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Revolutionizing Web3 Development with Zero Knowledge Tech – Crypto 2023

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In 2015, the Ethereum protocol proposed a vision for a decentralized world computer capable of redesigning a free and open Internet, far from the whims and constraints of centralized entities. While Ethereum has become the foundation of Web3 as we know it, its growth has been underlined by the upgrades that would be needed to realize its full potential. As a result, Layer 2 has emerged as the clear frontrunner in the race to scale the network for mass adoption. Systems using zero-knowledge (ZK) technologies are among the most promising, and their potential is not limited to scalability.

Mihailo Bjelic is the co-founder of Polygon. This article is part of Crypto 2023.

ZK-based technology is expected to revolutionize myriad industries, from gaming to payments, digital identity to enterprise solutions. Looking ahead, 2023 promises to be the year ZK technology really starts to take off.

Zero-knowledge technology refers to tools that use cryptography to prove something is true without revealing any additional information beyond the fact that it is true. The value of such a tool for cryptocurrencies is that it significantly reduces the costs of processing data (such as transaction data on a blockchain) without compromising the security or decentralization that makes these monetary networks unique.

The application of ZK technology allows blockchain networks to prove the authenticity of their operations in the most efficient way, using as few steps as possible. This has the power to transform Web3 development by reducing costs, increasing throughput capacity, and expanding potential use cases far beyond what is currently possible.

There is little doubt among blockchain developers that ZK technology represents the ultimate solution to blockchain scalability. For many, this is the most crucial development in ensuring a fair Internet environment for the free exchange of value and digital ownership of assets and data, all without being subjected to centralized control.

Until recently, ZK-based scaling was limited by its incompatibility with the Ethereum Virtual Machine (EVM). It’s not strictly incompatible, of course, but perhaps hostile. In fact, many industry players predicted that it would take more than a decade to build a performant, EVM-compatible ZK rollup. Fortunately, the time taken was significantly less.

While the Ethereum merger in 2022 was instrumental in the network’s transition from proof-of-work (PoW) to the more efficient proof-of-stake (PoS), it represents only the first step in Ethereum’s broader road map, with improvements to the way where the data is stored on the chain will likely be the next step.

This road map could take years to realize, although it is clear that ZK technology is part of Ethereum’s long-term vision. In fact, Ethereum co-founder Vitalik Buterin has said so openly ZK Rollups are the solution to scaling Ethereum. That said, it is critical that the development and application of ZK technology adheres to Web3’s core ideals, foremost among them that of transparency.

Users cannot truly trust the outputs of a ZK-based tool if they cannot independently verify its inputs. In this way, transparency requires proof of systems that have source code available for each component.

As mentioned, ZK has a wide range of applications, but there are several that present short-term value.

Due to ZK’s ability to increase productivity and security and reduce fees, ZK Rollups will also be a significant tool for the decentralized financial sector. Leveraging Ethereum’s strong security and decentralization while providing scalability in a trustless manner could take DeFi to the next level.

Likewise, zero-knowledge technology could have a ripple effect on the payments industry. Cryptocurrencies have failed to become a widely accepted channel for business and consumer payments, largely due to limited scalability and high fees (and taxes, but that’s a separate problem with a less technical solution). Innovations like zkEVM seek to challenge this problem, enabling robust payment stacks to be built on Ethereum.

Additionally, for blockchain gaming applications to match the volume of users seen in the mainstream gaming industry, ZK rollups will be essential to process the hundreds of thousands, if not millions, of microtransactions that a typical blockchain game would require.

Another area rich in the types of innovation that zkEVM can bring is enterprise blockchain solutions. Until now, business users have been wary of the security issues presented by decentralized networks and their perceived lack of oversight and accountability.

Zero-knowledge technology is precisely what will provide accountability to decentralized networks without subjecting themselves to arbitrary oversight. Its implementation will provide the type of security that companies need to interact with decentralized blockchains.

ZK technology is also applied to digital identity, providing users with a decentralized, privacy-focused means of verifying their credentials and identity without ever revealing personal information. Such an ID offers a decentralized solution that allows users to comply with know-your-customer (KYC) and anti-money laundering (AML) checks without relying on third parties to store and process their data.

In response to the collapse of the FTX stock market, Vitalik proposed a solution based on ZK to prevent future FTX. A cryptocurrency exchange could use Zero-Knowledge proof to demonstrate solvency by publishing proof of reserves. This would allow an exchange to confirm that it has the liquidity to cover customer withdrawals without revealing the sensitive trading information contained therein.

With so much potential arising from a single technological breakthrough, it is increasingly difficult to argue that ZK rollups will not play a central role in the cryptocurrency’s broad adoption. While this list of possible use cases is by no means complete, what is more likely is that the most useful and innovative application of ZK does not yet exist.

As a useful analogy, consider that the explosion of social media was partly the result of it being an application that could only exist on the Internet – it was unprecedented in the real world. Somewhere there is a young developer with a nascent idea for something that can only be built on a blockchain.

ZK rollups and zkEVMs are bringing Ethereum’s vision of a decentralized web into focus.

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