge Proof (ZKP) involves two parties: a prover and a verifier. The prover aims to convince the verifier that they possess certain secret information, without disclosing anything about the information itself, except the fact that they possess it.

Initially, this might seem impossible or contradictory. However, zero-knowledge proofs are made feasible through ingenious cryptographic techniques. To grasp the concept better, consider the following real-world analogy:

Suppose Alice wants to prove to Bob that she knows the password to a bank account without revealing the password itself. She could do this by going with Bob to the bank, logging into the account using the password, and showing Bob the account balance. This proves to Bob that Alice knows the password without revealing the password to him.

In the scenario of ZKP,  the prover plays the role of Alice, the verifier plays the role of Bob, the secret information is the password, and the bank is some mathematical function that can be evaluated given the secret information.

By accurately evaluating the function, the prover demonstrates knowledge of the secret without disclosing it.

Simply put, in ZKP, the prover is responsible for proving the claim, and the verifier’s role is to validate it. The protocols reveal on-chain that the hidden information is valid, and the prover knows this with high certainty.

Two Fundamental Types of ZKP AKA Cryptographic Techniques for ZKPs.

There are various cryptographic techniques implemented in ZKP in practice. Two of the most common are based on mathematical problems that are believed to be intractable:

Interactive ZKP.

In Interactive ZKP, the prover faces a random cryptographic challenge from the verifier, and the prover provides responses that prove knowledge of the secret without revealing it.

In interactive ZKPs, the prover must complete a series of actions to convince the verifier about a specific fact.

Non-Interactive ZKP.

Non-interactive ZKP is based on a cryptographic hash function. The prover creates a mathematical proof that proves knowledge of the secret under a cryptographic hash function.

In layman’s terms, the prover creates proof that anyone can verify, and the verification process can also be moved to a later stage. For a better mechanism of non-interactive ZKPs, they need specific software.

In both cases, the proofs rely on the mathematical difficulty of breaking certain cryptographic assumptions, like factoring large prime numbers.

As long as the underlying math problems remain hard to solve, the proofs can ensure the secrecy of the information.

Additionally, each proof must satisfy three properties:

Completeness.

If the statement is true, then an honest verifier will be convinced by the honest prover.

Soundness.

If the statement is false, then no dishonest prover can convince the honest verifier.

Zero-Knowledge.

If the statement is true, no verifier learns anything other than the fact that the statement is true.

Zero Knowledge Proof Use Cases.

ZKP has many use cases across Web3, enhancing security, providing user privacy, and supporting scaling with layer 2.

Identity Authentication.

ZKP is a very useful identity management system that enables users to validate their identity while protecting their personal information.

For example, a ZKP-based identity solution could enable a person to verify that they’re a citizen of a country or an employee of an organization without having to provide their personal documentation details.

Verifiable Computation.

ZKP is used to prove the offline data points authenticity without revealing the underlying data on-chain.

The offline data points are mostly used in the decentralized Oracle network, which provides smart contracts with access to off-chain data and computation.

Private Transaction.

The main purpose ZKP is used in cryptos is to allow users to create privacy-preserving transactions that keep the monetary amount, sender, and receiver addresses private.

The best example is the cryptocurrency Zcash, which enables shielded transactions that hide the sender, recipient, and value. Users have a choice between transparent transactions (like Bitcoin) and shielded transactions that rely on ZKPs.

In a shielded Zcash transaction, the validity of the transaction is proven with a zero-knowledge proof called a zk-SNARK. This proof ensures the transaction is true without revealing the sender, receiver, or amount. However, it does reveal some basic metadata about the timing of the transaction.

Scalable and Secure L2.

L2 is a layer 2 blockchain built upon the main blockchain whose use case is scalability and innovations like building DApps and Web3.

The best example of ZKP in L2 is Ethereum. Ethereum 2.0 uses the ZKP zk-SNARK for implementing private transfers, transactions, orders, and voting within existing Ethereum projects.

Using layer 1s, such as Ethereum as a settlement layer, they can provide dApps and users with faster and more efficient transactions.

Challenges and Limitations.

Now that you understand what exactly ZKP is, how it works, and its use cases, let’s explore the challenges and limitations associated with using zero-knowledge proofs.

• They require advanced cryptography and math, which can be complex to implement correctly. Bugs in the implementation can lead to loss of funds or compromised privacy.

• Proofs must be generated and verified quickly enough to support real-time applications, such as online transactions. This often involves trade-offs between speed and scalability.

• Trusted setup phases during implementation can pose security risks if compromised later on.

• Proofs revealing even basic metadata can erode privacy over time and across applications. Fully hiding all information about transactions remains challenging.

• Adoption requires changes to key cryptocurrency protocols, something that requires broad coordination in decentralized systems.

Conclusion.

Zero Knowledge Proof is a powerful cryptographic concept that enables proving knowledge of secret information without revealing that information. This has important applications in cryptocurrencies for preserving privacy and enabling new types of secure, trustless transactions.

That is why Ethereum and Zcash are pursuing zero knowledge proofs as foundational components. Improved scalability, confidentiality, and functionality are possible by leveraging ZKPs.

ZKP may emerge as a game changer for cryptocurrency privacy and could propel more mainstream adoption.

However, there are still active research and engineering challenges to overcome around performance, security vulnerabilities, and adoption.