DEFINITION of 'zk-SNARK'

Privacy has long been a central aim and feature of cryptocurrencies. However, what might have been considered private earlier in the history of the industry is often no longer seen to be the case. For example, claims that bitcoin is anonymous are now often refuted, as blockchains are transparent and open: Even though an individual bitcoin address is not linked to a single person in the network, all of the transactions taking place in the bitcoin world can be tracked and mapped. Blockchain analysis of this type has been a central feature of government and law enforcement efforts to crack down on various cryptocurrency-related crimes and similar issues, according to Blockonomi. Because of the perceived lack of privacy of some of the original cryptocurrencies, including bitcoin, there has in recent years been a new wave of privacy-focused tokens and coins. One of these, zcash, is backed by a technology known as zk-SNARKs.

BREAKING DOWN 'zk-SNARK'

A zk-SNARK ("zero-knowledge succinct non-interactive argument of knowledge") utilizes a concept known as a  "zero-knowledge proof." The idea behind these proofs is actually quite well established, as they were first conceived in the 1980s. Put simply, a zero-knowledge proof is a situation in which each of two parties in a transaction is able to verify to each other that they have a particular set of information, while at the same time not revealing what that information is. For most other types of proof, at least one of the two parties must have access to all of the information, meaning that a zero-knowledge proof is a deviation from the norm.

For an example of a traditional proof, consider a password used to access an online network. The user submits the password, and the network itself checks the contents of the password to verify that it is correct. In order to do this, the network must also have access to the contents of the password. A zero-knowledge proof version of this situation would involve the user demonstrating to the network (via mathematical proof) that he or she has the correct password without actually revealing the password itself. The privacy and security advantages in this situation are clear: If the network does not have the password stored somewhere for verification purposes, the password cannot be stolen.

The mathematical basis of zk-SNARKS is complex. Nonetheless, proofs of this type allow one party to demonstrate not only that a particular bit of information exists, but also that the party in question has awareness of that information. In the case of zcash, zk-SNARKs can be verified nearly instantly, and the protocol does not require any interaction between the prover and the verifier.

There are, of course, concerns related to zk-SNARKs as well. For instance, if someone was able to access the secret randomness that was used to create the parameters of the proof protocol, he or she could create false proofs that nonetheless looked valid to verifiers. This would allow that person to create new tokens of zcash through a counterfeiting process. In order to prevent this from happening, zcash was designed in such a way as to make the proving protocols elaborate and spread out over multiple parties.

While the construction of the zcash proving process was completed in such a way as to minimize the possibility of counterfeiting tokens via false proofs, there is at least one other concern related to the cryptocurrency as well. Zcash was created with a 20% "tax" levied on all blocks created over the first several years of the token. This tax is known as the "founder's tax," and it is used to compensate the developers of the cryptocurrency. Critics have suggested that the founders could potentially use this facet of the system to create an infinite number of zcash tokens without anyone else being aware of the existence of those tokens. For that reason, it's not entirely possible to know the exact number of zcash tokens in existence at this point.

RELATED TERMS
  1. Proof of Funds (POF)

    Proof of funds (POF) refers to a document that demonstrates a ...
  2. Proof Of Deposit - POD

    Proof of deposit is a verification that funds have been deposited ...
  3. Founder's Reward

    Founder's Reward is the reward offered to early team members ...
  4. Security Token

    A security token is a portable device that authenticates a person's ...
  5. Crypto Token

    Crypto tokens are representation of a particular asset or a utility ...
  6. Mining

    Mining validates transactions on the cryptocurrency network and ...
Related Articles
  1. Tech

    The Five Most Private Cryptocurrencies

    Investopedia's list of private cryptocurrencies that claim to offer enhanced security and protection of user identity.
  2. Tech

    Winklevoss' Gemini to Add zCash, Litecoin

    The popular digital currency exchange is adding select altcoins to its list of offerings.
  3. Tech

    What Are the 6 Most Important Cryptocurrencies Other Than Bitcoin?

    Bitcoin is hardly the only game in town.
  4. Tech

    What Are the 10 Most Important Cryptocurrencies Other Than Bitcoin?

    Altcoins present themselves as modified or improved versions of Bitcoin. With Bitcoin prices being volatile, we think you should keep an eye on these 10 alternatives.
  5. Tech

    Passwords Are Obsolete, Get With the Blockchain

    Blockchain technology could provide a better alternative to memorizing long, confusing, and easily forgotten passwords.
  6. Tech

    What Does Government Regulation Mean for Privacy-Focused Cryptocurrencies?

    What do government regulations focused on making cryptocurrencies transparent mean for coins that are privacy-focused?
  7. Tech

    Is 2018 the Year of the Security Token?

    With its ability to demonstrate value, security tokens could roil traditional financial markets in favor of the more hybrid blockchain models.
  8. Investing

    Password Sharing Costs Streaming Cos. Millions

    Sharing of passwords and logins is costing millions to the likes of Netflix, Hulu and Amazon.
  9. Tech

    Bank of America, JPMorgan Call Cryptocurrencies a Threat

    Satoshi told us bitcoin would allow payments to be sent "without going through a financial institution." Now big banks are listening.
  10. Tech

    MIT Tech Review Reveals Plan to ‘Destroy’ Bitcoin

    MIT Tech Review has an interesting three-pronged strategy to kill Bitcoin!
RELATED FAQS
  1. How does a block chain prevent double-spending of Bitcoins?

    Find out how double-spending is prevented in the Bitcoin server and how transactions are posted and verified on the Bitcoin ... Read Answer >>
  2. Why do Bitcoins have value?

    Performing with transactional anonymity, Bitcoin has value as a private digital currency, investment tool and social networking ... Read Answer >>
Trading Center