Will zero-knowledge proof lead to the explosion of blockchain payments?

If there’s one cryptography term you need to know to see if blockchain can change the payments industry, it’s zero-knowledge proof.

The applications are simple: using a zero-knowledge proof (ZKP) key, a payment app can query your bank to see if you have enough money in your account to cover a transaction without telling the queryer anything about your account balance. Or the app can prove that your household income meets the requirements of a credit card issuer without disclosing what it is.

It’s an authentication mechanism that can do that without a trusted intermediary needing to access and trust that data to keep it safe.

Instead of your mother’s maiden name and the make of your first car, you can send cryptographic proof of your identity without having to reveal any private information. Instead of giving the nightclub bouncer a driver’s license with your name and address, you can just show an app with access to your state’s DMV that simply returns an over-or-under-21 answer.

Medicine is another key field rich in ZKP use. An employer can gain enough access to employee records to determine how many employees have diabetes or high blood pressure, for example, without gaining knowledge of which. Similarly, a health insurer does not necessarily need to know why a doctor prescribes a medicine, only that it is for a condition that is covered.

Blockchain usage

All you really need to know about the math and cryptography behind ZKPs is that they are important enough that Algorand’s blockchain creator and MIT professor Silvio Micali and two colleagues won the 2012 AM Turing Award—computing’s most prestigious honor—for work that contained the .

Read more: What is Algorand? Blockchain secures transactions by spreading the wealth

ZKPs are also useful enough for the technology to spread far and wide.

In June, several dozen companies with an interest in cryptocurrency joined to sponsor the new ZPrize, which seeks to make practical applications of ZKPs more efficient, scalable and industry-friendly and to “ensure that the innovations discovered to do so are “locked -open” under fully open source licenses.”

Its backers include not only the Algorand Foundation, but rival smart contract blockchain Polygon, along with Samsung, chipmaker AMD, the Ethereum Foundation, Bain Capital and Protocol Labs – which are building the actual technology that a Web3 next-generation internet will use.

In the crypto world, a high-profile zero-knowledge user is Electric Coin Company, issuer of Zcash, a privacy coin. It added a wrinkle to ZKPs that you might come across: zk-SNARKs, a technology that allows blockchain consensus mechanisms to verify the validity of transactions despite being fully encrypted before being added to the blockchain.

See also: Privacy Coins: Blow for Freedom — or Boon for Crime?

And while privacy coins are a type of cryptocurrency with a lot of baggage, zk-SNARKs have many uses. First, it’s fast. SNARKs is an acronym where the “S” stands for “succinct” as it can complete verification within milliseconds – that is, in real time.

Next level

Another spinoff is zk-Rollups, a scaling solution used by Ethereum’s smart contracts to process transactions more efficiently. It is key to the Layer 2 solutions that seek to make Ethereum faster and cheaper by taking the work of a transaction from the main blockchain to a second layer that sits on top of it, then rolling a group of them up into a single transaction to sent back down and entered on the blockchain – for a single transaction fee.

An offshoot of that is Nightfall 3, professional services giant EY’s ZK Optimistic Rollups – a Layer 2 toolkit for private, fast and cheap transaction management on Ethereum.

Among the tools EY is developing are to “verify identities and track stolen NFTs (and insure, cancel and replace them, all under privacy),” EY global blockchain head Paul Brody wrote in a CoinDesk column in September.

Although it currently “unlocks more business cases like inventory management” and more advanced tools that can handle more complex business logic, it does not yet support complex business logic, Brody wrote.

Once those tools are built and Nightfall 3 can handle things like “volume discounts and rebates, we can start implementing typical business deals in procurement, for example,” he added. “Then it will be possible to not only capture the movement of assets, but also the smart contracts that govern ordering and payment as well.”

For all PYMNTS crypto coverage, subscribe to the daily Crypto newsletter.

New PYMNTS study: How consumers use digital banks

A PYMNTS survey of 2,124 US consumers shows that while two-thirds of consumers have used FinTechs for some aspect of banking, only 9.3% call them their primary bank.