How to Improve Cryptocurrency Transparency with Zero-Knowledge Proof?
The security of crypto assets has become a concern in the developing market. Blockchain network supports keeping the information confidential. However, it also promotes transparency. The combination of zk-SNARKs and Merkle trees can provide an effective solution to this issue.
In this guide article, we will learn about zero-knowledge proof and its need in the blockchain network. Moreover, readers will also learn how the combination of Merkle trees and zk-SNARK provides convenience to the user.
Understanding Zero-Knowledge Proof
The validity of one party, known as the verifier, is validated by another party, known as the prover, through the zero-knowledge proof. The situation resembles owning a locked box that can only be opened under specific conditions. However, there are some other people present to open it.
To make it a zero-knowledge-proof situation, you would not allow the other people to know the key to the lock of the box. They will not know the key, but you can assure them that you know it without revealing it.
Why is Zero-Knowledge Proof Needed?
The zero-knowledge proof keeps the privacy of a situation intact without revealing any credentials. It is helpful in conditions where people do not want to reveal their information to avoid exploitation.
Crypto trading allows users to own a private key without sharing it with anyone. In addition, the users may also be required to reveal their financial information keeping personal information intact.
Explaining Zero-Knowledge Proof Through Technical Terms
There are three requirements that the zero-knowledge proof should fulfil. They include:
Zero-knowledge: The verifier does not learn anything other than the statement being true if it is true.
Completeness: For a true statement, the verifier has to be convinced about its authenticity without using any proof.
Soundness: In case of a false statement, there is no need to prove it to the verifier by using proof.
Understanding zk-SNARK
The Zero-Knowledge Succinct Non-Interactive Argument of Knowledge is shortly known as zk-SNARK. The protocol strictly uses the zero-knowledge principles. It allows the users to prove that they know the actual hash value. It does not require the owners to owners to reveal their personal information and details.
Zk-SNARK is commonly used in the crypto world. However, the public and private keys may cause curiosity among the users. It helps falsify the data and create a backup for the customer balances.
Understanding Merkle Trees
Binance users must operate with large sums of data to sum up their funds. The large sum of data can be represented through a Merkle Tree that can store massive data amounts.
Merkle tree uses a hash function to encode the input. It utilizes a variable data set to create a fixed data output. An encrypted length of the output is created through an algorithm hash. Therefore, the output remains the same as the input is constant.
Every new transaction is added to the blockchain through a hash function that creates new values. Merkle trees help verify the data that has been manipulated at any time.
Combination of zk-SNARK and Merkle Trees
Users usually do not want to share the makeup of their reserves and balances due to privacy concerns. A zk-SNARK helps a crypto exchange contribute to a Merkle tree’s balance sets. Anyone can access the leaf node by being part of the process.
Binance generates a zk-SNARK proof to construct a Merkle tree according to the given instructions. In addition, it also helps in the execution of heavy computational calculations for the proof to undergo the constraints. Users ensure their balances participate in the Merkle tree to verify the Merkle proof.
Conclusion
Users can enjoy privacy and data integrity simultaneously through zk-SNARKs. Developers are expanding their applications to build confidence among customers. It provides transparency to the exchange platforms and assists in proving the reserves. The developers in the crypto industry have been looking forward to such developments for a long time.
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