Zero-knowledge, zero problem: all you need to know about this crypto narrative.

It’s been a tough week for anyone following crypto regulations closely. But instead of focusing on the attempts of the SEC’s Gary Gensler trying to explain to us that staking has nothing to do with steak (watch at your own discretion), this post focuses on the ZK-narrative.

Screenshot 2023 02 21 at 7.50.45 pm
U.S. Securities and Exchange Commission | Office Hours with Gary Gensler

You might have encountered the ZK acronym when scrolling through Twitter and wondered what it’s about. It’s everywhere, with companies dropping announcements left and right of adding ZK to their products. Some even suggest it could be a genius fundraising hack – just like adding AI to your pitch deck 10 times.

This leads to the question…

What is ZK, and why does it matter?

While the myth persists –  especially among regulators who should know better  (hey gary 👋) — decentralization does not provide anonymity. Everything you do on a blockchain is stored publicly and traceable to your wallet address. That doesn’t directly reveal your real identity, but companies like Chainalysis are really good at tracking people behind wallets down. Not very private.

If crypto wants to gain mass adoption in times of countries exploring CBDCs, we’ll need solutions that enable privacy. Zero-Knowledge proofs promise to be that. It’s an encryption technology that lets users prove something is true without revealing the actual information.

A popular example to explain how that works is a Where is Wally’s puzzle. To prove you found him without revealing his location, you could just take a big piece of paper, cut a hole into where the head is, and then put it over the puzzle. Proving something is true without revealing the information turns out to be very useful for scaling blockchains.

ZK Rollups

A big driver of the entire ZK narrative are ZK rollups built to help Ethereum scale. If you imagine Ethereum as a factory, it has one line to produce blocks with a fixed number of workers. It gets crowded easily when people want to produce more, leading to congestion.

Rollups take the workload off the main factory line and establish parallel lines validating transactions. Optimistic rollups assume that all workers on parallel lines do proper work and only verify it when a supervisor flags a problem.

ZK Rollups, in contrast, use ZK technology to generate validity proofs representing receipts confirming transactions are authentic without requiring supervisory surveillance. They are faster and reduce storage requirements. The only problem is that the Ethereum Operating System (called Ethereum Virtual Machine)  isn’t compatible with ZK-proofs.

It’s like this kid’s toy, which taught us all that you cannot squeeze the rectangular form (ZK proof) into the triangle-shaped hole (EVM).

That’s where ZKEVM comes in.

ZK EVM

ZK Rollups are great for scaling transactions and simple payments, but not much more. Could we have a rollup that supports smart contracts? The answer is yes. It’s called zkEVM and is the latest race rollup companies are engaged in.

ZK EVMs are a type of rollup that emulate the EVM so developers can build as they would on Ethereum. This means dApps could easily migrate to rollups offering users secure scalability and cheaper transactions. Some estimate that rollups could process up to 2,000 transactions per second.

Current contenders in the ZK EVM race are Polygon, who just announced the launch of their ZK-EVM on March 27th, and zkSync. While these two companies might fight over who the first zkEVM is, for Ethereum, it doesn’t matter. Both contribute to, as Vitalik put it, the future of Ethereum scalability.

Overall, ZK technology promises to bring improvements to privacy and scalability, which we might all long for whenever the next big airdrop is around. It better not be a CBDC 🎈

Naomi from CoinJar

​​CoinJar’s digital currency exchange services are operated in Australia by CoinJar Australia Pty Ltd ACN 648 570 807, a registered digital currency exchange provider with AUSTRAC; and in the United Kingdom by CoinJar UK Limited (company number 8905988), registered by the Financial Conduct Authority as a Cryptoasset Exchange Provider and Custodian Wallet Provider in the United Kingdom under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, as amended (Firm Reference No. 928767). Like all investments, cryptoassets carry risk. Due to the potential volatility of the cryptoasset markets, the value of your investments may fall significantly and lead to total loss. Cryptoassets are complex and are unregulated in the UK, and you are unable to access the UK Financial Service Compensation Scheme or the UK Financial Ombudsman Service. We use third party banking, safekeeping and payment providers, and the failure of any of these providers could also lead to a loss of your assets. We recommend you obtain financial advice before making a decision to use your credit card to purchase cryptoassets or to invest in cryptoassets. Capital Gains Tax may be payable on profits.

Source: https://blog.coinjar.com/zk-this-zk-that-zk-everything/