zk-SNARKs Explained: How It’s Used in Crypto Transactions

Privacy is one of the most essential features of cryptocurrency transactions. Its characteristics of immutability, transparency, and irreversibility offer more humongous security than traditional money transfers. Despite having such excessive functionalities, there is still an evergrowing demand for ultimate privacy in the crypto space. Currently, this demand is unlocked by the zero-knowledge proofs (ZKP) and zk-SNARKs technology.

zk-SNARKs have taken over the blockchain industry by storm and have become a significant primitive to look for in 2024. Based on the zero-knowledge proof technology, the concept of zk-SNARKs, aka non-interactive zero-knowledge proofs, has found wide popularity among crypto developers.

Let’s understand the complicated topic of zk-SNARK in simpler terms.

What is a zk-SNARK?

zk-SNARK uses the concept of zero-knowledge proofs (ZKP), which generates proofs that allow one to verify that they hold the specific information without revealing it. The term zk-SNARK is an acronym for Zero-knowledge Succinct Non-interactive Argument of Knowledge.

As zk-SNARK is fundamentally derived from zero-knowledge technology, we must first clearly understand what it is.

Zero-knowledge Proofs (ZKP)

Zero-knowledge proof allows one party to disclose that they have information without revealing the actual information. It is a cryptographic programming module that became popular in the blockchain ecosystem after the emergence of Ethereum scalability issues.

Some examples of proving statements using zero-knowledge proof would be;

• A person has a bank balance higher than X amount.
• The transaction amount is not more than the account balance.
• Allowing user access from a specific location without recording the location.

The difference between zero-knowledge proofs and zk-SNARKs is that zero-knowledge proofs are the technology on which the application of zk-SNARKs is developed.

The zero-knowledge proofs (ZKP) was first introduced in 1985 by a group of computer scientists. While the applicability of zero-knowledge proofs was not widespread, its adoption in the blockchain space – as zk-SNARK – made it an ideal solution for privacy-preserving cryptocurrency transactions. Several developers currently use it in cryptocurrency payment networks.

Using the functionality of zk-SNARKs, a user can show that they have the funds required for a transaction without disclosing how much funds they have in the wallet. Zcash was the first cryptocurrency to be launched using zk-SNARKs.

How zk-SNARK Works

The functionality of zk-SNARKs is encoded into the core programming of the blockchain to facilitate privacy in transactions. It works on the combination of mathematical equations and functionality of cryptography.

The word Non-interactive in SNARK suggests its contextual tie with blockchain technology. The zero-knowledge proofs generally involve sending messages back and forth to verify information. However, zk-SNARKs does not require any interaction at all other than a single two-way transactional message. Anything beyond the validity statement is out of concern here. It’s only output that matters the most and proves something is true without seeing the proof.

The whole process works on mathematical formulas and cryptographic hashes. It generally produces output in fewer bytes and gets executed in milliseconds. This functionality enables various applications that require high throughput at a minimal cost. In the case of Ethereum scalability, this relevancy of zk-SNARKs sounds perfectly fitting as it provides cheaper, faster, and more efficient transactions.

Applications of zk-SNARKs

The applicability and foremost applications of zk-SNARKs are in the cryptocurrency and blockchain space. Following are some applications where zk-SNARK is used primarily;

1. Privacy-Preserving Blockchain Transactions

While blockchain already offers privacy to asset transfers by enabling anonymity, it still has a drawback of traceability. Anyone can see the movements of crypto asset transfers on the blockchain. zk-SNARKs adds more privacy as it only sends proofs of transaction and not transaction details such as sender, receiver, or amount.

2. Privatized Governance

zk-SNARKs can be used to form a private governance mechanism where participants can send votes without comprising privacy. Such a system will help users hide identities while casting their fair votes. Using the proofs generated by zk-SNARK, voters can demonstrate that they have valid documents without sharing them with the governance.

3. Decentralized Identity Management

The most promising application of zk-SNARKs and zero-knowledge proofs is in decentralized identity management. zk-SNARK can be used to describe and verify an identity without showing any personal details such as name, address, social identity numbers, etc. Such an application gives users more control over their data.

4. Scalable Rollups

Scalability is a significant problem for leading blockchain networks such as Bitcoin and Ethereum. This problem could be solved by implementing zk-SNARK-powered blockchain rollups. These rollups could improve the efficiency of primary blockchains by taking away the computational load. Several blockchain applications are already been developed using zk-SNARKs, such as Zcash, Dusk, and Mina Protocol.

5. Supply Chain Management

zk-SNARKS could also improve the standards of the Supply Chain industry by introducing privacy on goods and services labeling. Not only could it hide the supplier or receiver’s identity, but it also secures any sensitive details regarding the delivery. Moreover, it can also help follow regulatory compliance without disclosing shipment details.

The applications of zk-SNARKs are broader than just the above-listed areas. It could also expand to several other sectors like banking, pharma, finance, and more.

Conclusion:

zk-SNARKs can open endless possibilities for blockchain, cryptocurrency, and decentralized finance. Zero-knowledge-proof technology and its applications, such as zk-SNARKs, will undoubtedly reshape the way data is stored and transferred. Currently, its primary use cases are in the blockchain and cryptocurrency space, but it has the potential to extend to more mainstream applications for data security.

FAQs

1. What is the difference between zero-knowledge proofs and zk-SNARKs?

• The difference between zero-knowledge proof (ZKP) and zk-SNARKs is that zero-knowledge proof is the technology on which the application of zk-SNARKs is developed.

2. What does zk-SNARK stand for?

• zk-SNARK is an acronym for Zero-knowledge Succinct Non-interactive Argument of Knowledge. It is an application of zero-knowledge proofs.

3. Which Cryptocurrency uses zk-SNARKs?

• Zcash was the first cryptocurrency developed using zk-SNARKs.