ZK-Starks or Zero Knowledge Scalable Transparent Argument of Knowledge is the latest innovation to financial privacy on the blockchain with the use of fast, scalable computations.
The creation of Bitcoin introduced a new secure means to transfer monetary value WITHOUT the need for a trusted third party, however, this has come at the cost of financial privacy with every transaction on the blockchain being recorded and made public to all.
The value of privacy extends beyond just finances and goes into the realms of health, politics, religion and one’s own personal opinions.
If you were robbed and your wallet address was made public due to carelessness. This one mistake could haunt you forever, because the public would be able to trace the movement of your assets as well as monitor your net worth in cryptocurrency, making you at risk of being attacked again (physically and digitally).
Currently cryptocurrencies primarily handle financial transactions that are financial in nature, such as the transfer of value on Bitcoin’s network, or to settle “smart contracts” on Ethereum.
The lack of privacy surrounding crypto transactions is a barrier to the wider spread adoption of cryptocurrencies and arguably hinders this revolutionary innovation from reaching its full potential.
If sensitive data (which makes up the majority of data in today’s age) is to be stored on blockchains, this data will need to adhere to privacy standards from around the world.
Thanks to Starkware Industries and their development of zk-STARKS technology, a newer, more transparent and sexier Zero-Knowledge Proof, the issue of maintaining privacy whilst also providing scalability for blockchains is coming.
Life is a journey of never-ending problems, hopefully most of us overcome the problems we face, and as we do, it’s only a matter of time before another problem is bestowed upon us.
Well when it comes to crypto there no exceptions to a never-ending stream of problems!
The introduction of Bitcoin provided a solution to transferring monetary value on a global scale WITHOUT the need for a trusted third party, however born out of this solution comes a new problem:
Because the Bitcoin network is a peer to peer network, in order to prevent double spend attacks and fraudulent transactions from being made the solution involved making sure everyone has access to the current state of the public ledger.
This essentially means that EVERYONE can publicly access a record of ALL the transactions that have ever been made on the network including the total amount of Bitcoins each bitcoin wallet holds.
The transactions and wallets are pseudonymous by nature — meaning you can’t decipher who owns the wallet and who’s ultimately making or receiving the transactions, all you know is that a transaction has been made from one wallet address to another.
(There are however groups that track the transactions of the largest percentage holders of a coin so even if they may not know exactly who owns the wallet, with enough observations, there may be a chance to narrow the owner of the wallet down to a few individuals — for example the following site that tracks the activity of the Mt. Gox cold wallets.)
When you transact with someone on crypto however, this destroys any element of pseudonymity thus revealing a part of your identity and losing all sense of financial privacy.
Anyone you transact with can deduce that you are the likely owner of the wallet you are sending or receiving cryptocurrencies from and because of the open transparent nature of blockchain, they can easily snoop around and see how much crypto you own, who else you’re transacting with, and where you’re sending your crypto. This is especially true for the ethereum blockchain and the ERC-20 tokens that reside within.
This would be like having an acquaintance, neighbor, family member or friend sending you money into your bank account, the only difference here is that if they want to, they can then see who has sent you money, or who you’ve sent money to and all of the previous transactions you’ve made, and how much crypto you own!
This lack of financial privacy would make many people uneasy and on the extreme end it could put people at risk of being targeted for kidnapping and ransoms.
So The Big Problem We Now Face Is…
How can we enable privacy on blockchains whilst still ensuring transactions are valid and that the underlying code maintains its “integrity”?
In other words, how do we accomplish what is known as “Computational Integrity” whilst still maintaining privacy?
We can check EVERY transaction that has ever been made since the dawn of the first genesis block, and because of this we trust that the network is sound and that no one has been secretly printing cryptocurrencies out of thin air or cheating the system in another way thus ruining the integrity of the network.
But if we introduce privacy into blockchains can we still trust that everything is working properly?
The Story of Mr. MoonBag..
Mr. MoonBag made millions investing in cryptocurrencies and has decided to spend some of his newfound wealth on a Lamborghini. Ever since attending Consensus back in 2016 his dream goal was to rock up at a crypto event one day in his own Lamborghini.
After calling up the local Lamborghini dealership to ask whether he could have a test drive before pulling the trigger the dealer scoffed at his request remarking that;
“We don’t provide free joy rides around here, only serious buyers are allowed test drives. If you can prove you’re a serious buyer feel free to come in.”
The salesman informed Mr. MoonBag he would need to supply proof of sufficient funds or pass a credit check in order to be considered a serious buyer.
Mr. MoonBag knew that showing his Delta portfolio wouldn’t be enough for proof. He’d need to show the salesman his crypto wallets, prove that he owned them and that he had enough crypto to finalize the purchase.
The only issue was that Mr. MoonBag was paranoid about others knowing about his newfound wealth… (Yes, this is highly ironic as he is purchasing a Lamborghini but this is a fictional story so just play along okay!)
So how could Mr. MoonBag possibly prove to the salesman that he has enough cryptocurrencies to purchase a brand-spanking new Galardo without compromising his financial privacy?
After hearing countless stories of people making millions in crypto becoming targets for hackers, scammers, and criminals, Mr. MoonBags would much rather be safe than sorry…
Current Solutions to Financial Privacy
Before we continue with Mr. MoonBags Lamborghini adventures, let’s briefly cover some solutions currently enabling financial privacy on blockchains.
The general consensus seems to be that Monero is the superior alternative when it comes to ensuring privacy, however, faces its own challenges with scalability and usability of the token.
ZCash is often touted as the most technologically advanced privacy coin, however it also comes with a few issues of its own, particularly:
- The technology behind the privacy features of ZCash are NOT resistant to Quantum Computing; and
- ZCash requires a “trusted” setup for its privacy features defeating the purpose of blockchains not requiring a trusted third party to handle transactions
1. QUANTUM COMPUTING
Quantum computers can be thought of as highly supercharged computers — a Super Saiyan version of normal computers if you will.
Currently quantum computers are still in a stage of infancy and are yet to be developed.
In the future however it is expected that quantum computers will be able to perform computations at exponentially greater rates than what is currently possible and this might allow them to solve problems that are currently deemed unsolvable.
What this means is that when quantum computers come about, the underlying technology known as zk-SNARKs ensuring privacy for ZCash might be cracked, rendering the ‘privacy’ of transactions made on ZCash useless.
2. “TRUSTED” SETUP OF ZCASH (ZK-SNARKS)
zk-SNARKs, which is a type of “Zero Knowledge Proof” (more on this later when we get back to Mr. MoonBags!), powers the privacy for ZCash and because of how it works, it requires a setup phase specifying the public parameters for the zero knowledge proofs.
The only issue with this setup phase is that if the setup is compromised than it is possible for whoever has compromised it to be able to forge ZCash out of thin air…
Obviously this would not be good if it occurred as it would ruin the integrity of ZCash!
The real problem here is that Bitcoin was created so that there would be no requirement for a trusted third party, however in ZCash’s case there is a trusted third party.
The trusted third party being the six people who performed the initial setup phase. So in order for the public to have trust in ZCash’s network, they need to trust that these six people did not compromise the setup so that they are able to magically print ZCash out of thin air without anyone knowing!
Back to Mr. MoonBag…
To quickly recap on Mr. MoonBag’s dilemma he wants to purchase a Lamborghini with his new crypto wealth however needs to show the salesman that he’s a serious buyer by proving that he has sufficient funds.
The issue here being that Mr. MoonBag wants to preserve his financial privacy and doesn’t want the salesman or any of the other workers there knowing how much crypto he owns, what the address of his wallets are, or even who he’s been transacting with.
This is where “Zero Knowledge Proofs” come into play!
Using a “zero knowledge proof”, it’s possible for Mr. MoonBag to prove to the Lamborghini salesman that he owns at least $500,000 USD worth of cryptocurrencies (more than enough for a Lamborghini) however he is able to prove this WITHOUT revealing any further details such as the address of his wallets, how much crypto he owns in total and other private matters.
One of the most widely used zero knowledge proofs in cryptocurrencies today is that of zk-SNARKs which is used by ZCash but as you may recall, there are a few problems with ZCash and that’s where the newer, better and more improved version by Starkware comes into town…
Building on top of zk-SNARKs comes zk-STARKs, which is:
- Scalable with faster proofs for generation and verification
- Transparent: so that NO external “trusted” setup phase is required like in zk-SNARKs
- ARgument of Knowledge — proves that the correct inputs and data has been used to calculate the output. (So in the case of Mr. MoonBag the proof will show that he has used his own crypto wallet addresses, and not someone elses, to prove he owns at least $500,000 USD, which is the output)
- Post-quantum secure — the assumptions on which the privacy features for zk-STARKs are based upon are not known to be susceptible to attacks by large-scale quantum computers.
Main Features — Tech Overview
As mentioned earlier, Starkware will be building on top of the existing zk-SNARKs protocol, adding transparency to now become zk-STARKs
An implementation of zk-Starks will provide for a highly scalable, faster computation and smaller proofs. This combination of features combined with “immunity” from large-scale quantum computers should drive a high-level of interest from the cryptocurrency world and beyond.
To give you an idea of how this would likely stack up compared to the top privacy coins in the marketplace today we have provided this table below:
Privacy Coin Comparison
As you can see from the table above, a coin with the characteristics of the ZkStarks protocol would be the most advanced coin in the market.
Roadmap has not been published.
Starkware are currently not planning an ICO and have announced that they will be exploring the potential of Tech4Tokens (T4T) where they invest their technology in exchange for tokens, hence becoming a “Venture Technologist” or “Tech Crypto Fund”.
List of potential issues that the token/protocol/project will face or has possibly overlooked.
- In comparison to zk-SNARks, the size of a proof in zk-STARKs increases from 288 bytes to a few hundred kilobytes, further research and innovation will be required to bring the size of proofs down.
- Though it is easy to understand the significance of the technology and its potential application in the real world, there is not currently a MVP or use case that has been published.
Team + Advisors
Eli Ben Sasson — Co-Founder/Chief Scientist
- Eli completed PhD in Computer Science at Hebrew University in 2001. Majored in his passion — “Moon math” theory and realization of transparent computational integrity.
- He completed a Postdoctoral researcher at MIT university.
- He is also currently a Professor at Technion — Israel Institute of Technology since 2015. Where he has co-founded “SIPR Lab” project. SCIPR Lab is a multi-institutional academic collaboration of researchers seeking to bring to practice cryptographic proof systems that provide succinct integrity and privacy.
- He also is involved in a phone app — Understanding Child Development Together, using Crowd Intelligence.
- Also Co-invented Zerocash decentralized payment systems and foundering scientist of the Zcash company.
Alessandro Chiesa — Co-Founder/Chief Scientist
- Alessandro is also currently an assistant Professor in Computer Science department at the University of California Berkeley.
- He is a co-author of libsnark, open-source for sccinct zero knowledge proofs
- He completed BSc, Masters of Engineering and PhD of Philosophy all in Computer Science at MIT.
- Co-founded “SIPR Lab” project.
- Co-invented Zerocash decentralized payment systems and foundering scientist of the Zcash company.
- Also involved as in the Algorand Project as an Cryptocurrency Advisor.
Uri Kolodny — Co Founder/CEO
- Uri is a serial Entrepreneur he founded many technology companies in the last 13+ years. Companies include:
- Modria Technologies LTD — Software Company
- Greylock Partners & ICV — Venture Capital & Private Equity
- Timba — ultrasound-based therapeutic product for the cardiovascular market
- OminGuide — Tech company providing products that enhance surgical accuracy, access, and control for minimally invasive surgery, laparoscopy, and robotic-assisted surgery.
- He completed a Bsc in computer science from Hebrew University and an MBA from MIT sloan School of Management.
- Patent title Photonic crystal waveguides and systems using such waveguides
- Patent date Issued Nov 2004 Patent issuer and number us US 7,310,466
Michael Riabzev — Co Founder/Chief Architect
- Michael has 14+ years of software development experience, including Intel and IBM Labs.
- BSc in Math and MSc in Computer Science.
- PhD candidate in Computer Science at Technion Israel Institute for Technology, where is focused on the development of practical systems for computational integrity in zero-knowledge, culminating and the development and implemented of the zk-STARK system.
- Has also worked in hardware acceleration, cryptographic algorithms, GPGPU, SDN, web development, and more.
Partners and Investors
- Butalin, Vitalik. “STARKs, Part I: Proofs with Polynomials“
- Butalin, Vitalik. “STARKs, Part II: Thank Goodness It’s FRI-day”
- Weuse.Cash. “The Untrusted Setup — Why you shouldn’t trust ZCash”
Get our free investment thesis
Sign up to get our exact investing strategy, start to finish. It includes our philosophy at Coin Crunch, as well as our top long-term picks.