What is zero-knowledge?

Zero-knowledge is a concept in cryptography that shows how the validity of a statement can be proven without the need to reveal any specific information about it. This can be demonstrated through zero-knowledge proofs (ZKPs) and is used extensively across blockchain applications and the crypto industry, primarily for providing privacy-enhancing features to decentralized protocols.

Why are zero-knowledge proofs important?

Zero-knowledge proofs enable greater privacy and security. They allow people to validate information without exposing sensitive personal details. For example, someone could prove they are qualified for something without showing private identification documents.

Zero-knowledge proofs are also useful for blockchain networks. They enable complex processing to happen off-chain, freeing up space on the main blockchain. They also allow private data to be used in transactions without making that data public to everyone, overcoming a limitation of transparency on public blockchains.

Zero-knowledge proofs are used everywhere in crypto, from private transactions to verifiable computations and highly scalable layer 2 solutions. This unique functionality helps solve key privacy, scalability, compliance, and interoperability challenges for Web3 systems.

How do zero-knowledge proofs work?

A zero-knowledge proof allows someone to prove a statement is true without revealing the statement itself or how they know it is true. The person trying to prove the statement is the “prover,” and the person verifying it is the “verifier.”

Zero-knowledge proofs work by having the prover correctly answer multiple challenges from the verifier. By responding accurately many times in a row, the prover shows they must have access to the secret information that lets them determine the answers.

A ZKP allows the prover to demonstrate knowledge of some secret information to a verifier without conveying anything beyond that specific truth. For example, Zcash’s privacy model allows shielded transactions where ZKPs validate balances and transaction values without publicly revealing sender, receiver, or amount details.

ZKPs achieve privacy through advanced cryptographic techniques. The prover performs computations that could only be completed accurately with knowledge of the secret inputs. Repeated challenges test the proof while ensuring no additional information is exposed.  

The following can be considered as the “core” properties of how ZKPs operate:

Completeness — If the statement is true and the participants are honest, the proof will be verified.

Soundness — If the statement is false, there is no way for the prover to fake proof that it is true.

Zero-knowledge — The verifier learns nothing beyond whether the statement is true or false.

A zero-knowledge proof works through an interaction between a prover and a verifier. It has three main elements:

Witness – The prover starts by choosing a question based on the secret information they want to prove knowledge of. They send an answer to this initial question to the verifier.

Challenge – The verifier then chooses another question related to the secret information and challenges the prover to answer it.

Response – The prover provides their response to the verifier’s question. This helps demonstrate whether the prover truly has access to the secret information.

To ensure the prover isn’t just guessing, the verifier can issue multiple challenges, and the prover must answer correctly each time. If they respond accurately and repeatedly, the verifier can become confident the prover genuinely possesses the secret information.

There’s a caveat to this interaction process: the prover and verifier had to communicate back and forth repeatedly to generate the proof. There’s also the fact that a proof, in this instance, is not reusable. The whole process must be redone if someone else wants to verify.

New “non-interactive” processes were created to make zero-knowledge proofs more useful. These work by having the prover and verifier first establish a shared secret key. The prover can then generate a proof in one step using an algorithm and the secret information they want to prove. This non-interactive proof gets sent to the verifier just once.

The verifier checks if the proof is valid using the shared key and another algorithm without directly seeing the secret information. With non-interactive zero-knowledge, anyone can verify the proof (later on) without further interaction using the same key and verification algorithm.

By reducing communication to a single message, non-interactive zero-knowledge proofs provide a more efficient and practical way of working with zero-knowledge.

Types of zero-knowledge proofs

There are two main types of zero-knowledge proofs – ZK-SNARKs and ZK-STARKs. Both allow valid statements to be verified without revealing additional information. However, they have some key differences.

ZK-SNARK stands for Zero-Knowledge Succinct Non-Interactive Argument of Knowledge. As the name suggests, ZK-SNARK proofs are small and only require one round of communication between the prover and verifier. They provide a very high level of efficiency. However, generating the initial parameters requires trusting a set of participants to properly set up the “Common Reference String” through a ceremony.

ZK-STARK stands for Zero-Knowledge Scalable Transparent Argument of Knowledge. The main advantage of ZK-STARKs is better scalability for large dataset proofs because they do not need a trusted setup ceremony. Instead, anyone can verify the initial parameters are created properly. However, their proofs tend to be larger than ZK-SNARKs. There are tradeoffs between the two approaches in terms of efficiency and transparency.

Privacy, scalability, and beyond

Zero-knowledge proofs alleviate two key challenges for blockchain adoption – the lack of privacy and limited scalability. Public blockchains intentionally provide complete transparency where all transactions are visible. However, many applications require keeping data confidential for business competitiveness or legal compliance reasons.

In the crypto industry, ZKPs can help enable complex transactions to happen off-chain before submitting compact cryptographic proofs to the main blockchain. This effectively reduces congestion and fees associated with base layers. Innovations like zk-rollups use this approach to massively scale networks like Ethereum.

As ZKPs advance, they also bridge the gap between decentralized apps and traditional regulations around identity verification (KYC) and credential management. Users can prove certain credentials without exposing personal details. Such a scheme provides compliance while retaining user control.

Notably, ZKPs can also connect different blockchains and layer 2 solutions through unified validity proofs. This interoperability unlocks seamless swaps and messaging across distinct networks. By enhancing privacy, scalability, and interoperability, ZKPs create the prerequisites for next-level blockchain integration across finance, supply chain, and healthcare industries.

Mainstream usage grows when core infrastructure features higher speed, lower costs, and intuitive compliance.

As such, ZKPs form the critical privacy and performance layer to bridge Web3 services securely into legacy real-world systems. As standards consolidate around zero-knowledge tech, they promise to unlock the true potential of the decentralized tools we know today, making them simpler and more practical.