Highlighting Recent Notable Advancements Concerning Zero-knowledge Proofs

Following the publication of an in-depth research report concerning the field of Zero-Knowledge Proofs (ZKPs), Smith + Crown has been keenly tracking research breakthroughs and major implementation releases related to these proof systems in their application to scaling and privacy issues that have hereto troubled base layer blockchain networks. As previously discussed, ZKPs provide the ability to succinctly prove arbitrary statements about large data sets without revealing any information beyond the proof itself. These two properties make ZKPs well-suited to processing large amounts of transactions or smart contract executions off-chain, in a private manner, all while maintaining a small on-chain footprint, thus minimizing utilized block space and network fees.

With the recent growth of the DeFi sector, resulting in extreme congestion on Ethereum, effective off-chain scaling systems are facing sharply increased attention. While designs such as Plasma and, more recently, Optimistic Rollups have received much scrutiny for their theoretical performance, ZKP-based systems are largely superior with regard to the balance of privacy, security, and performance that they offer. Despite scaling being the most prescient concern in the Ethereum ecosystem, robust privacy solutions are also needed if DeFi, Web3, and other movements are to extend beyond crypto-native usage—a property for which ZKPs offer extensive guarantees while not necessarily compromising the auditability and trustlessness that public networks derive much of their value from.

While much research progress was made in prior years, and some projects such as Zcash and Monero successfully implemented limited versions of ZKP-based technology, 2020 has been set apart both by an exponential increase in research breakthroughs as well as projects bringing their implementations to market. Some notable examples that Smith + Crown has been tracking over the past months include:

  • zkSync from Matter Labs is a ZK-SNARK-based rollup construction for off-chain scaling that was released in June, running at up to 300 transactions per second (TPS). A subsequent release, however, designed for the Reddit Scaling Bake-Off competition, leverages recursion, whereby one proof is bundled inside another proof, to operate at up to 3,000 TPS on Ethereum; albeit without any privacy guarantees. While zkSync, for now, uses Aztec Protocol’s PLONK proof that relies on a trusted setup, the project is seeking to integrate its new transparent proof, RedShift, in a future release. Matter Labs has also released a proposed new conceptual architecture, zkPorter that combines its rollup construction with sharding, thereby aiming to improve scaling by 1-2 orders of magnitude, at up to 300,000 TPS.
  • ZK² Rollup from Aztec Protocol and deployed in their zkReddit design uses ZK-SNARKs recursively, with the view to balancing robust privacy and off-chain scaling simultaneously. While the current design only supports private transaction amounts and user identities while being limited in its throughput at 3.2 TPS; a planned upgrade due in February 2021 is expected to increase performance to 100 TPS with contract logic privacy also slated for a future update.
  • Zkopru combines ZK-SNARKs with Optimistic Rollups to provide private off-chain transactions, with each transaction costing 8,800 gas and the ability to operate at 105 transactions per second. The implementation is currently running on Ethereum’s Goerli testnet and supports ETH as well as ERC20 and ERC721 tokens.
  • Hermez from the decentralized identity project Iden3 promises to bring both scaling and privacy to identity systems built on Ethereum, with the view to furthering the realization of the Web3 paradigm, powered by low-cost, private, verifiable identity solutions on public networks. The new release, for now, focuses just on scaling, leveraging ZK-SNARKs to operate at up to 2,000 transactions per second, having been released on the Goerli testnet with the view to launching on mainnet in Q4 this year.
  • Bulletproofs+, an improved proof construction for range proofs, published in June, significantly reduces the proof size used in Bulletproof constructions as deployed in Monero, Grin, Beam and soon Litecoin, following its integration of the MimbleWimble protocol. Suyash Bagad, a cryptography researcher, found that the new proof design would decrease proof generation times by 20% and 21% on Grin and Monero respectively while also reducing verification times by 16% and 17%.

While the industry turns its attention to the growth of DeFi and investable opportunities by way of equity and tokens, the rapid iterations occurring within the ZKP space are, in Smith + Crown’s opinion, going largely unnoticed. Not only do these ongoing improvements help to address fundamental scaling and privacy issues that have hereto limited the industry’s growth in its attempt to onboard new users, but the large scaling improvements enabled by these proof systems could plausibly solve the chronic congestion issues that are now besetting DeFi as well as the broader Ethereum ecosystem.

Arguably, the recent network congestion has catalyzed iteration in the ZKP space and the layer two scaling sector more broadly as there is an increasing market demand for off-chain scaling solutions. Furthermore, the recently announced Scaling Bake-Off competition announced by Reddit has compounded the rate of progress by presenting the chance for projects to potentially service Reddit’s 430 million monthly active users.

As these projects come to market, it is worth noting the monetization choices that such teams are making. While tokens can play effective roles in layer two systems, especially as a Sybil attack prevention mechanism, many ZKP-focused teams have chosen to fundraise purely via equity rounds to-date, such as Starkware ($36 million) and Aztec Protocol ($2.1 million), while others such as Matter Labs are yet to commit one way or another on a possible token role. Given that these systems will be the most end-user-facing layer in the blockchain scaling stack, introducing payment or gas-like tokens can present significant user experience issues. In these cases, it can be preferable to abstract tokens from end-users and instead introduce them to specialized stakeholders, such as off-chain validators.