Will zero-knowledge proofs lead to the explosion of blockchain payments?

If there’s one cryptography term you need to know to see if blockchain can change the payments industry, it’s zero-knowledge proofs.

Apps are simple: using a ZKP (zero-knowledge proof) key, a payment app can query your bank to see if you have enough money in your account to cover a transaction without telling the requester anything on your account balance. Or the application may prove that your household income meets a credit card issuer’s requirements without revealing what it is.

It is an authentication mechanism that can do this without a trusted intermediary having to access this data and being invoked to protect it.

Instead of your mother’s maiden name and the brand of your first car, you can send cryptographic proof of your identity without having to reveal any private information. Instead of handing the nightclub door bouncer a driver’s license with your name and address, you can just show an application with access to the state’s DMV that simply returns a plus or minus 21 response. year.

Medicine is another key area rich in ZKP uses. An employer might have sufficient access to employee medical records to determine how many employees have diabetes or high blood pressure, for example, without knowing which ones. Similarly, a health insurer would not necessarily need to know why a doctor is prescribing a drug, just that it is a covered condition.

Uses of Blockchain

All you really need to know about the math and cryptography behind ZKPs is that they’re big enough that Algorand’s blockchain creator and MIT professor Silvio Micali and two colleagues won the 2012 AM Turing Award – computer science’s most prestigious honor – for a body of work that contains it.

Read more: What is Algorand? Blockchain securing transactions by distributing wealth

ZKPs are also useful enough for the technology to spread far and wide.

In June, several dozen companies interested in cryptocurrency joined to sponsor the new ZPrize, which aims to make the practical applications of ZKPs more efficient, scalable and industry-friendly and to “ensure that innovations discovered to do so are locked under fully open source licenses.

Its backers include not only the Algorand Foundation, but also smart contract blockchain Polygon, as well as Samsung, chipmaker AMD, the Ethereum Foundation, Bain Capital, and Protocol Labs — which builds the actual technology that an internet of new generation Web3 would use. .

In the world of crypto, a prominent zero-knowledge user is Electric Coin Company, issuer of Zcash, a privacy coin. This added a wrinkle to the ZKPs you might come across: zk-SNARKs, a technology that allows blockchain consensus mechanisms to verify the validity of transactions despite being fully encrypted before being added to the blockchain.

See also: Privacy Coins: Blow for freedom — or boon for crime?

And although privacy coins are a type of cryptocurrency with a lot of baggage, zk-SNARKs have many uses. For one thing, it’s fast. SNARKs is an acronym in which the “S” stands for “succinct” because it can perform the verification in milliseconds, i.e. in real time.

The next level

Another spinoff is zk-Rollups, a scaling solution used by Ethereum smart contracts to process transactions more efficiently. It’s key to layer 2 solutions that seek to make Ethereum faster and cheaper by taking the work of one transaction from the main blockchain onto a second layer sitting on top of it, then wrapping a lot into a single transaction to be sent back and written to the blockchain – for a one-time transaction fee.

An offshoot of this is nightfall 3the ZK Optimistic Rollups from professional services giant EY – a set of layer 2 tools for private, fast and inexpensive management of transactions on Ethereum.

Among the tools developed by EY are “identity verification and tracking of stolen NFTs (and their insurance, cancellation and replacement, all in the respect of privacy)”, wrote Paul Brody, global head of the blockchain from EY, in a CoinDesk. column in September.

Although it “currently unlocks several business cases like inventory management” and more advanced tools that can handle more complex business logic, it does not yet support complex business logic, Brody wrote.

Once those tools are built and Nightfall 3 can handle things like “volume discounts and rebates, we can start implementing typical corporate trade agreements in purchases, for example,” he said. -he adds. “Then it will be possible to not only capture the movement of assets, but also the smart contracts that also govern orders and payments.”

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Donald E. Patel