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The next stage of Web3 evolution will be supported by zero-knowledge technology

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Although the blockchain industry has correctly highlighted key issues in the worlds of technology, finance, art and culture, the promised revolution has yet to materialize, with tools designed to address these challenges do not yet meet the required standards.

Technical inefficiencies have stifled the development of truly decentralized systems, and decentralized finance (DeFi) platforms have shown their own vulnerabilities to data breaches. From January to November 2023, more than $1.7 million in assets was lost to hacks, with almost 300 specific incidents.

As we enter 2024, things are looking up with continued developments in zero knowledge (ZK) technology, which could be the key to unlocking the benefits of truly decentralized digital platforms. After gaining momentum in 2023, primarily through innovation in scaling solutions, the continued growth of the ZK sector this year is expected to see diversification and proliferation of use cases, including significant advances in the areas of data protection, privacy and compliance.

By bringing more secure and efficient tools to blockchain developers, the widespread benefits of ZK technology will begin to be felt, with 2024 seeing a wider range of applications across different sectors. Rather than being deployed in isolated Web3-native use cases aimed at competing with traditional finance and technology, ZK technology can be integrated into existing systems and platforms, providing them with the benefits of decentralized values ​​of cryptography. Significantly improving user empowerment. It achieves this by ensuring robust data control and privacy preservation, thereby facilitating a freer and more secure user experience without compromising users’ peace of mind.

Zero-knowledge scalability continues to advance

Simply put, zero-knowledge proofs (ZKPs) allow one party, the prover, to validate a statement to a verifier without revealing anything other than that specific truth. In practice, ZKPs allow complex calculations to be performed off-chain, thereby reducing congestion on the blockchain.

This has proven revolutionary for the Ethereum ecosystem, where growing demand for block space has led to an increasingly congested network with high fees, creating barriers to mass adoption. Scaling solutions such as sharding, sidechains, state channels, and rollups have helped solve scalability issues to improve developer and user experiences while maintaining Ethereum’s well-appreciated security and transparency values.

The same properties that make ZK ideal for reducing congestion on decentralized networks also bring greater data protection benefits. In the future, we can expect to see more projects leveraging ZK technology for a variety of use cases, not only for scaling, but also for data protection and compliance, which will lay the groundwork for major changes in Web2 and Web3.

ZKPs expand the scope of user data protection

Aside from all the benefits of scalability, it is data protection that will prove to be the flagship use case for ZKPs, underpinning all other functions of blockchain applications. For context, data protection is a broader term than privacy because it encompasses security, integrity and accessibility.

Data protection and privacy are often secondary concerns for people interacting online. This is intentional: traditional digital platforms lure users with free access and services, hiding the true cost in the fine print to collect and use valuable user data for analytics, targeting, and advertising.

However, recent surveys reveal that consumers are increasingly concerned about the risk of data breaches and privacy attacks from their technology devices, with up to three quarters of respondents agree that they should do more to protect themselves.

As data breaches become more and more costly – amounting to 4.45 million Averaged in US dollars in 2023 – projects across various industries are seeking innovative solutions to prevent and reduce the impact of hacks and exploits. By allowing users to store personal information off-chain and enabling secure disclosure of sensitive data, ZKPs can reduce vulnerabilities caused by collective data storage, which has been a prime target for hackers.

In 2024, the industry can expect a number of ZK-based privacy tools to advance and be ready for use, for example, ZK login tools to streamline access to DeFi platforms and decentralized ZK-based voting mechanisms to balance integrity and anonymity.

ZK Use Cases Outside the Blockchain Space

ZK technology can also solve key data management problems in other industries, proving to be a revolutionary tool for the mass adoption of blockchain technology.

Amid growing concerns about user data breaches, traditional social media and Web2 platforms, which are often built on a data mining model, could integrate privacy-enhancing features for users powered by ZK technology, such as end-to-end secure messaging.

In other cases, it may be institutions required to protect sensitive data sets that will be the first to adopt ZKPs when it comes to privacy. For example, in supply chain management, logistics and telemetry, ZKPs can be used to verify activity while disclosing as little data as necessary between two parties. Not only is this efficient, but it can also be important for maintaining intellectual property rights and reducing the data management burden on each party.

Similarly, governments and other institutions that process sensitive data can adopt decentralized identifiers (DiD) that can be used to verify identity and other information while optimizing privacy. Since 2014, residents of Estonia have obtained a state-issued digital identity to access public services, a model that the European Union is in search and several countries are on the verge of imitating it.

ZKPs enable DeFi to lead the way to compliance

Collaboration with traditional financial institutions could bring much-needed liquidity to DeFi, but integrations have previously been stifled by contradictions between the anonymity and privacy principles associated with DeFi and the KYC requirements that banks and investment firms on a large scale must comply in many jurisdictions. Similarly, traditional businesses may be discouraged by the transparent properties of blockchain, not wanting the details of each transaction to be documented in a public ledger.

Through the use of ZKPs, DeFi platforms can verify that a user meets KYC requirements and also verify transactions without revealing credentials or other extraneous information, thereby establishing a balance between values DeFi and the responsibilities of TradFi. For example, a report of Etonec demonstrates how ZKPs can be used for compliance in a privacy-preserving stable fiat currency system.

Like privacy optimization solutions, ZKPs can offer more customizable compliance options tailored to user needs. This is important because individuals have unique preferences when it comes to convenience and data protection. To bring financial freedom to the masses, DeFi platforms must offer a wide range of options to users.

Developer-friendly tools accelerate innovation on all fronts

ZKPs support the modular evolution of blockchain, providing the building blocks necessary for key functions such as scaling, privacy, compliance and, most importantly, interoperability.

Unlike a monolithic blockchain like Bitcoin where all transactions are executed on a single layer, modular blockchains delegate functions to specific modules which constitute an interoperable system. By reducing the workload of any specific component, modular blockchains reduce the risk of bugs and enable more efficient development.

In the current landscape, layer 1 protocols are seen as competing, but with the modular evolution of blockchain, the notion of a blockchain layer will morph more into one of modular building blocks. As small data attestations that can be inexpensively verified and linked across chains, ZKPs will become the glue that holds this interconnected system together.

Thanks to task specialization, each module will be able to move forward more quickly – developers will be able to focus on improving compliance, for example, because scaling is already supported, which will lead to experimentation and increased innovation on all fronts.

What’s on the horizon in 2024

In an ever-changing industrial landscape and macroeconomic environment, adaptability is the key to the survival of any technology. Zero-knowledge proofs have proven to be exactly that: an infinitely adaptable tool for tackling a wide range of challenges. By leveraging the power of ZK, next year we will begin to see an expansion of use cases beyond scaling, with a primary focus on data management, attestations and applications in various sectors.

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