DeFi Can Now Choose to Run Trustless Zero-Knowledge Proofs

In an interview with Cointelegraph at the Stanford Blockchain Conference on Feb. 19, Stanford University cryptography Ph.D. student Ben Fisch described Supersonic as a trustless zero-knowledge proof system, also referred to as a zk-SNARK. 

Fisch helped create a trustless zero-knowledge proof system designed specifically for decentralized finance. 

Trustless versus trusted zk-SNARKs

While zero-knowledge proof systems are needed for preserving privacy across blockchain networks, almost all require trusted-setups. Fisch said, “This means that users of the privacy tool must trust a third-party to configure the system properly.” 

For example, the privacy-focused digital currency Zcash (ZEC) leverages zk-SNARKs to allow users to exchange information without revealing their identities. This means that Zcash’s blockchain only shows what transactions took place, rather than who was involved and what amounts were exchanged.

Although this ensures privacy and transparency of Zcash’s blockchain network, Fisch noted that Zcash relies on a trusted-setup zk-SNARK called Groth-16. He explained that trusted setups such as this could compromise the public trust of a system:

“In particular, zero-knowledge proof systems involve some randomly generated numbers. Trusted setups mean that the third-party must be trusted to generate these numbers properly and keep them secret (i.e., discard the secrets and destroy any trace so that nobody finds them out in the future). If the secrets are leaked then the security of the zero-knowledge proof system is compromised.” 

Fisch further noted that trust can be spread over a collaborative committee in trusted-setup systems. This means that as long as one party properly discards their own secrets, the system can be considered secure. 

While this has been done on several occasions through collaborative “ceremonies,” Fisch said it’s impractical to redo this for every new application requiring a zk-SNARK. “This is understandable because before this last year there were no practical universal-setup or trustless setup zk-SNARKs.”

Stanford Ph.D. student Benedikt Bünz, who co-authored a paper on cryptography and cryptocurrencies with Fisch, told Cointelegraph that unlike trusted-setup systems, Supersonic requires no trust from third parties at all. Bünz explained:

“In a trusted-setup, the person (or people) doing this can prove that an invalid transaction is valid. In a cryptocurrency, this could be used to create money out of thin air. Previous proofs without trusted setup were either in the hundreds of kilobytes or did not have the scalability property.”

Trustless zk-SNARKs for DeFi

According to Fisch, a trustless zk-SNARK like Supersonic is a major breakthrough in cryptography within the last year, especially as decentralized finance applications gain traction. Fisch explained that while blockchain is promising for financial systems to become more open and transparent in order to prevent Ponzi schemes and fraudulent activity, privacy is often completely destroyed. 

Fisch noted that Findora, the company behind Supersonic, is primarily targeting financial use cases to bring decentralization and transparency to companies that require privacy, such as banks. He said:

“Many businesses can benefit from blockchain without decentralization immediately, but there is a benefit of having a trusted, decentralized financial network capable of connecting services and individuals using the same infrastructure.”

For example, Fisch noted that a peer-to-peer lending system based in China and the United States could run over Findora’s blockchain. He explained that commerce could run between the two systems with a consensus protocol that facilitates people using both networks while Supersonic ensures trust.

However, it’s important to point out that trusted-setup systems are not as efficient as trustless-setup systems. Fisch commented that Supersonic’s performance is about 10 times worse than trusted-setup systems, both in terms of proof size and computation time.

This is because one of the key components of Supersonic is a cryptographic tool called a "Group of Unknown Order.” Fisch added that a new GUO was announced recently, adding that “if we use this new GUO tool instead of the one we are currently using, then this will close the performance gap both in terms of size and time.”

Regardless of its current performance, Bünz mentioned that Supersonic has made a splash in upcoming DeFi projects like ETH 2.0, noting that the underlying tool used in Supersonic is the same as in verifiable delay functions:

“VDFs are a cryptographic tool that can be used to create perfect randomness, which is necessary for proof-of-stake networks. VDFs will be used in ETH 2.0. There is already a lot of investment in building good hardware and software support for VDFs.”

Recently, Ethereum co-founder Vitalik Buterin brought more attention to privacy solutions. When asked about Supersonic, Buterin told Cointelegraph that “Supersonic is a very good solution for the problem it's trying to solve.”