How to Balance Privacy & Security: Zero-Knowledge Proof Might be the Solution
BSN LONG STORY SHORT SERIES #14
In this latest episode of the BSN’s Long Story Short Series, we focus on how a balance between security and privacy can be achieved through Zero-Knowledge Proofs (ZKPs). Privacy and data security are important individual rights in today’s data-driven society, therefore finding a means to gain the benefits of the data-driven economy without jeopardizing privacy and security is critical, and ZKPs are one such option. The panelists for today’s debate include Kyle Thomas, the founder and CEO of Baseline Protocol; Robert Viglione, the co-founder and CEO of Horizen Labs; and Yifan He, the founder and CEO of Red Date Technology. Ben Yorke of Cointelegraph facilitated the discussion.
To begin with, can you please explain ZKPs in simple terms and provide some examples or analogies?
Kyle: ZKPs are something like a poker game, like a Texas Hold’em game where a user doesn’t need share his/her cards ever. Synchronization of enterprise resource systems (ERPs) is an excellent use of ZKPs that Baseline Protocol focuses on.
Robert: ZKPs originate from coin transfer privacy, where ZKPs were first used in blockchain networks. To put it simply, it refers to preserving privacy while transferring value over the network. When a transaction is broadcast over the blockchain network, all the connected parties can see that a valid transaction has occurred. This is achieved through ZKP circuits, which enforce the rules, and consensus will confirm the validity of the transaction. Horizen Labs use this technology for enterprise use cases that solve business problems like digital invoicing. ZKPs help preserve the time series of an organization’s transactions with its vendors, data regarding payment of credit bills, etc., without disclosing the underlying data but still validating the transactions. Horizen Labs focuses on putting such transactions into blocks and then issuing certificates (that comprise proofs-Zero Knowledge Proofs) to each transaction.
Yifan: Like the blockchain, ZKPs are a new, fundamental technology and a more efficient way to communicate. It is simply accessing some information without revealing the underlying data, making it a much deeper way to communicate over the network.
What customer services do you provide? What do the use cases look like?
Kyle: Baseline Protocol aims at transforming opportunities for ecosystem operators like CONA (Coke One North America), an IT service provider for Coke, which delivers a standardized set of procedures, production, data standards, and customer solutions to Coke’s partner bottlers. Baseline Protocol opens an inclusive Network for Coca-Cola Bottling suppliers to aggregate all payment collection processes into one with fidelity and efficiency under ZKP.
Robert: Horizen Labs offers Zero-Knowledge circuit building services that enable blockchain infrastructures, a set of tools and protocols for scaling blockchain infrastructure for enterprises.
Yifan: Considering the new data security law to be effective from September 1, 2021, in China, protecting users’ data lies at the heart of using ZKPs at BSN. In the meanwhile, BSN is finding ways to apply ZKPs in the New Cross-Border Trader Network.
When you are dealing with Enterprise, do you think ZKP is a complete necessity or just a nice luxury? In terms of anonymous privacy of data, is ZKP the final solution?
Kyle: It is an absolute requirement to preserve sensitive transaction data between parties. Also, from a financial, scalability, and technological standpoint, it is important to have for enterprises.
Robert: It is critical to scale blockchain at this point. DeFi and Non-fungible Tokens (NFTs) are popular projects to promote mass adoption of blockchain in the crypto world. Outside the crypto world, ZKP is the direction to scale blockchain because it is essential to data security, which is gaining unprecedented attention in numerus countries and enterprises.
Are there any constraints to adopting this technology?
Robert: Cryptography is a specialized niche, so the biggest problem is lack of talents. The best way is if the world realizes that ZKPs are the best way to deal with privacy and security-related concerns, and then there will be a lot of talents and specialists coming in to work together in this area.
Yifan: Blockchain is a new technology and remains half-understood to most people. However, it will become a common technology in the future, whereas ZKPs require specialized individuals and communities to develop ZKP-based solutions as universal as possible, so that other people can simply plug-in.
Kyle: There are so many trade-offs to build in, like the decisions to make around the technology itself. It is very niche right now, that why it is so exciting to build tools around it to enabling the new paradigm.
Imagine people finally accepting blockchain technology and ready to put it into action, and then you suddenly try to explain ZKP, is it another barrier you are going through or are people now more aware of the technology?
Yifan: For blockchain technology, most people have no idea how to use it without cryptocurrencies. This makes it hard to explain its use without cryptocurrencies. With ZKPs, it is easy to explain why they need it, and they do understand this, but no one understands how to achieve it.
Kyle: As service providers, organizations like Baseline Protocol can help businesses understand the use of ZKPs and help them implement it correctly.
Robert: Product managers are the best people to explain ZKPs to the clients, telling them the benefits, features, etc. It is a black box for verifying something over the network, which needs to be clarified to the clients.
Where are we in the ZKP roll-up development phase, is it something we can see now in the real business world or is it something more theoretical at this point?
Kyle: ZKP technology is at the production phase. Collaborated with some big companies, we have worked hard to standardize the actions in the APIs- even developers can leverage the APIs for the development of ZKP-based solutions.
Robert: ZKP is now production-ready. Horizen is more of a testnet as the organization writes specific circuits to solve a particular business problem. The next step is to make the dynamic circuits so that developers have the flexibility to create dynamic structures (other than SNARKs).
Yifan: BSN is testing privacy computing technology using our partner’s solution. Privacy computing technology is a complicated technology: ZKP is the start, and there are many other scenarios, so we have a long way to go.
How many people are working on this right now? What is the talent pool that is driving this now?
Kyle: Ethereum community and Zcash are leading the way towards ZKPs.
Robert: There are exciting podcasts on ZKPs. A small number of DeFi experts, cryptographic engineers can use ZKPs. Universities have ZKPs experts that are funded to research this technology.
Yifan: Research about ZKPs in China is rare, but there are various use cases based on open-source component involved privacy computing technology. However, most people in China do not realize the importance of ZKP technology.
How important is the social side of ZKP? Where do you see this going from a social side?
Kyle: ZKPs are used to scale sovereign identity.
Robert: For decades, companies have made money by collecting user information and play around it. Rather than the governments and big companies controlling all the data, ZKP centralizes that and gives individual the rights to retain own data. The decentralized ownership will unlock interesting socio-economics that everyone can participate and create value by own information.
Yifan: CBDCs and ZKPs are two major things now because they make people more powerful. Central Bank Digital Currencies (CBDCs) gives back individuals the power to control own money, and ZKPs gives individuals right to control own data.
How do you structure your companies to have unique selling points?
Kyle: Organizations need support as they are not equipped to build solutions themselves, which requires a lot of integration, and Baseline Protocol is automating this process.
Robert: Horizen Labs follows a blue-ocean strategy and is focused on building architecture using ZKPs.
Do you find yourselves following the decentralized space (like Ethereum)?
Robert: It is still early for us to make the conclusion between decentralized vs. centralized systems because the industry is not mature. There are many trade-offs between them that we should understand. Consensus needs to be achieved to add more stakeholders to the DeFi space. Other than Ethereum, Zcash focuses on preserving user privacy.
Kyle: Baseline Protocol is moving quite quickly with ZKPs in the DeFi space.
Yifan: ZKPs and privacy computing technology will be used widely in almost all IT Systems, not only for the crypto world; that’s what companies need to understand, or else it is not possible to scale this technology.
