Zero-Knowledge Proofs (ZKPs) are cryptographic technologies that enable the verification of information (or parts of it) without disclosing the information itself. They are becoming increasingly vital in the realms of blockchain, cryptocurrencies, and decentralized finance (DeFi) due to their ability to enhance privacy and security.

Many DeFi projects already leverage ZKP technology to boost user privacy in services such as lending, borrowing, and trading. Several primary blockchains are implementing ZKP-based rollups or zkEVMs. As this technology spreads, the use of zero-knowledge proofs in blockchains and Web3 is expected to grow.

How Zero-Knowledge Proofs Work
Zero-knowledge proofs are a method by which one party (the prover) can convince another party (the verifier) that a statement is true, without revealing any additional information. This technology is used when it is necessary to verify confidential information without granting access to it.

The prover presents a unique, self-generated mathematical proof, and the verifier uses this proof to ascertain the truth of the statement. Neither party can use the proof to reconstruct or view the original information.

Imagine a tunnel with entrance A and exit B, blocked by a locked door with a secret code that prevents passage from one end to the other. You possess the secret code and want to sell it to user X, who needs to pass through the tunnel.

User X is willing to pay for the code’s disclosure, but first, you must prove that you indeed possess it. In this example, it would suffice for them to see you enter the tunnel at entrance A and exit through B to be convinced that you have the valid code.

Advantages of Zero-Knowledge Proofs
The popularity of zero-knowledge proofs in blockchain and cryptocurrencies is driven by the growing demand for confidentiality and security in digital transactions. As blockchain technology and the cryptocurrency sphere have evolved, so has the need for a reliable method to verify transactions without disclosing confidential information—this is where ZKP comes in.

In recent years, zero-knowledge proofs have attracted increased attention: numerous protocols supporting ZKP have been launched, and major blockchains have developed zero-knowledge rollups. Furthermore, the fact that over 20% of all presentations at the 2022 DevCon were dedicated to this technology highlights its growing popularity.

Key Developments
One of the key achievements in the field of zero-knowledge proofs is the broader application of a special type of ZKP known as zk-SNARK (Zero-Knowledge Succinct Non-Interactive Argument of Knowledge). The use of zk-SNARK has become widespread in various DeFi applications, such as private token transactions, as well as lending and borrowing with concealed amounts. Another significant development direction for zero-knowledge proof technology is the drive to enhance scalability and performance through zk-rollups.

zk-SNARK
The Zero-Knowledge Succinct Non-Interactive Argument of Knowledge (zk-SNARK) is a special type of zero-knowledge proof that allows verification of a statement without disclosing information about the statement itself.

zk-SNARK arguments have been used in applications like Zcash and the blockchain-based payment system of JP Morgan Chase. They are also employed for secure client authentication on servers.

ZK-Rollups
ZK-Rollups are a solution for scaling blockchain networks, simplifying the consolidation of multiple transactions into a single, larger transaction that is then recorded on the blockchain. For example, in 2022, the BNB Chain launched a testnet for zkBNB, built on ZK-Rollup architecture.

zkBNB can consolidate hundreds of transactions into one off-chain batch and generate a cryptographic proof to confirm the validity of all transactions. ZK-Rollups provide a balance between scalability and security and are suitable for large-scale systems with low latency.

Applications of Zero-Knowledge Proofs
Zero-knowledge proofs can be used for a multitude of diverse tasks—some applications of this technology are already implemented, while others will become available in the near future. ZKPs can perform the following tasks:

Digital Identity Verification
Zero-knowledge proofs can be used to verify user identities without disclosing any confidential personal data. This function can be necessary, for example, in digital voting systems where identity confirmation is required while maintaining user anonymity.

Confidential Transactions
One of the key tasks of zero-knowledge proofs is to conduct transactions while maintaining confidentiality. For example, the decentralized application (DApp) MantaPay by Manta Network uses ZKP to allow users to transact on a decentralized exchange (DEX) without disclosing their identity or transaction details. Similarly, users can use the platform to conduct deals while maintaining confidentiality.

Private Transactions
Zcash is a cryptocurrency that uses zero-knowledge proof to conduct private transactions. In such transactions, the addresses of the sender and recipient, as well as the transaction amounts, are hidden from the public blockchain, thus providing additional confidentiality for users.

Tokenization and Property Rights Verification
Zero-knowledge proofs can also be used for tokenizing assets and verifying property rights on them. For instance, a property owner can tokenize their property, provide proof of ownership to another party, without publicly disclosing any other information.

Regulatory Compliance
In some countries, strict laws regarding the collection and exchange of financial information are difficult to adhere to on decentralized platforms. Zero-knowledge proofs can be used to convey necessary information to regulatory bodies confidentially.

This facilitates the connection between decentralized platforms and traditional financial institutions, promoting compliance with regulatory requirements in the DeFi sector.

Prospects of ZKP Technology in Blockchain
The technology of zero-knowledge proof is likely to lead to the introduction of new technological innovations in the future. Here are several directions related to ZKPs worth watching:

Cross-Chain Confidentiality Layers
As blockchain ecosystems and DeFi continue to evolve, there is a growing need for interactions between different blockchain networks. Cross-chain confidentiality layers enable transactions across various blockchain networks while maintaining the confidentiality of the parties involved.

zk-STARK
Another interesting direction is the active spread of zk-STARK (Scalable Transparent Argument of Knowledge with Zero Disclosure), a new type of zero-knowledge proof that is considered more efficient and secure than zk-SNARK. One advantage of zk-STARK over zk-SNARK is fast verification without the need for a pre-trust setup with a third party.

Toolkit Accessibility
Zero-knowledge proof is a complex technology, and not every developer team has experience in this specific area of cryptography. User-friendly ZKP toolkits will simplify the technology’s use by developers of varying levels of expertise.

Limitations of Zero-Knowledge Proofs
Zero-knowledge proofs represent a unique method for verifying the truth of information while maintaining confidentiality; however, this technology does not provide a 100% guarantee. Although the likelihood that the prover can deceive the verifier is very low, users should understand that ZKPs can also be hacked.

Moreover, zero-knowledge proof algorithms require substantial computational resources. Some types of ZKPs need intensive computations that facilitate numerous interactions between verifiers and provers. In addition to this, the algorithms require significant computational expenses, which could potentially limit the application of ZKPs.

In Conclusion
Zero-knowledge proofs are rapidly gaining popularity thanks to their unique properties: maintaining confidentiality and potential for scalability. The broader application of this technology in blockchain, cryptocurrencies, and DeFi is likely to bring us more innovative and useful services. Zero-knowledge proofs are expected to play a crucial role in creating an ecosystem of decentralized applications (DApp) that are more secure, private, and efficient.