Can we trust blockchain to keep our data safe and private? On Feb. 21, hackers linked to North Korea’s Lazarus Group stole $1.5 billion worth of Ethereum (ETH) from the Bybit cold storage multi-signature wallet. Incidents like these raise questions: Are blockchains secure? Can privacy and security coexist without sacrificing decentralization?
What Is a Zero-Knowledge Proof?
A zero-knowledge proof is a cryptographic method that allows one party, the prover, to prove knowledge of certain information to another party, the verifier, without revealing the information itself. It allows blockchain users to prove they have enough funds to send a transaction without revealing their wallet balance or other sensitive information.
Imagine sending money or sensitive data online without relying on banks, governments, or intermediaries. How can you trust that your information or transaction is safe? Blockchain technology addresses this challenge through cryptography.
Since the blockchain operates on a peer-to-peer (P2P) network model with multiple nodes (computers), cryptography becomes essential for securing user transactions and information.
Understanding the Privacy Challenge in Blockchain
Cryptography secures blockchain networks through encryption, decryption, hashing, and digital signatures. While blockchain provides security and transparency, it raises privacy concerns because all transaction details are visible on public ledgers like Bitcoin or Ethereum.
Consider this scenario: A company makes a large payment to a supplier on a public blockchain:
- The payment amount is visible to competitors
- The timing of payments reveals business cycles
This level of transparency is problematic for many real-world applications.
Zero-Knowledge Proof: The Privacy Solution for Blockchain
Zero-knowledge proofs (ZKP) offer a cryptographic method that enhances privacy while maintaining security. As blockchain technology wrestles with privacy, many are turning to ZKPs. ZKP allows one party, the prover, to prove knowledge of certain information to another party, the verifier, without revealing the information itself.
Let's say you are at a bar and must prove you are old enough to drink without revealing your age. You slide your ID into a special machine that verifies your age but hides your personal information. A green light appears, proving you are old enough without the bartender ever seeing your birthdate.
ZKPs do something similar in blockchain. They allow you to prove you have enough funds to send a transaction without revealing your wallet balance or other sensitive information.
How Zero-Knowledge Proof Works in Blockchain
- You (Prover): You’re the wallet owner who wants to send ETH.
- Your ID (Wallet Balance): This represents the information you want to keep private.
- Bartender (Blockchain Network): The network must verify that you have enough funds to send the ETH.
- Machine (ZKP System): This cryptographic process allows verification without seeing your balance.
- Green Light (Proof): The network sees the proof that you have sufficient funds and the transaction is approved.
In action:
- You initiate a transaction to send 1 ETH.
- Your wallet uses a ZKP system to create proof that you have at least 1 ETH.
- This proof doesn't reveal your actual wallet balance.
- The network validates the proof.
- The system approves the transaction. This means you have proven you can pay without revealing your wallet details.
The relationship between cryptography in blockchain and ZKPs is centered around enhancing privacy and security. Cryptography in blockchain ensures that transactions are secure and tamper-proof, while ZKPs take this a step further by allowing parties to verify statements without revealing any information.
This integration helps maintain user privacy and confidentiality in blockchain transactions, addressing data exposure and identity protection challenges.
ZKPs have three essential properties:
- Completeness: If the statement is true, an honest prover will convince an honest verifier. In other words, if you are old enough to drink, the machine will always say so.
- Soundness: If the statement is false, no cheating prover can convince an honest verifier that it's true. If you aren't old enough, you can't trick the machine into saying you are.
- Zero-Knowledge: The verifier learns nothing beyond the validity of the statement. The bartender only knows if you're old enough, not how old you are.
How Zero-Knowledge Proofs Enhance Blockchain
ZKPs solve several critical limitations of blockchain:
1. Privacy-Preserving Transactions
Public blockchains, like Bitcoin and Ethereum, expose transaction details (sender, receiver, amount) to everyone. With ZKP, users validate transactions without revealing sensitive data. A good example is a Zcash transaction where users can prove they have enough funds to send $100 without disclosing their balance or the recipient’s address.
2. Scalability Through ZK-Rollups
Blockchain networks like Ethereum are limited in the number of transactions they can process. ZK-Rollups are scaling solutions that bundle hundreds of transactions off-chain and submit a single proof to the main blockchain.
This improves:
- Higher transaction throughput
- Lower transaction costs
- The same security guarantees as the main chain
3. Data Confidentiality
Beyond transactions, ZKPs can be used to prove the validity of computations performed on sensitive data without revealing the data itself. This opens up new possibilities for secure data sharing and collaboration on blockchain in other industries, such as healthcare or finance.
4. Interoperability
Blockchains struggle to share data securely. ZKPs let chains verify cross-chain transactions without exposing full details. For example, Chain A could prove to Chain B that a transaction is valid using a ZKP without sharing sensitive information.
Challenges of ZKPs in Blockchain
While ZKPs help enhance blockchain, they present several challenges that must be addressed:
1. Computational Complexity
High computational demands for proof generation and verification can slow transaction processing and limit scalability.
Solution: Improve cryptographic techniques and optimize hardware to enhance the efficiency of these proofs.
2. Trusted Setup Concerns
Reliance on a trusted setup in some ZKP systems creates a potential centralization point and security vulnerability.
Solution: Develop variants, such as Zero-Knowledge Scalable Transparent Argument of Knowledge (zk-STARKs), that eliminate the need for a trusted setup.
zk-STARKs are a type of ZKP that offers a significant advantage — they eliminate the need for a trusted setup. This is a critical security improvement because it removes the risk of a single point of failure. Think of it like a public election where anyone can independently verify the vote count and the validity of the election itself without having to trust a central authority.
3. Lack of Standardization
The absence of uniform implementation standards hinders interoperability across blockchain platforms.
Solution: Establish standardized protocols and interoperability frameworks for integration. The National Institute of Standards and Technology (NIST), a government agency, aims to standardize ZKPs in 2025.
4. Implementation Costs
High computational requirements and specialized hardware increase the cost of implementation.
Solution: Develop more efficient algorithms to reduce costs over time.
5. Technical Knowledge
The complexity presents a barrier to adoption due to the need for specialized expertise and limited developer skills.
Solution: Develop user-friendly tools and frameworks, expand education and training opportunities, and simplify integration processes.
Future Security Advancements in Blockchain
As quantum computers advance, they can break current encryption methods used in blockchains today. Quantum-resistant ZKP systems are already being developed to address this future threat.
For example, projects like Starkware build faster and more secure protocols, ensuring they can resist quantum threats.
Decentralized Autonomous Organizations (DAOs)
In DAOs, members are allowed to conduct secure elections while maintaining the integrity of the results.
Regulatory Compliance (AML/KYC)
Regulatory rules like Anti-Money Laundering (AML) and Know Your Customer (KYC) require businesses to share customer data to stop fraud; ZKPs simplify this. A company can use them to prove it followed the rules, for example, verifying a user’s age without handing over sensitive details like birth dates or addresses. This reduces data leaks and speeds up compliance.
Developers are working hard to make ZKPs faster and less power-hungry. More importantly, as ZKP technology improves and becomes easier to use, it will drive blockchain adoption in decentralized finance(DeFI) and supply chains.
ZKPs are not a replacement for blockchain cryptography but rather a complementary technology. Together, they create a trustless system where:
- Transactions are secure through cryptography.
- Data is private through ZKPs.
- Networks maintain decentralization.
