Hi guys, delving into Zero knowledge proof technology has shown me diverse ways it can be applied to the problems many privacy centric financial applications are currently facing. The more I understand Zero Knowledge Proofs, the more I see it’s potential areas of application. Make sure to check out my post on introduction to ZKPs if you haven’t. In this post, I’m writing about ZKP as a potential solution to the privacy concerns on Thorswap.

ZKP as a potential solution to Thorswaps privacy matters

In the past month, Thorswap, one of the most popular THORChain frontends went under a lot of fire from its users for pausing operations due to the detection of illicit usage by users who have been caught using certain wallets to perform illicit activities.

In that period of time, the percentage of illicit usage amounted to a volume of about 4% of the total trade volume, it caused a discord in the community, one side argued for absolute privacy saying why should Thorswap devs care about who uses the application and that restricting access to usage for anyone was censorship, another side advocated for proactive measures against malicious actors, stressing the importance of ethical responsibility.

….it was a long debate with both sides raising valid concerns, eventually Thorswap came to a resolution to partner with a global blacklist provider so that the application can detect and restrict usage from wallets that are known to be malicious actors and have been blacklisted.

While this solution seemed to calm the storm I think it’s only temporary, it is also inefficient in many ways, the solution relies on external blacklists, which might not be comprehensive or timely updated, potentially allowing malicious actors to slip through, it could further increase invasion of privacy or lead to a leak of private data like wallet transaction history.

Moreover, this approach could inadvertently block legitimate users if their wallets were mistakenly flagged. In this scenario, zero-knowledge proofs (ZKP) emerge as a more nuanced and effective solution.

The Potential of Zero-Knowledge Proofs in Addressing Security Concerns

To understand ZKP, consider a game where you must prove you know a secret word without revealing it. You give clues that are true only if you know the word, yet these clues don't give the word away. Similarly, ZKP allows ThorSwap users to prove their compliance with security protocols without exposing their sensitive data.

Imagine a security system in a bank that can detect authorized personnel without needing to know their identity. ZKP in ThorSwap works on a similar premise, validating users without accessing their private information, thus ensuring both security and privacy

Zero-knowledge proofs offer a compelling alternative for verifying user legitimacy without compromising their privacy. This cryptographic technique allows a user to prove they are not on a blacklist without revealing their identity or wallet details.

ZKP operates on the principle that you can verify the truth of a claim without knowing the details of the information itself. In the context of Thorswap, this means users can be authenticated without the need for exposing their entire wallet history or personal information.

Types of ZKPs

Zero-knowledge proofs come in various forms, each suited to different applications. The most common types are zk-SNARKs (Zero-Knowledge Succinct Non-Interactive Arguments of Knowledge) and zk-STARKs (Zero-Knowledge Scalable Transparent Arguments of Knowledge).

Zk-SNARKs are known for their efficiency and succinct proofs but require a setup phase that could potentially compromise trust if mishandled. On the other hand, zk-STARKs, while larger in proof size, offer enhanced security with no trusted setup and better resistance to quantum computing threats.

Advantages of ZKP Over Traditional Blacklisting

• Enhanced Privacy: ZKP maintains user anonymity while still ensuring that they are not part of any blacklist. This respects the ethos of privacy and decentralization fundamental to the crypto community.

• Dynamic Security: Unlike static blacklists, ZKP doesn't rely on external databases, which might be outdated or incomplete. It provides a dynamic way to assess each transaction based on current criteria.

• Reduction in False Positives: Traditional blacklisting methods can sometimes flag innocent users mistakenly. ZKP significantly reduces these false positives, ensuring that only genuine malicious actors are restricted.

• Maintaining Decentralization: By using ZKP, Thorswap can avoid centralizing control or relying too heavily on external entities, thus maintaining its decentralized nature.

Implementation Challenges and Future Outlook

While ZKP offers numerous benefits, its implementation in a real-world setting like Thorswap isn't without challenges. It requires significant technical expertise and resources to integrate ZKP into existing systems, and there are also scalability considerations to ensure the system remains efficient with increased usage.

Despite these challenges, the future of ZKP in decentralized platforms looks promising. As the technology matures and becomes more accessible, we can expect to see more innovative applications in platforms like Thorswap, enhancing security and privacy without compromising on the decentralized principles that form the backbone of the crypto world.

The financial industry stands to benefit immensely from ZKPs, they have the potential to transform everything from credit checks to cross-border transactions. With ZKPs, financial institutions could verify the legitimacy of transactions without exposing sensitive data, minimizing the risk of fraud and theft.

This is why such an interesting concept as ZKPs matter they can achieve a lot in the future of our technology and should be talked about more.

Kindly share your thoughts below.

Thanks for reading.

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