What is Zero-Knowledge Proof?
Zero-knowledge proof, or ZKP, is a technology that enables you to prove to someone or the public that you know a certain piece of information without revealing what that information is. Does it sound impossible? Yet, this exciting technology is being implemented in blockchain as you read this.
In crypto, ZKP is mostly used in privacy coins and Layer 2 rollups, but there are some other applications as well.
Read on to learn what ZKP is and how it can transform crypto.
Key Takeaways
Introduction to Zero-Knowledge Proofs
Zero-knowledge proof is a cryptographic method that enhances privacy. In crypto, cryptography plays an essential role due to the decentralized nature of blockchains. Public chains operate without any centralized authorities, and cryptographic methods – along with game theory approaches – are the only way to ensure trustless systems that offer data security and discourage malicious behavior.
Even in traditional systems with centralized oversight, cryptography is needed to secure the digital transfer of information and value. From messaging apps to blockchain networks, cryptographic techniques like encryption, hashing, and digital signatures play a key role in preventing unauthorized access to sensitive data.
One of the recent advancements in cryptography is the zero knowledge proof, a method that lets one party prove to another that a statement is true without revealing any details about why it’s true.
For example, you may use this technology to prove that you are over 18 years old without revealing your age.
While this sounds counterintuitive, this cryptographic technique has been proven effective and applied with great success. Experts anticipate that ZKP will play a major role in crypto. For example, Ethereum co-founder Vitalik Buterin expects zero knowledge rollups to take over optimistic rollups within the next decade and have a great impact on the Ethereum ecosystem.
Brief History of Zero-Knowledge Proofs
Encryption techniques have been used since ancient times, hashing was conceptualized in the 1950s, but ZKP was introduced only in 1985 by Shafi Goldwasser, Silvio Micali, and Charles Rackoff.
The trio from the renowned Massachusetts Institute of Technology (MIT) released a research paper titled “The Knowledge Complexity of Interactive Proof Systems,” demonstrating that ZKPs can convey no additional knowledge other than the correctness of the statement in question.
Ironically, the paper was initially rejected when it was submitted to a major conference. Back then, the IEEE Symposium on Foundations of Computer Science (FOCS), which gathers the brightest minds, found that proving something without revealing why it’s true was too strange and not useful. They rejected the paper three times before it was finally published in 1985.
Fast forward three decades, and two of the authors – MIT professors Shafi Goldwasser and Silvio Micali – were awarded the A.M. Turing Award – the Oscar of computer science – in 2013. The award recognized their pioneering work in cryptography, and that paper made a significant contribution.
Since then, several research papers shaped ZKPs, and Micali, who founded the public blockchain Algorand, has authored a few of them.
Today, ZKPs are successfully applied in blockchain and tested in other computer science fields.
How Zero-Knowledge Proofs Work
In a classic ZKP setup, one person (the prover) tries to convince another (the verifier) that something is true without revealing why or how they know it. The prover performs a series of actions demonstrating that they are not guessing but actually know the results of these actions.
In this scenario, ZKPs are interactive because they involve a prover and a specific verifier communicating with each other. The prover has to repeat the process for each verifier individually. On the other hand, there are non-interactive ZKPs, which allow a prover to generate a single proof that anyone can verify using a standard method.
Irrespective of the type, ZKPs follow three basic principles:
- Completeness: If the statement is true, an honest verifier will be convinced by an honest prover.
- Soundness: If the statement is false, a dishonest prover can’t trick the verifier.
- Zero Knowledge: No information is revealed beyond the fact that the statement is true.
Zero-Knowledge Proof Examples
Let’s look at some zero-knowledge proof examples that show how this works.
We’ll start with some interactive ZKPs since they’re at the origin of this technique.
Check this “find the odd one out” puzzle depicting hamster emojis – one of them is different, but for the sake of the example, you can’t figure out which one.
With the ZKP protocol, I can prove to you that I know which hamster is different without revealing its position in the image because I want to keep it a secret. How can I do that?
I would take a black poster much larger than the image itself, and cut a small hole. Then I show you the poster placed over the image, revealing only the odd hamster. In this way, you’re convinced I know where it is, but you can’t tell its relative position in the overall picture.
Let’s take another example. Imagine you have a color-blind friend who can’t distinguish green from red. You want to prove that two cards—one colored red and the other green—are indeed different without revealing which is which.
Your friend (the verifier) takes the cards, and after you take note of which card is in which hand, he puts them behind his back and chooses to either switch them or not. Then, after showing the cards again, you can easily tell if he switched or not, as you can differentiate the colors.
If your friend is suspicious, he can repeat this process many times. If he did this only once, you’d have a 50% chance to correctly guess his action in case you were color-blind as well. When repeating the experiment by randomly choosing to switch or not, your friend reduces your chances of guessing correctly. After 10 rounds, the probability of guessing all actions drops to 0.09%, and your friend is likely convinced that you can’t be that lucky and you really know the difference.
In fact, while it’s called zero-knowledge proof, the probability of chance is never exactly zero, but it is small enough to make this technology robust.
Types of Zero-Knowledge Proofs
There are several types of zero knowledge proofs, depending on the parties involved, proving time, verification time, and other factors.
Let’s explore some of the most popular types, and we’ll start with interactive and non-interactive ZKPs.
Interactive Zero-Knowledge Proofs
Interactive ZKPs require back-and-forth communication between the prover and the verifier. The former performs challenges to convince the verifier they have the right knowledge – without revealing what the information is about.
The last example falls under this category, as it involves two parties interacting with each other.
Another classic illustration is the Ali Baba cave analogy. Imagine a ring-shaped cave with a single entry and a locked door on the opposite side. Alice claims to know the door’s password but doesn’t want to reveal it. To prove this, she enters the cave through one path – left or right. Meanwhile, Bob (the verifier) stands outside and randomly asks Alice to exit through a specific path.
If Alice knows the password, she can easily exit through either side. After multiple rounds, Bob can get convinced about her knowledge without learning the password.
As you can see, interactive ZKPs involve active communication. This type of ZKP can be used in secure authentication systems, but it’s not common in blockchains.
Non-Interactive Zero-Knowledge Proofs
Non-interactive ZKPs eliminate the need for live communication between a prover and a verifier. This type of ZKP enables the prover to create a single cryptographic proof that anyone can verify at any time, even if the prover is offline.
By removing the need for live interactions, non-interactive ZKPs are more scalable and practical for blockchain systems. They’re useful in identity systems, where access can be obtained by proving certain conditions are met, all while preserving privacy.
These non-interactive ZKP versions are the foundation of zk-SNARKs and zk-STARKs, which are widely used in blockchain.
zk-SNARKs and zk-STARKs
Two popular ZKP categories used in crypto are zk-SNARKs and zk-STARKs.
Let’s see how they work.
zk-SNARKs (Zero-Knowledge Succinct Non-Interactive Argument of Knowledge)
zk-SNARKs enable participants to prove that they know a piece of information without revealing the information itself. They are “succinct,” given their small proof size, which allows for quick verification.
Most SNARKs represent elliptic curves – a type of equation used in cryptography, and a trusted setup to generate parameters for them.
These ZKPs are common on Ethereum, being used in smart contracts that preserve user privacy. They are also used by privacy coins like ZCash to prove the validity of shielded transactions, hiding details like the sender and receiver addresses, among others.
Pros Cons
zk-STARKs (Zero-Knowledge Scalable Transparent Argument of Knowledge)
Another type of non-interactive ZKP is the STARK, an evolution of zk-SNARKs. Here, the ‘S’ stands for ‘scalable’ instead of ‘succinct,’ reflecting the ability to handle large computations.
To ensure a higher degree of transparency and security, zk-STARKs eliminate the need for a trusted setup.
However, one major trade-off is that the proof sizes are way larger compared to zk-SNARKs, leading to higher gas fees.
zk-STARKs are used in applications that require both privacy and large-scale computation, such as complex decentralized applications (dApps). A popular example is StarkNet, which uses zk-STARKs to scale Ethereum and Bitcoin.
Pros Cons
To recap, here is a comparison between the two:
How Are Zero-Knowledge Proofs Used in Crypto?
For decades, ZKPs remained a theoretical concept, waiting for their moment to shine — and the crypto market provided the ideal ground for their realization. Previously, ZKPs had some niche use cases, but the emergence of blockchain took them to another level thanks to the high demand for on-chain privacy and scalability.
Let’s explore the main zero knowledge-proof applications in crypto:
Privacy in Blockchain and Cryptocurrencies
When Bitcoin came out in 2009, it was promoted as a peer-to-peer money system built around security and privacy. However, the truth is that its blockchain permanently records all transactions. And, while the addresses consist of random numbers and letters, governments and crypto analytics firms are now able to link them to real individuals and organizations. This is especially due to the emergence of centralized crypto platforms, which are required to impose KYC (Know Your Customer) policies.
ZKPs can be used to build blockchains where transactions are validated without revealing the sender, receiver, or the amount transferred. Such a network would still check whether no one is double-spending, but without showing who’s doing what.
This type of cryptocurrency is known as privacy coins, and ZCash is one of the most popular examples. It uses zk-SNARKs for its shielded transactions, allowing users to send funds while keeping transaction details hidden.
Privacy coins have powerful implications, but regulators are chasing them. In 2024, Binance was forced to delist a few privacy coins in certain jurisdictions and even considered removing them altogether.
Layer 2 Scaling
ZKPs are expanding their presence in the Layer 2 (L2) ecosystem, helping smart contract chains like Ethereum scale while offering an extra layer of privacy. Crypto rollups offer a cheaper and more efficient way for dApps to operate on-chain.
Zero-knowledge (ZK) rollups have emerged as an alternative to optimistic rollups, which currently account for 80% of the L2 market. While both solutions bundle Ethereum transactions outside the mainnet to reduce the on-chain burden, their methods differ:
- Optimistic rollups assume all pending transactions are valid unless challenged within a week, delaying finality and withdrawal times.
- ZK rollups verify all transactions upfront, generating a single ZK proof for each transaction batch and sending it on-chain.
zkSync Era and StarkNet are popular Ethereum L2 chains that use ZK rollups to handle transactions at higher speeds and lower costs. The former uses SNARKs, and the latter implements STARKs.
L2Beat data shows that the total value locked (TVL) in ZK rollups is nearly $2 billion, which is a small fraction of the total $26 billion worth of assets across all rollups.
2025 has been a difficult year for ZK rollups, as their TVL in decentralized finance (DeFi) has plunged, but Vitalik Buterin expects them to dominate the L2 space in the future.
Secure Authentication Without Passwords
In crypto, authentication is essential, as the Web3 market envisions a decentralized, trustless ecosystem where no single entity holds authority over peers. To access dApps and other Web3 services, users have to authenticate through their wallets or other credentials.
ZKPs can streamline this process by enabling users to log in to a platform without entering passwords. Instead of inserting a password, you could prove that you know the password by generating a ZKP based on it.
This would reduce the risk of password theft and human error during login.
Identity Verification and KYC Compliance
ZKPs can go beyond authentication and transform ID verification. In crypto, regulatory compliance – such as KYC and AML (Anti-Money Laundering) – is often in conflict with user privacy.
Traditional ID verification methods require users to share sensitive documents, making it vulnerable to leaks. In 2021, Facebook (now Meta) experienced a data breach that affected over 500 million users.
To avoid such data disasters, ZKPs can power systems that allow users to prove specific facts about themselves (18+ age or country of residence) without revealing further details, such as birthdates or addresses.
Such a system would enable users to pass through KYC verification without sharing any ID documents.
Some blockchain ID projects—like Polygon-backed Privado ID and zkPass—are already using ZKPs to enable selective disclosure of credentials for compliance. They focus on interoperability, enabling users to share credentials across multiple crypto platforms.
Privado uses multiple verification requirements before validating a credential, ensuring the truth and validity of user data while keeping it private.
Data Sharing and Confidential Transactions
ZKPs can be valuable for companies that need to share sensitive data securely.
For example, a crypto company may need to share data with a regulator, auditor, or analysis firm. With ZKPs, it can prove that data meets certain criteria (e.g., wallet balances are below or above certain thresholds) without revealing additional details.
This can be extended to supply chain data, insurance, healthcare, and other enterprise use cases.
ZKPs ensure the confidentiality of data while maintaining the integrity of claims.
Cybersecurity and Access Control
ZKPs can be integrated by crypto platforms, banks, and other entities to enhance their cybersecurity practices.
For example, zero-knowledge tech can power multi-factor authentication and advanced access control.
Keyless, a company offering secure authentication systems, created Zero-Knowledge Biometrics (ZKB) – a patented system that uses Multi-Party Computation to enable biometric authentication without storing data anywhere, neither on the device nor on the cloud.
Such systems can be useful for dApp features access, KYC-compliant onboarding, and multi-factor authentication, among others.
Advantages and Limitations of Zero-Knowledge Proofs
ZKPs have great benefits, but they also face several challenges.
Let’s start by listing the reasons why ZKPs are powerful:
Key limitations include:
Future of Zero-Knowledge Proofs
During the past few years, ZKPs have rapidly grown from theoretical cryptography to one of the most promising Web3 trends. Decentralized systems will require zero knowledge for various solutions to improve privacy, user experience, and scaling.
Projects like zkSync, StarkNet, and Privado are already demonstrating how ZKPs can power more efficient and private dApps.
The increasing demand for data security, regulatory compliance, digital ID verification, and blockchain scaling will prompt developers to improve ZKP integration and experience, reducing complexity and creating conditions for standardization. This will further accelerate the adoption of ZKPs across blockchains and centralized platforms.
At the beginning of 2025, Vitalik Buterin stressed that Ethereum would continue to rely on L2s for its scaling needs instead of boosting its Layer 1 capability, and, as mentioned earlier, he favors ZK rollups over optimistic rollups. Ethereum and other smart contract chains represent big markets where ZKPs will expand and improve in the coming years.
Meanwhile, researchers are exploring quantum-resistant ZKP methods, ensuring the technology remains secure when quantum computers become widely adopted.
As ZKPs mature, they may play a key role in Web3 infrastructure development, enabling secure authentication, confidential smart contracts, and scalable decentralized systems.
Frequently Asked Questions (FAQs)
What is a Zero-Knowledge Proof in simple terms?
How does a Zero-Knowledge Proof ensure security?
What is the difference between zk-SNARKs and zk-STARKs?
Can Zero-Knowledge Proofs be used outside of blockchain technology?
Are Zero-Knowledge Proofs completely foolproof?
What are some real-world examples of Zero-Knowledge Proofs?
How do Zero-Knowledge Proofs improve privacy in cryptocurrencies?
How do Zero-Knowledge Proofs impact data privacy regulations?
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