Zero-Knowledge Cryptography in 2023: The Year Privacy Becomes Practical

Four theories about how these privacy-preserving and blockchain-scaling solutions will change the industry.

AccessTimeIconDec 29, 2022 at 2:51 p.m. UTC

One of the technologies that will undoubtedly change Web3 is zero-knowledge (ZK) cryptography. ZK has long been considered a potential game-changer for ensuring the privacy, security and integrity of blockchain applications. The rapid investment and development of zero-knowledge proofs is an important signal that the technology is getting ready for prime time.

I have four primary predictions for where the technology will go in 2023, in addition to the players, projects and protocols that will drive – and capture – the most value.

Alex Pruden is the CEO of Aleo and founder of ZPrize. This article is part of Crypto 2023.

A ZK-powered layer 1 smart-contract blockchain chain will launch in 2023

While a few chains – including Mina, ZCash and Celo – already use zero-knowledge cryptography in production, none of them provide true programmability or full on-chain smart contract functionality. As a result, they are limited in what they can do. But that’s changing.

A smart-contract blockchain running a ZK-powered virtual machine will launch next year. This might be in the design of Zexe, the behind-the-radar ledger-based system, or otherwise. Zcash, which recently had an upgrade using advanced zero-knowledge science, is also far more scalable and being used for real applications.

Building a new layer 1 blockchain from the ground up with all the right primitives in place is easier than trying to adapt Ethereum or other blockchains to a technology it wasn’t initially designed for. Ethereum certainly has the most significant traction among smart-contract developers, but it isn’t the only game in town and investors, users and developers are all still in the market for alternatives.

A ZK-focused chain may be impacted by the lack of ZK-native coders. However, when Ethereum first launched, many questioned whether anyone would want to learn a whole new language to write smart contracts. It turned out that many were, given the benefits of the new paradigm. The same will be true of a ZK layer 1.

Moreover, a ZK-native smart contract platform will provide both scalability and privacy. Most rollup designs today only address scalability concerns, even if they have ZK in their name. Both privacy and scalability will be essential to enable use cases that unlock the true value of Web3.

Rollups will remain centralized, and zkEVMs will remain impractical

Several rollup implementations – both ZK and Optimistic – are live on Ethereum today. All of them rely on a single, centralized party known as a sequencer to order transactions. And while the design of a rollup ensures that the sequencer cannot steal funds, the sequencer learns all of the information about your transactions and has the opportunity to profit from MEV [maximal extractable value] at your expense.

The challenge of decentralizing a rollup is both a technical and legal one. From a technical perspective, decentralizing a sequencer essentially requires launching a whole new blockchain, but without an asset that provides economic security. From a legal point of view, it’s difficult to decentralize the sequencer in a way that isn’t obviously a security (e.g., a portion of transaction fees will be paid to the sequencer).

The additional challenge for ZK rollups is that they do not offer full smart-contract functionality. Various zk-based Ethereum Virtual Machines (EVM) with varying levels of compatibility to Ethereum have been proposed but are still very much theoretical. So while Zero-Knowledge cryptography has come a long way, the engineering challenges of a zkEVM still put a decentralized, production system at least a year away.

Hardware acceleration will make ZK more practical, useful and accessible across the board

One of the most promising trends for Zero-Knowledge cryptography is hardware acceleration. When we think back to the early days of the Web, it was the integration of the Advanced Encryption Standard (AES), a cryptography instruction set designed by Intel, that enabled the ubiquity of internet-based communication protocol https.

Over the course of this past year, there has been a significant focus on hardware acceleration for zkSNARKs, from FPGAs [field-programmable gate arrays] to mobile phones. In particular, the ZPrize competition galvanized interest in applying and consolidating the most cutting-edge optimizations for generating zero-knowledge proofs in hardware.

This was notable because it was not just the initiative of a single team, but a collective industry effort comprising over 32 companies including semiconductor companies AMD and Samsung and Web3 players Mina, Aztec, Aleo and 0xPARC.

The outcome of the competition (which I helped organize) increased the performance of core Zero-Knowledge algorithms. These results are broadly applicable across the field and accessible to anyone through open source.

Using the ZPrize submissions, real applications powered by Zero Knowledge such as stablecoins, privacy-preserving machine learning, digital identity and gaming solutions will become practical. We could see an example of a product in those categories as early as this year.

Companies will have to choose a side on privacy

People are realizing the limitations of public blockchains and in particular, the amount of information you must reveal to participate. The status quo is everything public by default, which creates a system in which consumer protection is impossible.

Of course, plenty of companies state they support developing features to help ensure user privacy. But both consumers and regulations will increasingly force the industry to pick a side. Senator Elizabeth Warren’s (D–Mass.) hastily introduced financial surveillance bill only makes it more necessary that the industry work together to counter this.

The issue is urgent. Web3 companies that truly hold the values of the space will take a stand to defend the rights of users and use technology like Zero-Knowledge cryptography to ensure they are protected. If we don’t, we risk creating a global financial panopticon that is far more invasive than our current financial system.

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Alex  Pruden

Alex Pruden is the CEO of Aleo and founder of ZPrize.