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Cryptocurrency can be cryptic without the addition of zero-knowledge proofs, but the process allows for additional security in a business dependent on secrecy. It’s a method of verifying information between two parties without adding any additional proof other than that the information is true. Don’t worry, it’s less complicated than it seems.

Zero-Knowledge Proof Requirements

Zero-knowledge prrods are about two simple concepts: true and false. It’s similar to the idea of binary computer code where everything is a one or a zero. Every zero-knowledge proof has three requirements that must be satisfied to be valid.

  • If the statement is true, then the proof must always return true.
  • If the statement is false, there must be no way to trick the verifier into returning a statement of true
  • The input for the statement cannot be obtained by any other party except the prover and the verifier.

Zero-Knowledge Proof Example

Imagine Debbie has found a picture in a book and she wants to tell Steve that she found this picture, but doesn’t want Steve to know where the picture is located. Debbie gets a large piece of cardboard and cuts out a small square and covers the book, so only the picture is visible. She is proving to Steve that she found the picture, but Steve has no knowledge of what book, page, etc. He just knows the statement is true.

How Zero-Knowledge Proofs Work In Blockchain And Cryptocurrency

Business transactions generally have limited privacy because trust must be provided. Both sides need to understand everyone will keep their end of the bargain, but how can you provide that without revealing necessary information like account information, names, credit card numbers, etc.

Traditional cryptocurrency networks provided a bevy of information including IP addresses, which could be traced. This is problematic as many regulatory agencies require this data not be exposed.

Cryptocurrencies such as Ethereum began using zero-knowledge proofs to maintain privacy in peer-to-peer blockchain transactions by verifying the transaction without providing any information about the involved parties.