Zero-knowledge proof (ZKP) is a cryptographic technology that allows for verifying the authenticity of certain information without revealing the actual information itself. This technology has become increasingly important in blockchain, cryptocurrencies, and decentralized finance (DeFi) for enhancing privacy and security.
So, what exactly is ZKP, and how is it applied to blockchain? Let's explore the potential aspects of ZKP together.
Zero-knowledge proof (ZKP) is a cryptographic technology whose core operation is a method by which one party can prove to another party (the verifier) that they know a value x, without revealing any information other than the fact that they know the value x.
Specifically, in a transaction that utilizes ZKP technology, the proving party can demonstrate that they possess secret information that the receiving party wants to know without disclosing this information to the receiver.
For example, imagine a tunnel with two entrances, A and B. There is a locked door with a secret code blocking the only passage and preventing anyone from going through the tunnel from one end to the other (from A to B). You know the secret code and want to sell it to person X, who wants to enter the tunnel.
Person X wants you to prove that you actually know this code before they make a payment to you. In this case, person X can accomplish this by standing in front of the tunnel and observing you enter through one of the entrances and exit through the other. By doing so, they can trust that you truly know the secret code without having to disclose it to person X.
The popularity of Zero-Knowledge Proof in the blockchain and cryptocurrency field is driven by the increasing demand for privacy and security in digital transactions. With the advancement of blockchain and cryptocurrency technology, the need for verifying transactions without revealing sensitive information is growing, and ZKP can fulfill this requirement.
In the cryptocurrency market, ZK-Rollups are one of the most advanced applications of ZKP technology. ZKP technology promises to be one of the most scalable solutions for both short-term and long-term use in blockchain.
With ZK Rollup solutions, they enable Ethereum and other layer-1 blockchains to scale significantly by allowing for quick verification and confirmation of transaction validity.
Blockchain Applications of Zero-knowledge Proof (ZKP)
Secret Network is the first privacy-focused smart contract platform running on its mainnet. Secret Network performs computations within Trusted Execution Environments (TEEs) to achieve better security and privacy.
Essentially, a TEE is part of a computer that can perform computations and store data that even the computer owner cannot access. This enables the nodes on the network to perform computations while keeping the inputs and outputs in a fully encrypted state.
Immutable X is a Validium (ZK Rollup with more off-chain data storage) for NFTs on Ethereum. Immutable is built on StarkEX. Currently, its main application is NFT trading and other NFT-related activities like minting.
Immutable X is one of the prominent NFT protocols that utilize the ZK Rollup technology of StarkEX. Overall, Immutable X still has room for improvement to attract more users as its transaction volume is significantly lower compared to OpenSea (averaging from $50M to $100M per day).
dYdX is an exchange built on StarkEX. The platform supports various types of trading products, including spot trading, margin trading, and perpetuals (futures contracts).
dYdX currently has a TVL (Total Value Locked) of $960M, and its daily trading volume fluctuates around $500M. It can be considered one of the leading decentralized derivatives exchanges today.
Polygon is also another important player in the ZK Rollup space. In August 2021, the team successfully acquired the ZK Rollup solution, Hermez Network, for $250M.
One month later, Polygon launched Nightfall, a Rollup focused on privacy, in collaboration with EY. On November 16, 2021, Polygon introduced the ZK Rollup solution, Miden, to scale Ethereum and support dApps focusing on use cases such as gaming, NFTs, and social networks.
In essence, Polygon is deploying three Rollups for different purposes:
Polygon Hermez (ZK Rollup) Polygon Nightfall (ZK Rollup for privacy, in collaboration with Ernst & Young) Polygon Miden (based on STARK, an EVM Rollup)
Dusk Network is a privacy-oriented blockchain for financial applications. Dusk Network utilizes ZKP as the foundation for their smart contracts.
Dusk Network aims to become the first layer 1 to support ZKP-based smart contracts. With Dusk Network, developers can deploy financial applications with the assurance that user-related data and transactions remain private and anonymous. Dusk Network uses ZKP PLONK proof to confirm and verify transactions.
In summary, many DeFi projects have employed ZKP to provide users with better privacy and security for services such as lending, borrowing, and trading. Some layer 1 blockchains are incorporating ZKP-based roll-ups or zkEVMs. Zero-knowledge proofs are expected to play an increasingly important role in the blockchain and Web3 space as their applications are anticipated to be widely adopted.
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