Zero-knowledge (ZK) proofs are generating excitement in financial circles lately due to their potential for increasing privacy and security for blockchain participants. The concept itself is not new, as cryptographers have been working with zero-knowledge/interactive proofs for years. But the protocols are now being incorporated into “establishment” blockchain platforms as financial companies look at new ways to use blockchain technology and address its current shortcomings.

Most recently, a couple of financial services stalwarts have embraced ZK proofs with great fanfare:

  • In mid-October, JPMorgan’s Quorum (its Ethereum-derived, permissioned blockchain platform) introduced the first integration of a zero-knowledge security layer (ZSL) into its enterprise blockchain.
  • Last month, multinational banking and financial services corporation ING unveiled its own zero-knowledge range proof (ZKRP), asserting that it is 10X more efficient than other options on the Ethereum network.

So what is a zero-knowledge proof?

A zero-knowledge proof or protocol allows a “prover” to assure a “verifier” that they have knowledge of a secret or statement without revealing the secret itself.

An oft-cited example of how a ZK proof works references the “Where’s Waldo?” game and cryptography’s favorite fictional characters, Alice and Bob. If Alice has found Waldo on a particular page, how can she prove this to Bob without revealing Waldo’s location? How does she convince Bob she’s not lying without actually showing him where Waldo is? A low-tech solution involves a large piece of cardboard with a…