A closer look: I spy ZKPs with my little EY

Read the full weekly recap here.

“The only way that blockchains deliver upon their true promise to the world is if public blockchain networks are the preferred path for enterprises and investors.” — Paul Brody, EY Global Innovation Leader

This week, Ernst and Young (EY) announced that it will deploy it’s zero knowledge proof technology (dubbed Nightfall protocol) on the public Ethereum blockchain as soon as May 2019. EY intends to make it easy for businesses and corporate clients to protect sensitive and competitive information and also take advantage of public blockchains. EY first announced this project during Devcon in October 2018. Nightfall solutions will run on Microsoft Azure’s cloud environment and be integrated with SAP’s enterprise software. The technology will support ERC-20 and ERC-721 token standards. Potential use cases include supply chain, food tracking, public finance, and transactions between banks and bank branches.

With zero knowledge proofs (ZKPs), organizations can transact privately on the same network without giving up the security and distributed nature of the public Ethereum blockchain. From our primer on privacy coins, “ZKPs prevent anyone attempting to analyze their blockchains from making any sense out of what they’re looking at. ZKPs enable all of the benefits of public blockchains like Bitcoin without the downsides of leaving behind digital clues that can be analyzed by third parties. The result is the ability to transact with complete privacy, inscrutable to the outside world.” When used in the context of businesses, only parties that are authorized to view the transaction data — such as business partners, regulators, and auditors — will be able to see it.

EY’s open source public blockchain approach is different from the private blockchain approach most enterprises have taken thus far, where privacy is enabled through permissioning. If participation is permissioned, access to the network is restricted to participants that are selected ahead of time. The case for using such networks is that they are more private (against non-members) and more scalable (though this is changing). A key criticism against permissioned networks is that they are not censorship resistant — a single entity or group of entities has control over the network. In addition, there are multiple companies and consortiums building their own permissioned blockchains, which creates silos. Paul Brody highlights the challenges as follows, “the biggest challenge for enterprises’ blockchain adoption is the ability to on-board business partners into their private or consortium blockchain network.” Further, while sensitive data is shielded from external parties, it might still be visible to members of the permissioned network. This brings us to zero knowledge proofs.

There have been prior announcements about enterprise use of zero knowledge proofs. One example is ING Bank’s recent announcement that it is exploring the use of bulletproofs (which provide efficiency gains over ZKPs and zero knowledge range proofs*) in permissioned enterprise blockchains. Separately, JP Morgan announcedearlier this year that it is exploring the use of AZTEC protocol’s zero-knowledge proof technology in conjunction with Quorum (JP Morgan’s private version of the Ethereum blockchain). AZTEC allows users to take assets that have been restricted to a private blockchain and issue and trade those assets on a public blockchain like Ethereum, while providing the same privacy and execution guarantees. This is an unusual partnership because, to date, JP Morgan has been focused on operating a gated blockchain ecosystem.

EY is also unique in its approach to the intellectual property it’s developed with this technology. Paul Brody says, “The gold standard in security is only achieved with the kind of intense review and testing that comes with public domain releases.” Not only did EY open-source the technology, it put it in the “public domain” without license, meaning it won’t be subject to copyright. However, Preston Byrne warns that this could create a lack of clarity in the event of copyright issues.

Paul Brody mentioned that “this is a million dollars worth of stuff [they’re] giving away.” Why is that? In her thread on the news, Maya Zehavi highlights that “having a ZKP based standard positions them to be the leading firm auditing the enterprise implementations for ZKPs” and allows them to create a new revenue stream.

This is a big win for the crypto community, as it is one of the first times major incumbents are betting on public blockchain technology. This initiative could help skeptics begin to see the power of public blockchain technology complemented by additional privacy enhancing cryptographic primitives.

For a thorough look into the world of zero knowledge proofs, we also recommend this Thematic Insights piece by Delphi Digital.

*Zero knowledge range proofs prove that a number lies within a certain range without revealing that number.

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