Beyond crypto: Zero-knowledge proofs show potential from voting to finance

An emerging cryptographic technology may provide help with two gaping 21st-century needs: Privacy and truth.

In a world increasingly anxiousabout privacy and exploitation of ones personal data by governments, corporations, social media platforms and banks, zero-knowledge proofs may offer some relief.

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

ZK-proofs have already found a home within the cryptocurrency and blockchain sector enabling scaling protocolsto make Ethereum transactions faster and cheaper, for example. But this may just be the beginning.

One day, ZK-proofs could help convince your bank that your income is above a certain threshold to qualify for a mortgage, for example without revealing your actual income. Or prove to the election authorities that you are a resident or citizen without giving them your name, drivers license or passport.

ZK-proofs open up a new world of potential applications, including anonymous voting, decentralized games, proving personal information without fully disclosing your personal information, and fighting against fake news by proving the source of the news, Polygon co-founder Jordi Baylina tells Magazine.

To this point, some in the cryptographic community already view ZK-proofs as a potential weapon in the looming struggle against false information, including AI-altered documents, images and identities.

We may have a technological battle for truth coming up where ZK can play a critical part, prize-winningcryptographer Jens Groth tells Magazine. There is this idea of proof-carrying data, i.e., data that carries within itselfproofs of correctness including origin and provenance data, so nirvana would be that all data we get are verified data.

In some industry sectors like finance, ZK-proofs may profoundly alter how business is conducted. We see this revolutionizing the audit industry, Proven co-founder and CEO Rich Dewey tells Magazine in connection with ZK-enabled proof-of-solvency protocols, like the one his tech firm has developed. The only question is the timeline.

Requiring fewer resources

Even though ZK-proofswere first presented back in the 1980s by researchers Shafi Goldwasser, Silvio Micali and Charles Rackoff, only in the past decade have they had their big breakthrough, according to Baylina.

Now its possible to prove any generic statement. This statement sometimes called a circuit can be programmed with a specific language and can be anything, Baylina says.

ZK-proofs are computationally complex, which has arguably slowed their development, but their core intuition seems simple enough. As describedin a forthcoming paper by the Federal Reserve Bank of St. Louis:

By using a zero-knowledge proof (ZKP), a party can prove to other parties that a computation was executed correctly. There is no need to replicate the computationonly the proof needs to be verified. Ideally, verifying a ZKP needs significantly less resources than re-executing the computation.

What follows are some of the promising ZK-proof use cases on the table today beyond the strict confines of the crypto sector that may or may not involve the use of blockchains.

ZKPs require fewer resources when re-executing a computation. (Federal Reserve Bank of St. Louis)

Verifying digital voting

Electronic voting has been slow to catch on globally, but if and when it does, the odds are that ZK-proofs will play a prominent part. ZK-proofs are already being used in e-voting systems in trials in a number of Swiss towns and cantons, Dahlia Malkhi, distinguished scientist of Chainlink Labs, tells Magazine.

ZK-proofs can add verifiability to an online election, allowing anyone to check that the votes were counted correctly, explains Malkhi, without revealing how individuals voted a key concern with electronic voting, she says.

Cryptographic electronic voting systems have been around for decades, Malkhi adds, but their adoption has been moderate. On the technical side, one of the challenges has been the compromise of end-user devices, which ZK-proofs dont protect against.

There are other obstacles, too, that are beyond ZK-proofs purview or ability to control which also may suggest their limitations.

Electronic voting requires a credible digital identity system, i.e., a link to real world information that isnt always easy to secure. (Think of all those voting rolls on aged paper ledgers.) ZK by itself cannot bootstrap e-voting, Malkhi says.

Cryptographer Groth, like Malkhi, cites the need for some sort of trust anchor to make ZK-proofs impactful in everyday life. Zero-knowledge proofs often need a hook to reality.

Electronic ballot boxes like this could benefit from the added security of ZKPs. (Fred Miller)

Maybe one day, thanks to ZK-proofs, someone will be able to prove that they are older than 18 years of age or a United Kingdom citizen without having to pull out a drivers license or passport, Groth tells Magazine, but you cannot prove youre over 18 out of thin air. You need the trust anchor that establishes your age, he says, i.e., some authority that verifies your citizenship or birth year, adding:

In the future, organizations may issue ZK-friendly trust anchors, but right now, it is not common practice, so you have a bit of a chicken-and-egg problem.

Privacy safeguards for CBDCs

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

But CBDCs come freighted with privacy questions, and some fear they could be misused by governments to surveil their own populations, for instance.

That is why high privacy guarantees are at the core of most CBDC projects today, Jonas Gross, chairman of the Digital Euro Association, tells Magazine.

ZK-proofs can be part of the solution, he adds, and it is for this reason that various central banks are studying [ZK-proof] applications for example, in the U.K., Japan and South Korea.

If privacy is a top priority, ZK-proofs should be considered, Remo Nyffenegger, a co-author of the St. Louis Fed paper citedabove and research assistant at the Center for Innovative Finance at the University of Basel, tells Magazine.

Indeed, the European Central Bank published a regulatory proposal for the digital euro in late June and states therein that zero-knowledge proofs should be considered in the CBDC tech stack, he adds.

Again, there may be limits on what exactly ZK-proofs can do by themselves. I dont see using ZK-proofs [alone] as sufficient because ongoing political discussions show that not all CBDC-related data will be obfuscated if ZK-proofs are used, Gross comments. High privacy also needs to be supported by regulation and educational efforts around the actual degree of privacy of a CBDC.

Exposing an altered photo

AI apps are now so powerful that distinguishing between machine-generated images or documents and those created by human beings is already problematic. Things will only get worse, but ZK-proofs may offer at least a partial remedy.

Blockchain tech and ZK-proofs could be used as built-in safeguards 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, says Malkhi, while Groth adds:

There is interesting new research showing applications of ZK-proofs to demonstrate, for example, youve not altered a photo too much i.e., combating fake news.

High-end cameras that digitally signphotos along with metadata like location and timestamp are already on the market and can establish authenticity, continues Malkhi. The current problem is that these digital files are often enormous much too large to post on a news services website, for instance.

But with ZK-proofs, their file size can be substantially reduced, making them practical to use online while preserving critical verification elements. It could prove that the recording or image has not been altered, maybe [including] even the date, without revealing identity or location or whatever, adds Baylina.

Proof-of-solvency with ZK-proofs?

Many believe that finance will be the first major business sector to be impacted by ZK-proofs. Indeed, 41% of respondents in Mina Foundations State of Zero-knowledge Report 2022 agreed that finance was the industry most in needof ZKPs, far ahead of healthcare (12%), social media (5%) and e-commerce (3%).

In March, Mexican cryptocurrency exchange Bitso announced a partnership with tech firm Proven to implement a proof of solvency solution that relies on ZK-proofs. This protocol will soon enable investors, regulators and others to know whether the exchange is solvent i.e., its obligations are less than its assets based on daily reports.

Immutable tracking of goods

ZK-proofs can become very relevant in the context of digital identities, whether they are issued by the government or private entities, adds Nyffenegger. They could prove that you are not included on some government sanctions list without revealing who you are, for instance.

ZK-proofs potential use in supply chains is also frequently cited. But the difficulty here, as with e-voting, is that this requires connecting to a trustworthy real-world information source, which can authenticate the date an order was shipped from the factory, for instance.

ZK-proof-based supply chain tracking systems havent been battle-tested long enough in live environments, notes Malkhi, adding that that could soon change:

The potential of ZK-proofs here is vast helping to improve transparency and reduce the potential impact of fraud by enabling the immutable, real-time tracking of goods.

It should be added that while blockchains provide some of ZK-proof’s first exciting use cases, the technology does not require blockchain technology to work but they are surely helpful.

They are just a very suitable tool for blockchains because they provide proofs of correct computation which aligns well with the need for verifiability on blockchains while hiding as much information as possible, Johannes Sedlmeir, a researcher at the University of Luxembourgs Interdisciplinary Centre for Security, Reliability and Trust, tells Magazine.

With a blockchain platform, a verifier can check if a certain hash appears somewhere on the blockchain and hence binds me as a prover, he adds.

Blockchains arent required for Provens proof-of-solvency protocol to work, Lebron tells Magazine, though its always useful to have validators on-chain. It appears to be more of a like to have than a need to have circumstance.

Obstacles remain

What obstacles still need to be overcome before ZK-proofs become commonplace? Malkhi has already cited the challenges with bridging to the real world, and this would well prove the biggest hurdle to surmount before ZK technology becomes mainstream, in her view.

However, other barriers remain that might require laws and regulations to overcome. Will ZK claims be accepted in court, for instance?

Scaling also remains a challenge in many use cases given that there is, at present, no standardized way to program, says Malkhi, making it difficult for developers to integrate proofs into their apps.

To this last point, Provens protocol with Bitso requires some five million unique receipts to be issued monthly (though soon daily) to Bitso users, but Proven says this isnt an issue. We figured out how to scale, co-founder Lebron says.

Complexity is another potential sticking point. For small- to medium-size assertions, we already have a good ZK system, cryptographer Groth tells Magazine. For large assertions, we still need to improve efficiency. ZK-proofs like SNARKs can be cheap to verify, but the prover pays a large performance overhead compared to native computation, he adds.

Becoming magnitudes cheaper

The user experience needs to improve, too. Using a technology secured by ZK-proofs for an everyday activity like buying groceries should be so seamless that the user doesnt even know, says Baylina.

The other thing we need is time, Baylina says. Protocols like Polygons zk-Ethereum Virtual Machine are still new but are becoming more usable all the time. As Polygon zkEVM matures, over the next year, we anticipate it will become orders of magnitudes cheaper.

Given these potential roadblocks, how long might it take before the technology becomes commonplace?

I believe five years is too short of a time frame owing to the current TRLs [technology readiness levels] of ZK-proofs, says Sedlmeir, referencing the finance sector specifically. While ZK-proofs have matured rapidly in recent years, they are still complex to implement and prover performance is still a significant bottleneck.

There might be a transition period as ZK-proof works in tandem with traditional protocols, as in financial auditing. Provens Dewey envisioned working hand in glove with traditional Big Four audit firms for a time.

Vast potential

In sum, ZK-proofs still face challenges. They cant work in isolation. They still need to be attached to a truth source or oracle. Doubts about computational complexity, usability and scalability remain as well.

But if these hurdles are surmounted, ZK-proofs could offer a 21st-century solution to not only the fake news challenge but also the privacy quandary as with CBDCs, providing just enough anonymity for users to comfortably use state-issued digital money but enough accountability so governments can be assured fraudsters or money launderers arent infiltrating their networks.

As the technology and the underlying infrastructure improve, summarizes Malkhi, ZK-proofs have vast potential to enable an internet where the majority of contracts are underpinned by cryptographic guarantees.

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