Zero-knowledge proofs: Cryptic confidence

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  Quantumrun Foresight
• December 4, 2024

Insight summary

Zero-knowledge proofs (ZKPs) allow people to verify the truth of information without revealing sensitive details. Companies may use this technology to create privacy-first services, but they could face challenges in implementation due to costs and the need for specialized knowledge. Meanwhile, governments may find it difficult to regulate these systems, particularly regarding financial transparency.

Zero-knowledge proofs context

ZKPs are a cryptographic technique that allows one party (the prover) to demonstrate the truth of a statement to another party (the verifier) without disclosing any additional information. This concept was first introduced in a 1985 paper by researchers from the Massachusetts Institute of Technology (MIT), which laid the groundwork for how ZKPs are applied today. The key advantage of ZKPs is that they enhance privacy by ensuring that only the validity of a statement is shared, without exposing sensitive data. For example, when proving a person has a valid ID, the ZKP protocol confirms the truth without revealing personal details like name or address. This ability to protect data has made ZKPs a valuable tool in privacy-sensitive areas like finance and blockchain technology.

ZKPs are widely used in blockchain networks to ensure the privacy of transactions. For example, privacy-focused cryptocurrencies Zcash and Monero use ZKPs to hide transaction details, such as the sender and receiver's identities and the amount of currency being exchanged. Additionally, Ethereum has integrated ZKPs to allow faster and more secure verification of off-chain computations. This feature also improves scalability, enabling blockchain systems to handle more transactions without overloading the network. 

Recent advancements in ZKP technology have expanded its applications to identity management and verifiable computations. Companies like ING have adopted ZKPs to verify individuals' financial status, such as proving their income is within a required range without disclosing the exact figure. In decentralized identity, ZKPs allow individuals to confirm their identity or citizenship without revealing sensitive information like passport numbers or tax IDs. Furthermore, ZKPs are being used to reduce the computational load on blockchains by outsourcing transaction validation, which aggregates multiple transactions into a single proof. 

Disruptive impact

Individuals could use ZKPs to prove their identity or income without sharing sensitive details, reducing the risk of data breaches or identity theft. This trend may give people more control over their personal information, as they would no longer need to rely on centralized institutions, like banks or government agencies, to store and verify their data. Additionally, online service users may benefit from simplified authentication processes, such as logging into platforms without passwords. However, individuals may also need to become more tech-savvy to understand the implications of using these tools, as privacy-focused technologies are complex and not always intuitive.

For businesses, they could offer privacy-first products or services, such as payment platforms that do not expose financial details. In addition, firms dealing with sensitive information, like healthcare providers or financial institutions, may find ZKPs useful for ensuring compliance with data privacy regulations such as the General Data Protection Regulation or the Health Insurance Portability and Accountability Act. However, integrating ZKP technology into existing systems could present operational challenges, particularly for businesses unfamiliar with cryptographic methods. The cost of implementation and specialized hardware may also discourage companies from fully adopting this technology.

Meanwhile, governments could use ZKPs to enhance national security, as sensitive data could be shared without exposing critical details, such as in digital identity verification for passports or voting systems. However, governments may struggle with regulating ZKP-based systems, particularly in financial transparency, where anonymous transactions could complicate tax enforcement or anti-money laundering efforts. They may also invest in research and development to integrate ZKPs into public infrastructure, such as national healthcare systems, where data privacy is a priority. 

Implications of zero-knowledge proofs

Wider implications of zero-knowledge proofs may include: 

• New regulations to balance data privacy and transparency, making it harder for illegal activities like money laundering to go unnoticed.  
• Companies adopting privacy-focused business models to attract consumers who prioritize data protection, increasing competition among industries.  
• Less reliance on centralized institutions like banks and government agencies, giving individuals more control over personal information.  
• Reduced cybercrime, as sensitive data will no longer be stored in vulnerable centralized databases.  
• Businesses restructuring their IT departments to accommodate the use of cryptographic tools, leading to new job opportunities in specialized tech fields.  
• Countries developing collaborative international policies to manage cross-border data privacy issues, leading to more unified global standards.  
• Increasing consumer confidence in online services boosting e-commerce and online banking, resulting in a shift away from physical transactions.  
• The environmental impact of high-energy cryptographic computations becoming a concern, prompting governments and companies to invest in greener technologies to mitigate these effects.

Questions to consider

• How could using ZKPs change the way you manage your personal data online?
• What privacy concerns do you have about sharing your information with businesses, and how could ZPKs address them?