Zero-knowledge proof (ZK) technologies can simultaneously protect user privacy and aid in combating illegal activities, according to a report by a16z Crypto.
Experts noted that blockchain privacy is often misunderstood. Some perceive it as a dangerous level of transparency, while others see it as a haven for criminals. a16z argues that the issue is not about choosing between privacy and security, but about creating tools that support both.
The primary tool for this is ZK proofs.
This cryptographic method allows one party to prove the truth of a statement to another without revealing any additional information. For example, a person can confirm their citizenship without showing a passport or other personal data.
Privacy Versus Crime
The report emphasizes that ZK technologies can help balance user interests with regulatory requirements. They enable the fight against illegal activities while maintaining confidentiality.
Researchers proposed several application methods:
- Verification of deposits and withdrawals — the technology ensures that assets do not originate from or are sent to sanctioned wallets, without revealing other user transactions;
- Privacy Pools — a concept proposed by Vitalik Buterin, where users can prove their funds come from legitimate sources without disclosing their entire transaction history;
- Selective deanonymization — a mechanism where a special organization (e.g., a non-profit fund) can disclose data of a specific address for investigation upon request from authorities.
a16z reminded that the share of illegal operations in cryptocurrencies is significantly lower than in the fiat system. The transparency of public blockchains often helps law enforcement track and prevent criminal activity, as seen with the Silk Road and Alpha Bay marketplaces.
Beyond Finance
According to analysts, privacy-preserving technologies open up opportunities for numerous non-financial scenarios.
Examples include:
- Digital identification — the ability to confirm age without showing a birth date;
- Gaming sector — concealing elements of the virtual world until unlocked by the user;
- Artificial intelligence — secure data exchange for model training;
- Private voting in DAOs.
In conclusion, experts emphasized that history repeats itself. Every new technology — from the telegraph to the internet — has raised privacy concerns. The answer to this challenge is not prohibitions, but innovations that adapt to society’s needs.
In April, Buterin called privacy the foundation of freedom.
In June, the Ethereum founder introduced a system of digital “pluralistic” identification aimed at enhancing privacy protection.