What is Zero-Knowledge Proof?

Zero-knowledge proof, also referred to as a zero-knowledge protocol or zero-knowledge password proof (ZKP), is a type of identification and authentication method that doesn’t allow password sharing. When passwords are not being shared, it becomes impossible to hack them. While this term is widely used within the context of cryptocurrencies, it can be utilized in other fields as well.

Zero-knowledge proofs open endless possibilities for transforming the process of the way we acquire, use, and transmit information. For instance, making cryptocurrency transactions completely anonymous and untraceable. This means that cryptocurrency holders could show that they, indeed, hold said cryptocurrency without disclosing any personal or private information.

When using this type of authentication, all of your data, such as personal chats and transactions, can be verified with zero-knowledge proofs. No one outside of the network is able to access said data.

Why Is There a Need for Zero-Knowledge Proofs?

In the crypto world, a blockchain is one of the key elements of cryptocurrency transactions. However, it can be traced back to the user. This happens because all transactions are visible to everyone on the network when the blockchain is public.

This is where zero-knowledge proofs come in. Security, privacy, and confidentiality are the factors why cryptocurrency companies implement ZKPs in their own blockchains.

Their main feature is providing privacy when making transactions on the public blockchain. It’s done by confirming that the transaction has successfully gone through while maintaining data confidentiality. It’s a way for different parties of the transaction to confirm among themselves that an asset is set to a specific value without disclosing any other data.

Additionally, zero-knowledge proofs allow users to send and receive complex documents. ZKPs make it possible to take data and encrypt it into smaller pieces (blocks). This way the holder of the document can determine what information is within each block and who can access it.

Moreover, messenger applications that facilitate zero-knowledge proofs enable users to send private messages while maintaining confidentiality. Only the most necessary information is shared which is usually not personal data.

How Do Zero-Knowledge Proofs Work?

A single node runs the application code on the blockchain, or completely off-chain. If it’s successfully completed, then the confirmation message is sent to other parties of the transactions for verification via the blockchain. 

There are two types of zero-knowledge proofs:

• Interactive. In this case, the prover and the verifier must communicate in order to convince the prover that the verifier holds certain information. Generally, their interactions are limited to the principles of mathematical probability.
• Non-Interactive. In this case, there’s no need for the prover and the verifier to communicate between themselves. The verification process can be postponed. It’s important to keep in mind that additional computing devices or software programs might be needed in this type of ZKP.

The most popular example of zero-knowledge proof implementation is Z-Cash which is a cryptocurrency that provides private transaction addresses. Z-Cash features the AdEx protocol that facilitates ad auctions based on decentralized zero-knowledge proofs.