As an emerging technology, how can zero-knowledge proofs remedy many issues across the crypto space?
Zero-knowledge proofs (ZK-proofs) are a key technology explored by many in the crypto industry. A zero-knowledge protocol is a cryptographic method that allows one party to prove to another party that something is true without revealing any information.
The technology is vital for Ethereum layer-2 solutions to achieve blockchain scalability, and to the privacy and security of ZK transaction networks. The top ZK tokens, such as Polygon and Zcash, have surpassed $9 billion in market cap since their inception.
Given the increasing focus on ZK technology and the benefits it can bring to crypto, it’s no surprise it will be one of the hot topics of discussion during the upcoming annual Ethereum Community Conference (EthCC), taking place in Paris from July 17–20.
Some conference-goers, as well as those attending the ZKDay sideline event on July 19, have shared why they believe the technology holds promise in the coming years.
Venture capital is watching closely
According to Cointelegraph Research, venture capital (VC) activity in the cryptocurrency sector is returning to life following a year of decline. In May 2022, the total amount invested in the industry hit $4.4 billion, plummeting to just under $500 million in January 2023 and climbing back to over $1.1 billion in May.
Forest Bai, co-founder and general partner at Foresight Ventures — a Singapore-based VC firm with over $400 million in assets under management — believes the bear market presented a chance for growth, stating: “The collapse of certain crypto institutions presents opportunities for the emergence of new ones.”
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For Foresight Ventures, which counts companies like Sei Network, Space ID, Shardeum, Catalyst and Space Nation among its portfolio, emerging tech is a core area of investment interest for the firm. Bai said:
“Combining new technologies such as AI, ZK and blockchain is currently the most fascinating direction we are interested in.”
Although factors such as the collapse of FTX, enforcement actions by the United States Securities and Exchange Commission, and the implosion of Terra have cast a shadow on the sector, Bai remains optimistic about the industry’s recovery, stating, “We can see that crypto tech remains dynamic in regions like Hong Kong, Montenegro, Southeast Asia and South America.”
What are ZK protocols up to?
The motto for the current bear market has been to “build.” As general interest in the cryptocurrency sector fades during difficult economic times, technology companies may see that as an opportunity to take their time to create a lasting product and unveil it as the market enters a recovery stage. This approach is even more evident when discussing emerging sectors and technologies like ZK-proofs.
Zero-knowledge, layer-1 blockchain, Manta Network, launched its ZK nonfungible token platform, NPO, a little over one month ago, and has since recorded over 200,000 wallet installs and 300,000 ZK soulbound token mints. Kenny Li, co-founder and chief operations officer of Manta, said that the technology has great potential when it comes to enhancing scalability and user privacy:
“ZK-rollups are specifically used for scalability. There are other applications of ZK which are geared toward protecting users and their privacy/identity. Manta Network uses it to provide compliant private Know Your Customer/identity solutions as a core use case. I think, right now, ZK is being applied in both rollups and on-chain activity, so it would be suited for both.”
According to Li, the primary focus has been to create real use cases for ZK technology. “We are concentrating on on-chain identity paired with the safety and privacy of each user’s wallets and transactions,” he said. The next stage is to apply such solutions to a multitude of use cases across over 80 ecosystem projects and allow them to adopt the technology.
For zero-knowledge technology to spread its wings and increase adoption, some believe that cross-chain solutions are required to mend the issue of blockchain interoperability.
The Polyhedra Network, which focuses on Web3 interoperability and boasts 800,000 monthly active users, aims to bring layer-1 and layer-2 blockchains closer through its zkBridge technology. As Polyhedra CEO Abner Jia puts it:
“ZkBridge uses zero-knowledge proof constructions to efficiently convince the receiver chain that a certain state transition happened on the sender chain. With zero-knowledge proofs, zkBridge offers both strong security without relying on external assumptions and a significant reduction in on-chain verification cost.”
Given how much skepticism there is around bridges and their vulnerabilities to hacks, it’s no wonder that many are searching for new technologies to help improve protocol security.
The ultimate goal for utilizing proprietary ZK-proof systems is to “promote an open, interconnected and scalable blockchain ecosystem, paving the way for the future of blockchain technology,” Jia said.