Zero-Knowledge Proofs is a Defi way to answer regulatory compliance in a decentralized way. Since 2021 crazy runs of Defi and the hype to replace the current financial system, regulators are urgently working to put up bank regulations to pressure Defi to comply. Unfortunately, the result is not looking great. Some Defi products will surrender to comply; others will examine a new path to answer regulations differently - Zero-Knowledge Proofs you mother f**k.
Zero-Knowledge Proofs gain more attraction because the government will intensify regulations of Defi. Regulators think Defi is Disneyland of the finance system, and they want them to become banks. Crypto has its way to making its place viable to all users through Zero-Knowledge Proofs technology.
Here is a 1 min summary of the article if you want to skip the reading.
Why Zero-Knowledge Proofs
The billion-dollar question is, do we need to know someone’s identification to verify them before trading with them so our transactions can be safely executed? The answer is, of course not! They want you to think this is the only and safest way to approach the question in the centralized system. Unfortunately, it is not the case in the technology world, particularly in crypto. Alternative routes are plenty to explore, only the lazy one will surrender their imagination to follow the leader. You will follow people’s paths and cannot get out of your way. Others will then lay out the future, and you have to follow them. A crypto way to answer Know-Your-Customer (KYC) regulation is ZKPs.
What is Zero-Knowledge Proofs
I wrote an article to explain the details here. The method allows one to know something without showing you what they have. Pretty cool! Like playing a card, both parties have their cards and try to understand what they got. There is a way to use the verification process to know what your cards have without letting people know what your cards are.
Proof of Knowledge
Bitcoin used Proof of Work not because it has to use but rather because at the time, Proof of Knowledge was patterned it. Few people knew that Bitcoin was intended to use a better version of Proof of Work as Proof of Knowledge. It is better because Proof of Knowledge achieves the truly anonymously transaction rather than Proof of Work only reached to Pseudo-anonymity and left a trace mark for others to track. The critical technique behind Proof of Knowledge is the Schorr Signature algorithm. Compared to Bitcoin’s Elliptic Curve Digital Signature Algorithm or ECDSA, the Schorr Signature algorithm is way better in terms of security.
Despite all the benefits of security the Schorr Signature algorithm can provide, it is difficult to scale up the transaction with high speed since the algorithm spends more power on playing guess games rather than transact payments later. Speed up the process will trade off security and jeopardize the failure of the system to be prone to attack. Bitcoin’s Lightning Network has borrowed the idea of the Schorr Signature algorithm in shell and operated on the side chain without directly impacting the blockchain. Such side chain operation or Ethereum Layer 2 operation provides security features while speeding up the transaction as a current idea solution for layer 2 operations. Of course, there are many downsides when more users transaction with a large amount of data processing and highly changed imperfect information will share around parties.
2022 Is ZKPs Testing Year
ZKPs is one of many viable solutions for future crypto projects to test and run for. It provides a perfect current optimization solution on security and privacy issues (decentralization) but needs to trade-off from scalability and result of slower platform operations. Therefore, projects will need to test out their goals and what trade-off is required to implement the technology. One of the projects worthies keeping your eyes on is Polygon Zero. The project wants scalability and security together, while Ethereum is a path to sacrifice its decentralization to trade-off with its scalability.
ZKPs may be a game-changer of Bitcoin standards since Bitcoin’s domination rate continues falling. It is crypto’s way to answer crypto regulations, and yet keeping crypto decentralized is a future way to evolve crypto projects.
Stay tuned for the 2022 Prediction #4: Regulated Defi On-Chain KYC
This article is also published in Cryptologist as parnership publication.
Photo by Patrick Tomasso on Unsplash
Note: the post was shared on multiple platforms here.
You can refer my previous article lists here
Digital Commodities- the Unlimited Resources of Commodities Has Born
Universal Income in Crypto Way
DeFi 1.0 is Officially Dead - Welcome to DeFi 2.0
NFT Has a New Purpose
How Many Ads Are Too Much - Floki Inu Ads Got Backfire
Metaverse - Second Life Era
Bitcoin ATM Adoption and Its Potential Security Vulnerabilities
When Corporations Are Running By Everyone
The Fundamental Value Is Irrelevant
Coinbase At Huge Reputation Crisis
CBDCs' Flaw Design
Regulations Start Hitting Crypto Exchanges
From Bitcoin Standard To Zero-Knowledge Proofs - Decentralization 2.0
Shiba Hits 1 Million Users (Army) Milestone: What is Next?
How To Avoid Crypto Scammers
Shiba Game - When Meme Meets Metaverse
Twitter CEO Steps Down - A Full-Time Bitcoiner
Change of Macroeconomy Landscape
CBDC Is Losing The Game
Doge The Future
El Salvador's Bitcoin
Market Sentiment Has Changed
Brief History of Ethereum and How Ethereum 2.0 May Over Promise
Crypto Is Getting Real
Who Cares If Craig Wright Is The Real Satoshi
Institutional Investors vs. Whales
What Happened In BadgerDao
A Proposal To Move Bitcoin Mining PoW Away
IMF Keep Crying Out, Crypto Adoption Keep Accelerating
Dogecoin Is Back to Top 10 But The Moon Shot Is Looming
How to Avoid The New Wallet Scam
Defi Enters To Crypto Bond Phase
What Types of Metaverse You Want
Global Regulations Are Coming Or Can They
IMF Did Have A Plan to Run Global Regulations
Doge Starts Moving
A New Malware Will Steal From Telegram
Smart Money Is Out, Institutional Money Is In
Wait, Web3 or Web 3.0 or web3
Airdrop?! Not So Lucky Anymore!
2022 Prediction #1: L1 Scalability
2022 Prediction #2: L2 Bridges
Disclosure: The article was written by a delusional author who is possibly a nut job without any questions whatsoever about expertise in the subject matters. You should not believe any words this author wrote or you may experience similar symptoms or even possibly become a nut job.