Tech
How zero-knowledge (zK) technology will power the future of cryptocurrencies
Last year witnessed the ascending of Zero-Knowledge (ZK) technology. From its potential to increase and protect privacy protocols in the Web3 space, due to its greater efficiency in validating transactions, the implementation of the technology is further cementing the growth and integration of blockchain into our daily lives. Its role in increasing efficiency has become central, as zk proofs enable data aggregation in transactions, reducing the computational requirements to process information and the amount of data stored on blockchain networks.
This means introducing a trustless scaling mechanism that the industry is sorely lacking. The additional component that has secured its place as a widely accepted new validation protocol is the inherent ability to process this data without the need to add unnecessary information, strengthening the privacy frameworks inherent to blockchain.
To underline the commitment and recognition of this potential, Ethereum and other Layer 1 platforms, the mainstays of the industry, are transitioning to evidence clearance and verification through the implementation of ZK technology. As Layer 1 integrates this technology, we are about to see industry-wide standardization. By securing the Web3 space with stronger validations, an issue desperately in need of resolution, this change has the potential to protect the foundations of the industry and pave the way for the large-scale adoption that has so far been lacking.
Decentralization: an advantage and an obstacle
ZK technology has taken on the role of overcoming the challenges of decentralization, i.e. the creation of centralized verification hubs in current solutions, and the need for efficient systems to allow people easy access to additional chains.
As the Web3 space develops, the focus is on the larger narrative of decentralized systems, keeping them that way and emphasizing the need for interoperability in a shared app future. The commitment of the industry as a whole to building systems that resist censorship and cannot be controlled by private entities is clear. In addressing the complexities of today’s rollup solutions, Zk-rollups take center stage, providing best-in-class security guarantees through stronger validation and still maintaining privacy features.
The dynamic interplay between scalability and privacy is a central theme in this transformation. Innovations like Heating0, Gnark, ZK authoring tools, and easy-to-couple encryption have facilitated the creation and application of ZK technology. While ZK tools are becoming easier to build and integrate, masternodes and keeper-based infrastructure, additional privacy-focused mechanisms, are undergoing a paradigm shift towards ZK and hardware acceleration projects such as cysic.xyzthey promise similar levels of performance to Solana.
These advances address scaling challenges by combining the best of vertical scaling with the security properties of horizontal scaling.
Finally, ZK technology has also proven to strengthen bridges between layers, an imperative for interoperability and future growth. Current bridging systems have quickly led to centralized nodes, not only creating exceptional security vulnerabilitybut potentially hindering future free access to applications, resources and ecosystems, fundamental components of the sector that should not be subject to control by private entities.
Another promising solution is represented by Inter-blockchain communication (IBC). The commitment to decentralization is not only a technical endeavor but also a philosophical position, and we should strive to ensure that anyone can participate in the network.
Privacy as a core value in ZK technology
Privacy takes center stage as a core value in the evolution of ZK technology. As a security measure, additional verification methods were needed to thwart the rampant hacker attacks in the Web3 industry.
Currently, this means limiting the privacy of each party involved. With ZK proofs, entities can issue verification before any transfer, providing only the key data to validate the transaction. In concrete terms, this would be equivalent to validating a company’s creditworthiness without making all its financial data public.
Commitment to privacy is not just a philosophical position in blockchain; it is a practical necessity. Privacy is described as a countermeasure to malicious Miner Extractable Value (MEV), a process in which miners validate transactions for a fee, thus ensuring fair and competitive markets.
Specific projects such as Penumbra, Anoma and Nym exemplify the importance of privacy. In a world where privacy is compromised, the potential for exclusion and censorship looms large, underscoring ZK Proofs’ key role in ensuring a robust and inclusive Web3 landscape.
Impact on the future of Web3
The look back to 2023 shows the strides ZK technology has made, with projects like Nova, Lasso and Jolt leaving an indelible mark on the Web3 ecosystem. These projects have made it easier to build and integrate ZK tests into existing systems.
However, it also highlighted the challenges faced by the industry, such as reliable scalability, secure interoperability and the potential of centralized systems, as well as the work that needs to be done to introduce Web3 into our daily lives.
Looking ahead to 2024, we will see a shift in on-chain activity as DeFi systems, cryptocurrency trading, and cross-chain dApps migrate to ZK-based blockchains. More and more apps are likely to move towards zk-tech, leveraging it for more efficient airdrops and more private, secure exchanges. An industry-wide commitment is critical to overcoming the challenges of decentralization in the blockchain space today.
ZK project leaders should prioritize education and tools; Given the high technical costs associated with ZK technology, we must provide developers with easy-to-use tools to incorporate ZK technology into their projects and educational resources and support to guide them in that process.
Projects that want to prepare for the inevitable zk-based future can do so by partnering with existing zk projects and working together to implement the technology into their existing models.
2023 was a transformative year, underscoring ZK technology’s impactful contribution to DeFi, cryptocurrencies and greater decentralization. The optimism for developers and their role in shaping the future of ZK technology in 2024 is palpable, even in the face of continued market challenges. This is an optimism born of anticipation for Web3’s next steps and the potential that the ZK trials are now providing to push the industry into a new era of scale and development.