Why Blockchain Sparked the Renaissance in Zero Knowledge Technology
BitOoda Zero Knowledge Research, 5/3/23
Vivek Raman
Key Takeaway #1
Zero Knowledge Proof (ZKP) technology is experiencing a resurgence, catalyzed by the rise of Ethereum.
Key Takeaway #2
Blockchains and ZKPs are complementary technologies that, together, can scale to mass adoption.
Key Takeaway #3
Ultimately, ZKPs could transcend crypto rails and be integrated ubiquitously into all areas of the traditional economy, including industries like finance, healthcare, datacenters, and high-performance compute.
Key Takeaway #4
A curious phenomenon to observe: the growth of the Ethereum/blockchain ecosystem in recent years has been accompanied by an accelerating focus on Zero Knowledge Proof (ZKP) technology. However, while blockchain technology emerged fairly recently, beginning with the Bitcoin whitepaper in 2008 and building momentum with the launch of Ethereum in 2015, ZKPs have been around since the 1980s.
We contend that since inception, ZKPs have been a sophisticated solution looking for an applicable problem. In contrast, blockchain technology, while revolutionary in creating an immutable public ledger, has intrinsic problems – namely privacy and scalability – and has been searching for a solution. Blockchains and ZKPs are complementary technologies that, when combined, can create powerful applications for mainstream adoption.
In our Zero Knowledge foundational report titled “A Zero to Infinity Opportunity” published on 4/17/23, we provide a comprehensive overview of the Zero Knowledge ecosystem landscape, spanning from definitions, high-level use cases (for and beyond blockchain), and applications (Layer 1 and Layer 2 systems).
We believe the potential for the ZKP ecosystem spans far beyond blockchain and has applications in many major industries, from finance to healthcare to the broader compute space. However, before we can estimate the conceivable market size and potential ZKP applications in the broader economy (an exercise for future ZKP reports), it is important to understand why blockchains are the ideal “training wheels” for ZKP technology.
A brief refresher: what is a Zero Knowledge Proof? A ZKP uses mathematical techniques to allow one party (a Prover) to show another party (a Verifier) that a piece of information is true – without revealing the actual information. This relatively simplistic explanation undersells the potential of the technology. In the pre-ZKP era, there is a single point of failure for managing data privacy and for executing computation – usually concentrated to the largest tech providers (Google, Apple, Meta, Microsoft) and to the banking system. In a post-ZKP era, sensitive user data can be kept private and still be used by these large centralized players. Additionally, computation can be disintermediated to a wider range of datacenter players.
So, if ZKP technology has such vast potential beyond the blockchain space and has been around since the 1980s, why did ZKPs not blossom until the crypto space emerged? Two potential reasons: (1) most users do not value data and financial privacy beyond trusting this information to current incumbents (banks and tech companies), and (2) ZKPs are expensive and computationally intensive.
In fact, producing a ZKP requires up to 1,000,000x more compute capacity for a Prover than for the underlying computation itself. Therefore, for practical purposes, the increase in privacy (which is an abstract vs a tangible benefit for most everyday users) was likely not worth the infrastructure and cost buildout for ZKP implementation.
However, once blockchains emerged and Ethereum architected a decentralized global computer, a new ecosystem of decentralized finance, stablecoins, NFTs, games, and new applications emerged – and then immediately reached scaling capacity while providing no privacy for sensitive user data. Zero Knowledge Proofs will use Ethereum as a launchpad use case to flourish and mature before ZKPs become standardized, ubiquitous technology for the broader economy.
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A curious phenomenon to observe: the growth of the Ethereum/blockchain ecosystem in recent years has been accompanied by an accelerating focus on Zero Knowledge Proof (ZKP) technology. However, while blockchain technology emerged fairly recently, beginning with the Bitcoin whitepaper in 2008 and building momentum with the launch of Ethereum in 2015, ZKPs have been around since the 1980s.
We contend that since inception, ZKPs have been a sophisticated solution looking for an applicable problem. In contrast, blockchain technology, while revolutionary in creating an immutable public ledger, has intrinsic problems – namely privacy and scalability – and has been searching for a solution. Blockchains and ZKPs are complementary technologies that, when combined, can create powerful applications for mainstream adoption.
In our Zero Knowledge foundational report titled “A Zero to Infinity Opportunity” published on 4/17/23, we provide a comprehensive overview of the Zero Knowledge ecosystem landscape, spanning from definitions, high-level use cases (for and beyond blockchain), and applications (Layer 1 and Layer 2 systems).
We believe the potential for the ZKP ecosystem spans far beyond blockchain and has applications in many major industries, from finance to healthcare to the broader compute space. However, before we can estimate the conceivable market size and potential ZKP applications in the broader economy (an exercise for future ZKP reports), it is important to understand why blockchains are the ideal “training wheels” for ZKP technology.
A brief refresher: what is a Zero Knowledge Proof? A ZKP uses mathematical techniques to allow one party (a Prover) to show another party (a Verifier) that a piece of information is true – without revealing the actual information. This relatively simplistic explanation undersells the potential of the technology. In the pre-ZKP era, there is a single point of failure for managing data privacy and for executing computation – usually concentrated to the largest tech providers (Google, Apple, Meta, Microsoft) and to the banking system. In a post-ZKP era, sensitive user data can be kept private and still be used by these large centralized players. Additionally, computation can be disintermediated to a wider range of datacenter players.
So, if ZKP technology has such vast potential beyond the blockchain space and has been around since the 1980s, why did ZKPs not blossom until the crypto space emerged? Two potential reasons: (1) most users do not value data and financial privacy beyond trusting this information to current incumbents (banks and tech companies), and (2) ZKPs are expensive and computationally intensive.
In fact, producing a ZKP requires up to 1,000,000x more compute capacity for a Prover than for the underlying computation itself. Therefore, for practical purposes, the increase in privacy (which is an abstract vs a tangible benefit for most everyday users) was likely not worth the infrastructure and cost buildout for ZKP implementation.
However, once blockchains emerged and Ethereum architected a decentralized global computer, a new ecosystem of decentralized finance, stablecoins, NFTs, games, and new applications emerged – and then immediately reached scaling capacity while providing no privacy for sensitive user data. Zero Knowledge Proofs will use Ethereum as a launchpad use case to flourish and mature before ZKPs become standardized, ubiquitous technology for the broader economy.
Blockchains + ZKP Symbiosis - Why Does Ethereum Need ZK Proofs?
Blockchains mark a technological paradigm shift with as much disruptive potential as the Internet. By creating a decentralized global computer, blockchain (namely the Ethereum network) establishes the infrastructure for a global payments, finance, and application layer that is cheaper, faster, and more transparent than the current system. However, the greatest strength of Ethereum (being open and accessible to all) is also its greatest weakness.
Ethereum has chosen to be decentralized and secure (two of the three sides of the Scalability Trilemma triangle) at the expense of being able to scale to reach mass adoption. The same properties that keeps ETH accessible to all (without huge hardware requirements, and redundant across thousands of nodes worldwide) prevent ETH from having cheap, fast transactions. Additionally, since Ethereum is a public ledger, all transactions are fully public.
Zero Knowledge Proofs solve the Scalability Trilemma, allowing Ethereum to be Decentralized, Secure, and Scalable.
Blockchain + ZKP Symbiosis - Zero Knowledge Proofs: Beyond Blockchain
ZKP technology has been in existence since the 1980s. However, the technology has been too computationally intensive and too redundant to integrate into existing industries. Effectively, ZKPs have been a ”magical” solution in search of a problem.
Blockchains presented a problem important enough to catalyze a renaissance in ZKP technology: the need to (1) scale and (2) add privacy to public chains like Ethereum.
Ethereum can almost be considered a “testnet” for the full potential of ZKP technology, as Ethereum is forcing hardware acceleration, improved (faster, cheaper) algorithms, and a Darwinistic rush to improve the ZKP ecosystem.
Ultimately, ZKPs will likely be integrated into every facet of blockchains before mass adoption and true global utility can be achieved – and this will create a new ecosystem of datacenters, hardware players, and compute optimization.
In the end, the benefits of ZKPs could be substantial, as privacy and data integrity are increasingly important in a digitalized world where demand for compute goes in one direction: higher.
This research is only for the clients of BitOoda. This research is not intended to constitute an offer, solicitation, or invitation for any securities and may not be distributed into jurisdictions where it is unlawful to do so. For additional disclosures and information, please contact a BitOoda representative at info@bitooda.io.
Analyst Certification
Vivek Raman, denoted by an “AC” on the cover of this report hereby certifies that all of the views expressed in this report accurately reflect his personal views, which have not been influenced by considerations of the firm’s business or client relationships.
Conflicts of Interest
This research contains the views, opinions, and recommendations of BitOoda. This report is intended for research and educational purposes only. We are not compensated in any way based upon any specific view or recommendation.
General Disclosures
Any information (“Information”) provided by BitOoda Holdings, Inc., BitOoda Digital, LLC, BitOoda Technologies, LLC or Ooda Commodities, LLC and its affiliated or related companies (collectively, “BitOoda”), either in this publication or document, in any other communication, or on or through http://www.bitooda.io/, including any information regarding proposed transactions or trading strategies, is for informational purposes only and is provided without charge. BitOoda is not and does not act as a fiduciary or adviser, or in any similar capacity, in providing the Information, and the Information may not be relied upon as investment, financial, legal, tax, regulatory, or any other type of advice. The Information is being distributed as part of BitOoda’s sales and marketing efforts as an introducing broker and is incidental to its business as such. BitOoda seeks to earn execution fees when its clients execute transactions using its brokerage services.BitOoda makes no representations or warranties (express or implied) regarding, nor shall it have any responsibility or liability for the accuracy, adequacy, timeliness or completeness of, the Information, and no representation is made or is to be implied that the Information will remain unchanged. BitOoda undertakes no duty to amend, correct, update, or otherwise supplement the Information.
The Information has not been prepared or tailored to address, and may not be suitable or appropriate for the particular financial needs, circumstances or requirements of any person, and it should not be the basis for making any investment or transaction decision. The Information is not a recommendation to engage in any transaction. The digital asset industry is subject to a range of inherent risks, including but not limited to: price volatility, limited liquidity, limited and incomplete information regarding certain instruments, products, or digital assets, and a still emerging and evolving regulatory environment. The past performance of any instruments, products or digital assets addressed in the Information is not a guide to future performance, nor is it a reliable indicator of future results or performance.
Ooda Commodities, LLC is a member of NFA and is subject to NFA’s regulatory oversight and examinations. However, you should be aware that NFA does not have regulatory oversight authority over underlying or spot virtual currency products or transactions or virtual currency exchanges, custodians or markets.
BitOoda Technologies, LLC is a member of FINRA.
“BitOoda”, “BitOoda Difficulty”, “BitOoda Hash”, “BitOoda Compute”, and the BitOoda logo are trademarks of BitOoda Holdings, Inc.
Copyright 2022 BitOoda Holdings, Inc. All rights reserved. No part of this material may be reprinted, redistributed, or sold without prior written consent of BitOoda.
A curious phenomenon to observe: the growth of the Ethereum/blockchain ecosystem in recent years has been accompanied by an accelerating focus on Zero Knowledge Proof (ZKP) technology. However, while blockchain technology emerged fairly recently, beginning with the Bitcoin whitepaper in 2008 and building momentum with the launch of Ethereum in 2015, ZKPs have been around since the 1980s.
We contend that since inception, ZKPs have been a sophisticated solution looking for an applicable problem. In contrast, blockchain technology, while revolutionary in creating an immutable public ledger, has intrinsic problems – namely privacy and scalability – and has been searching for a solution. Blockchains and ZKPs are complementary technologies that, when combined, can create powerful applications for mainstream adoption.
In our Zero Knowledge foundational report titled “A Zero to Infinity Opportunity” published on 4/17/23, we provide a comprehensive overview of the Zero Knowledge ecosystem landscape, spanning from definitions, high-level use cases (for and beyond blockchain), and applications (Layer 1 and Layer 2 systems).
We believe the potential for the ZKP ecosystem spans far beyond blockchain and has applications in many major industries, from finance to healthcare to the broader compute space. However, before we can estimate the conceivable market size and potential ZKP applications in the broader economy (an exercise for future ZKP reports), it is important to understand why blockchains are the ideal “training wheels” for ZKP technology.
A brief refresher: what is a Zero Knowledge Proof? A ZKP uses mathematical techniques to allow one party (a Prover) to show another party (a Verifier) that a piece of information is true – without revealing the actual information. This relatively simplistic explanation undersells the potential of the technology. In the pre-ZKP era, there is a single point of failure for managing data privacy and for executing computation – usually concentrated to the largest tech providers (Google, Apple, Meta, Microsoft) and to the banking system. In a post-ZKP era, sensitive user data can be kept private and still be used by these large centralized players. Additionally, computation can be disintermediated to a wider range of datacenter players.
So, if ZKP technology has such vast potential beyond the blockchain space and has been around since the 1980s, why did ZKPs not blossom until the crypto space emerged? Two potential reasons: (1) most users do not value data and financial privacy beyond trusting this information to current incumbents (banks and tech companies), and (2) ZKPs are expensive and computationally intensive.
In fact, producing a ZKP requires up to 1,000,000x more compute capacity for a Prover than for the underlying computation itself. Therefore, for practical purposes, the increase in privacy (which is an abstract vs a tangible benefit for most everyday users) was likely not worth the infrastructure and cost buildout for ZKP implementation.
However, once blockchains emerged and Ethereum architected a decentralized global computer, a new ecosystem of decentralized finance, stablecoins, NFTs, games, and new applications emerged – and then immediately reached scaling capacity while providing no privacy for sensitive user data. Zero Knowledge Proofs will use Ethereum as a launchpad use case to flourish and mature before ZKPs become standardized, ubiquitous technology for the broader economy.
Blockchains + ZKP Symbiosis - Why Does Ethereum Need ZK Proofs?
Blockchains mark a technological paradigm shift with as much disruptive potential as the Internet. By creating a decentralized global computer, blockchain (namely the Ethereum network) establishes the infrastructure for a global payments, finance, and application layer that is cheaper, faster, and more transparent than the current system. However, the greatest strength of Ethereum (being open and accessible to all) is also its greatest weakness.
Ethereum has chosen to be decentralized and secure (two of the three sides of the Scalability Trilemma triangle) at the expense of being able to scale to reach mass adoption. The same properties that keeps ETH accessible to all (without huge hardware requirements, and redundant across thousands of nodes worldwide) prevent ETH from having cheap, fast transactions. Additionally, since Ethereum is a public ledger, all transactions are fully public.
Zero Knowledge Proofs solve the Scalability Trilemma, allowing Ethereum to be Decentralized, Secure, and Scalable.
Blockchain + ZKP Symbiosis - Zero Knowledge Proofs: Beyond Blockchain
ZKP technology has been in existence since the 1980s. However, the technology has been too computationally intensive and too redundant to integrate into existing industries. Effectively, ZKPs have been a ”magical” solution in search of a problem.
Blockchains presented a problem important enough to catalyze a renaissance in ZKP technology: the need to (1) scale and (2) add privacy to public chains like Ethereum.
Ethereum can almost be considered a “testnet” for the full potential of ZKP technology, as Ethereum is forcing hardware acceleration, improved (faster, cheaper) algorithms, and a Darwinistic rush to improve the ZKP ecosystem.
Ultimately, ZKPs will likely be integrated into every facet of blockchains before mass adoption and true global utility can be achieved – and this will create a new ecosystem of datacenters, hardware players, and compute optimization.
In the end, the benefits of ZKPs could be substantial, as privacy and data integrity are increasingly important in a digitalized world where demand for compute goes in one direction: higher.
This research is only for the clients of BitOoda. This research is not intended to constitute an offer, solicitation, or invitation for any securities and may not be distributed into jurisdictions where it is unlawful to do so. For additional disclosures and information, please contact a BitOoda representative at info@bitooda.io.
Analyst Certification
Vivek Raman, denoted by an “AC” on the cover of this report hereby certifies that all of the views expressed in this report accurately reflect his personal views, which have not been influenced by considerations of the firm’s business or client relationships.
Conflicts of Interest
This research contains the views, opinions, and recommendations of BitOoda. This report is intended for research and educational purposes only. We are not compensated in any way based upon any specific view or recommendation.
General Disclosures
Any information (“Information”) provided by BitOoda Holdings, Inc., BitOoda Digital, LLC, BitOoda Technologies, LLC or Ooda Commodities, LLC and its affiliated or related companies (collectively, “BitOoda”), either in this publication or document, in any other communication, or on or through http://www.bitooda.io/, including any information regarding proposed transactions or trading strategies, is for informational purposes only and is provided without charge. BitOoda is not and does not act as a fiduciary or adviser, or in any similar capacity, in providing the Information, and the Information may not be relied upon as investment, financial, legal, tax, regulatory, or any other type of advice. The Information is being distributed as part of BitOoda’s sales and marketing efforts as an introducing broker and is incidental to its business as such. BitOoda seeks to earn execution fees when its clients execute transactions using its brokerage services.BitOoda makes no representations or warranties (express or implied) regarding, nor shall it have any responsibility or liability for the accuracy, adequacy, timeliness or completeness of, the Information, and no representation is made or is to be implied that the Information will remain unchanged. BitOoda undertakes no duty to amend, correct, update, or otherwise supplement the Information.
The Information has not been prepared or tailored to address, and may not be suitable or appropriate for the particular financial needs, circumstances or requirements of any person, and it should not be the basis for making any investment or transaction decision. The Information is not a recommendation to engage in any transaction. The digital asset industry is subject to a range of inherent risks, including but not limited to: price volatility, limited liquidity, limited and incomplete information regarding certain instruments, products, or digital assets, and a still emerging and evolving regulatory environment. The past performance of any instruments, products or digital assets addressed in the Information is not a guide to future performance, nor is it a reliable indicator of future results or performance.
Ooda Commodities, LLC is a member of NFA and is subject to NFA’s regulatory oversight and examinations. However, you should be aware that NFA does not have regulatory oversight authority over underlying or spot virtual currency products or transactions or virtual currency exchanges, custodians or markets.
BitOoda Technologies, LLC is a member of FINRA.
“BitOoda”, “BitOoda Difficulty”, “BitOoda Hash”, “BitOoda Compute”, and the BitOoda logo are trademarks of BitOoda Holdings, Inc.
Copyright 2022 BitOoda Holdings, Inc. All rights reserved. No part of this material may be reprinted, redistributed, or sold without prior written consent of BitOoda.
