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Zero-knowledge Proof

A potentially huge technological step could be made in 2019. Erns & Young (EY), a multinational auditing and consulting firm, announced that they are launching the EY Ops Chain Public Edition (PE) prototype. This will be the world’s first implementation of Zero-knowledge proof (ZKP) technology on the Ethereum blockchain. Three main obstacles will have to be overcomed by the prototype. These 3 obstacles are affecting current transactions and assets transfers on the public blockchains:

  • The ability of companies to conduct secure transactions on a public network
  • The much needed removal of the barriers, preventing widespread adoption
  • Enabling the full traceability trail of private transactions

Live production offering is set to 2019. Despite still being a prototype, this technology could be game changing. In order to make sense of the possible implications, the difference between public and private blockchains must be explained. This will also allow for an easier explanation of the Zero-knowledge proofs.

Private and Public Blockchains

The main difference between public and private blockchains is the user base participating in the network. As the name suggests, the public ones allow everyone to download the procol, read and write transactions on its decentralized network. The most famous ones are Bitcoin and Ethereum. With transactions being verified by tens of thousands of independent computers, the ecosystem maintains a trustless consensus. Increased decentralization, ultimately brings more security and resilience.

Everything has a price and the security offered by public networks is big. Transactions require every node to confirm it in order to reach a consensus. Nodes have to perform very resource-consuming calculations in order to solve the cryptographic equations, which are known as Proof-of-Work (PoW). This process increases transaction time and significantly increases the cost. Scalability is also one of the biggest and most recognized problems, which public blockchains face. Total privacy also presents an issue.

While transactions can’t be initially linked to the sender or receiver, information like the amount, date and addresses of the users are viewable for everyone with access to the network. Pseudo-anonymous addresses can also be tracked until the user goes through a centralized crypto exchange and the real identity is revealed. Private blockchains only offer their services to parties who have received an invitation to the network. They are also known as permissioned blockchains because participation requires permission, which is granted by acceptance of a set of rules and/or conditions.

An entirely private blockchain will mean written permissions are entirely controlled by a single organization, while private ones can form a “consortium.” Consensus is then reached via a group of pre-selected nodes. These private blockchains are very-well suited for enterprise adoption. Enterprises need to implement Blockchain-as-a-Service (BaaS) to use the many benefits that blockchain offers. This is mostly visible in the finance industry, because transactions need to be private and visible only to a certain group of participants. The most well-known consortium netowrks are Hyperledger and R3.

Zero-knowledge proof protocol

This leads us to Zero-knowledge proof (ZKP) and its role in cryptography. As a concept, Zero-knowledge proof or Zero-knowledge protocol was defined back in 1988 by MIT researchers. In the blockchain space, Zero-knowledge Proof is known as a method, that allows a party to prove to another party that a statement is true without the need to share information. Zero-knowledge Proof has 3 aspects to it:

  • Completeness – given that x is true, an honest verifier will be convinced by an honest prover
  • Soundness – given that x is false, no dishonest prover can convince an honest verifier
  • Zero-knowledge – give that x is true, no dishonest verifier learns anything other than the fact that x is true

Zero-knowledge Proof additionally allows for extra privacy on public blockchains by enabling nodes to verify the existence and validity of transactions. This allows the nodes to maintain a distributed consensus without being able to see or make public any of the transaction details.

This is why the Earns and Young’s, Ops Chain PE prototype has such large implications. Through the use of Zero-knowledge Proof, the company can harness the security and resilience of a public blockchain while also keeping the consensus algorithm intact. This maintains complete privacy over transaction information and gives the best of both worlds.

Ethereum wanted to use a version of the Zero-knowledge proof protocol for quite some time. The blockchain has eyed the Succinct Non-Interactive Argument of Knowledge (ZK-SNARK), which is developed by Zcash and is also part of the Byzantium upgrade. Vitalik Buterin has recently stated that the network could potentially scale up to 500 transactions per second with ZK-SNARK mass validating transactions. He also noted that transactions would be very expensive and computationally intensive. This means mass adoption will have to come at a later time.

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