Zk-Starks? New Take on Zcash Tech Could Power Truly Private Blockchains

“A myth,” that’s what one developer called it.

At a meeting of the team behind the monero cryptocurrency last week, suspicion was high about a new item on the roadmap – so-called “zk-starks.” Described as a “trustless” solution to a problem that’s long prevented anonymous blockchains, to some of the developers assembled it sounded like fantasy.

But while the blockchain industry is certainly no stranger to outlandish claims, the cryptographic technique is perhaps setting records in the levels of eyebrow-raising it has triggered. Heralded as a more secure version of zk-snarks, the creators of zk-starks claim their cryptography can remove the need for the contentious “trusted setup” necessary with the previous iteration of the idea.

Stepping back, zk-snarks are an evolution of a cryptographic technique first described in the 1980s. While seemingly complex, the idea is simple at heart – zero-knowledge proofs enable parties to verify if a statement is correct without receiving anything more than a true-or-false statement. In the blockchain world, the idea has become most often associated with zcash, the first large-scale blockchain that baked the cryptographic tool into its protocol layer.

But, while heralded at the time as a breakthrough, the platform’s use of zk-snarks left room for improvement. For one, there’s the fact that there’s no way to tell with any real certainty that the elaborate procedure used to set up the cryptocurrency wasn’t in some way compromised.

A year after the launch, the zcash team is still putting out audits on the matter. Yet as critics point out, their results, while helpful in mitigating doubts, can’t ever be conclusive.

Should zk-starks be able to remove this roadblock – the impact could be felt far and wide. While there may be little that seems to unite the diverse developers working on private and public cryptocurrencies, privacy has emerged as perhaps a universal touchpoint.

Groups as diverse as banking consortium R3 and ethereum have had zk-snarks on their list for exploration, despite their different needs and technologies.

And zk-starks could find a similarly broad reception – the new technology promises to be cheaper, faster, more scalable and more secure than zk-snarks.

Slowing emerging

But despite the possibilities, little information about zk-starks has been published to date.

First presented at an ethereum meetup back in January, the team behind the tech – comprised of researchers associated with zcash – are still working to complete the code. To date, just one aspect, called the FSA algorithm, is available online.

One of the team’s more public figures is Eli Ben-Sasson, a professor at the Technion Institute of Technology in Israel, who helped pioneer zk-snarks back in 2015 and whose work draws on a long lineage of computer scientists dealing with zero-knowledge proofs.

Speaking to The Global Blockchain, Ben-Sasson said he was “a big believer in transparent proofs,” and has been “passionately researching” the topic for 15 years. Still, he summarises the challenge he faces in building zero-knowledge designs as one that’s core to cryptography.

As he explains:

“Hiding information is very easy using encryption. The hard part is proving and maintaining integrity under the veil of encryption.”

Perhaps because of this, Ben-Sasson admits the issues inherent in the zk-snarks used to establish the zcash blockchain, believing the technology is too risky for valuable or business-sensitive information.

With zk-starks, however, he sees room for big improvements.

The stakes

One of the key problems zk-starks can solve relates to the need for zero-knowledge blockchains to create a “master key,” according to Ben-Sasson.

In the case of zcash, it’s believed the key was destroyed, but the implications that it could be out there are chilling. For one, this key would allow a bad actor to forge false payments and completely ruin the integrity of the blockchain. Further, in order to destroy the key, a coordinated effort is required in what is known as the trusted setup.

But this setup is complicated to perform securely. For one, it’s difficult to verify it really happened, because it can’t have any witnesses (anyone viewing the ceremony could reversibly generate the key).

When zcash performed its ceremony, the team went to great lengths to ensure it wasn’t compromised, but it’s next to impossible to completely secure. And for a high-profile entity like a bank, there’d simply be too much interest in trying to sabotage it.

Ben-Sasson said:

“There’s going to be a huge incentive for governments and central organizations to try a put their hands on this key that will allow them to write a cheque for any amount … with increased value there is increased incentive to attack.”

Zk-starks seek to remove this risk, and in the process, take a lot of the heavy machinery associated with zk-snarks with it. Unlike zk-snarks, zk-starks don’t rely on public key cryptography at all.

Actually, all zk-starks need to function is one algorithm similar to that performed by computers when mining the bitcoin blockchain.

However, while mining involves the same encryption pattern repeatedly, zk-starks use random numbers so the steps involved cannot be predicted.

The use of a single algorithm is minimal compared to zk-snarks, which by contrast relies on a cluster of the tools. The impact of is that while a zk-snark takes about 28 minutes and 18.9GB to compute, a zk-stark promises to reduce calculation time down to a fraction of a second, and storage down to 1.2MB.

Monero’s motives

And monero’s interest in the scheme, while early, is perhaps proof that there might be further development of the concept across blockchain communities.

One of the more innovative privacy-focused blockchains, monero uses entirely different cryptography than zcash based on a combination of stealth addresses and ring signatures. Rather than use zero-knowledge systems, the cryptocurrency offers privacy by heavily distorting information.

Because its system is well-functioning today, it arguably hasn’t had a need for zero-knowledge proofs, but the idea that the network could further toughen privacy measures is leading the developer team to consider it.

Currently, zk-snarks are being considered for sidechains which would increase privacy by allowing payments to occur from separate blockchains –and which would then self-destruct following the transaction.

But to implement the idea, monero would have to face the problem of the trusted set up – making the zk-starks concept an enticing one.

So enticing, in fact, that lead developer Riccardo Spagni, who has called zcash “a complete security farce” – seems willing to look past the rivalry toward a common goal. He describes zk-starks as “preferable” and told The Global Blockchain that monero will be looking to integrate the tech if and when it’s usable.

And they’re not the only ones who have problems will the trusted setup. If ethereum is to implement zk-snarks as formerly planned, it’ll have to run an equivalent of the zcash security ceremony – but one that can scale to thousands of participants.

Such complications show that the concept is one that meets a compelling need – one likely to be further developed in a new white paper published in the next year.

Boy with jetpack image via Shutterstock

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Philly Fed Chief: Bitcoin Has Little Chance of Thwarting Monetary Policy

Bitcoin and other cryptocurrencies are unlikely to weaken the Fed Reserve’s influence on the U.S. economy.

That’s according to the president of the Federal Reserve Bank of Philadelphia, Patrick Harker, who issued the new remarks on the second day of a fintech event hosted by his organization, one of 12 regional institutions that today comprise the U.S. central banking system.

But while some have worried that the rise of a cryptocurrency would make it harder for the Fed to manage the rate of inflation, Harker showed that he isn’t concerned about the prospect.

Onstage, he went so far as to contend that bitcoin has yet to be tested by a real catastrophe, but that when one happens, people will be more likely to flock to government-backed money.

“The paper that’s in your pocket, that we call money, only has value because we believe it has value, because we believe the government stands behind it. It’s all trust issues,” Harker said.

He told attendees:

“And so, when cryptocurrencies and other forms of currency emerge, I think the basis of that has to be how do they create that trust?”

Trust in the government

Harker went on to acknowledge that while citizens have put varying degrees of trust in what he called the “sovereign states” that stand behind currencies today, other currency models might be possible. This includes, he said, ways in which trust might come from another “large player,” or as in the case of bitcoin, an algorithm.

But his most pertinent critique was perhaps that cryptocurrencies have not been significantly tested enough to ensure confidence.

Despite issues such as the collapse of Mt. Gox, once the bitcoin’s network’s largest exchange, or the ongoing bitcoin scaling debate, Harker argued that cryptocurrency has been largely insulated from “bad times.”

“Everything can work in good times,” he added.

This leads to the second reason Harker said he’s not concerned about cryptocurrency hamstringing the Fed’s monetary influence: If – and, according to Harker, when – things go wrong, the Federal Reserve and other state agencies will likely be asked to get involved anyway.

“When things really go bad, where do Americans turn?” he asked “Well, they’re going to come back to the government. That’s the history of the country.”

‘How do you regulate an algorithm?’

Elsewhere, Harker responded with his thoughts on cryptocurrency regulation, with his interviewer, [email protected] founder Mukul Pandya, asking directly how the Federal Reserve might assist or advise on such a strategy. (The Federal Reserve has previously noted that it does not have the authority to directly regulate the technology.)

On this point, he was inconclusive, suggesting any ideation is today in early stages.

“How do you regulate an algorithm?” he asked, drawing laughs from the audience. “I don’t know yet. The answer is we have to continue to study this.”

Still, that doesn’t mean there aren’t possible next steps.

For example, those studies might include looking more closely at how another algorithm, perhaps one created by the Federal Reserve, might ensure fairness in mathematical form, something Harker said is crucial to any potential cryptocurrency controls.

He concluded:

“Before we even think about how you regulate an algorithm, how would you even build an algorithm that would have that sense of fairness in it? It is a fairly deep technical question.”

Patrick Harker image via Federal Reserve

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SEC Charges ICO: US Agency Takes Action Against Alleged Token Scammer

The SEC has brought what appears to be its first charges against a company utilizing the initial coin offering (ICO) fundraising model.

In a press release issued late today, the U.S. securities regulator charged two companies and their founder, businessman Maksim Zaslavskiy, with violating anti-fraud and registration provisions of federal securities laws.

Allegedly, Zaslavskiy sold cryptocurrencies backed by assets that did not exist in two token sales, one for a project called Diamond Reserve Club World, and the other for an effort called the REcoin Group Foundation, the SEC said.

As evidence of the claims, the SEC said REcoin’s ICO was purportedly meant to raise funds for investing in real estate. But while Zaslavskiy told investors that REcoin had a “team of lawyers, professionals, brokers, and accountants,” the SEC claims he had not hired any personnel to invest the raised funds.

Further, while he claimed that the company had raised “between $2 million and $4 million” but in fact had only raised $300,000, the regulator said.

Likewise, DRC World was formed after the government “interfered” with REcoin, according to a statement attributed to Zaslavskiy and posted on a bitcoin forum on September 11.

According to the SEC, DRC World advertised that it would invest in diamonds, and would provide its investors with discounts for products, but the company did not invest in diamonds or have any business operations.

Both companies and Zaslavskiy’s assets were frozen through an emergency court order by a federal district court in Brooklyn, New York.

Overall, the announcement from the SEC is the latest indication that the agency is paying more attention to the Wild West of ICOs. Earlier this week, the regulator said it had created two new units focused on policing cybercrimes — including violations related to distributed ledger tech and ICOs — and protecting mom-and-pop investors.

The SEC is now looking for the companies to pay penalties in addition to returning all funds raised. In addition, the SEC is looking to prevent Zaslavskiy from participating in any digital securities offerings in the future.

The investigation is ongoing.

SEC image by Shutterstock.

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Source: The Global Blockchain

Disclaimer: This article should not be taken as, and is not intended to provide, investment advice. Please conduct your own thorough research before investing in any cryptocurrency.

IMF’s Lagarde: Ignoring Cryptocurrencies ‘May Not Be Wise’

The head of the International Monetary Fund (IMF) believes that cryptocurrencies may give traditional government-issued ones a “run for their money.”

Speaking at a conference in London, IMF chief Christine Lagarde told attendees that she thinks “it may not be wise to dismiss virtual currencies.”

Notably, she outlined possible scenarios in which a country – particularly those with “weak institutions and unstable national currencies” might actually embrace one more directly.

“Instead of adopting the currency of another country – such as the U.S. dollar – some of these economies might see a growing use of virtual currencies. Call it dollarization 2.0,” she said.

One of the driving factors behind that potential evolution would be a shift in consumer preference for new currencies that are “easier and safer” than existing ones. That scenario could be further hastened if cryptocurrencies “actually become more stable,” she said.

Lagarde went on to say:

“So in many ways, virtual currencies might just give existing currencies and monetary policy a run for their money. The best response by central bankers is to continue running effective monetary policy, while being open to fresh ideas and new demands, as economies evolve.”

That said, Lagarde noted earlier in her speech that such an outcome is, in her view, a distant prospect, saying that cryptocurrencies are “too volatile, too risky, too energy intensive, and because the underlying technologies are not yet scalable.”

To date, the IMF has advocated a balanced approach on cryptocurrency regulation, voicing that position in a January 2016 staff paper. Lagarde has also voiced support for financial applications of blockchain, a subject that the IMF has explored on an organizational level as well.

Image Credit: 360b / Shutterstock.com

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US Regulator: Cryptocurrencies May Pose Risks, Rewards for Credit Unions

The US federal agency that oversees the country’s credit union industry included a remark on the possible risks and benefits of cryptocurrencies in a newly-released strategy plan.

Published yesterday, the 2018-2022 Draft Strategy Plan largely focuses on the economic trends that will shape US credit unions, as well as the policy implications that may come about as a result. The growing use of fintech means that “credit unions are likely to face a range of challenges” from companies that are advancing products and services in this area.

According to the text, the potential for the wider use of cryptocurrencies is cited as one of the technology factors that could drive change in the way that credit unions do business.

“The emergence and the increasing importance of digital currencies predicted by many analysts may pose both risks and opportunities to consumers, credit unions, banks and financial regulators,” the report’s authors state, adding later: “These trends are likely to continue, and even accelerate, through 2022.”

Though the draft doesn’t mention it, a number of credit unions in the US have already moved toward exploring how they can apply the technology that underlies cryptocurrencies like bitcoin to their own operations.

Last year, a group of institutions unveiled the CU Ledger project, aimed at creating new services built on top of the tech. And just last month, the consortium of more than 50 credit unions revealed their plan to create a credit union service organization, or CUSO, and have since been seeking investors for the venture.

Image via Shutterstock

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US State Department to Host Blockchain Forum Next Month

A blockchain working group within the US State Department is hosting an event in Washington, DC, next month.

The [email protected] initiative has organized a one-day workshop, bringing together representatives from the various offices within the State Department (plus other parts of the US government) as well as those from the private sector. The goal of the event, according to the group, is to “explore both the policy implications and potential applications” of the tech within the context of US diplomatic efforts.

Set for October 10, the event will be held at the George C. Marshall Center. Though some details are unclear at this time – the opening keynote speaker is only identified as a “High-Level U.S. Government Official,” per EventBrite – confirmed speakers include Toomas Ilves, former president of Estonia, and State Department chief information officer Frontis Wiggins.

Part of the day will be dedicated to use cases, with IBM, Microsoft, Pricewaterhouse Coopers and ConsenSys, among other firms, included in the list of participating companies. The event will also see discussions on how blockchain can assist with various global issues, including humanitarian crises.

[email protected] was originally launched earlier this year with the goal of tracking blockchain developments and keeping the department informed of new applications with the technology.

This will be the second blockchain-related forum involving the State Department this year, after an inter-agency event held in July. That forum, co-hosted by the General Services Administration, was aimed at helping agencies develop six-month plans for utilizing the technology to further their unique missions.

Image Credit: Sorbis / Shutterstock.com

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Swiss Finance Regulator Is ‘Investigating ICO Procedures’

Switzerland’s top financial markets regulator is investigating the practices behind an undisclosed number of initial coin offerings (ICOs).

Though it didn’t name any specific token sales, the Swiss Financial Market Supervisory Authority said today that it is examining “a number of ICO cases to determine whether regulatory provisions have been breached.”

Specifically, the regulator wants to see whether organizers of ICOs, who sell cryptographic tokens in a bid to bootstrap blockchain networks, have violated any laws around anti-money laundering, securities or collective investment schemes.

FINMA said:

“Given the close resemblance, in some respects, between ICOs/token-generating events and conventional financial-market transactions, one or more aspects of financial market law may already cover ICO campaigns according to their various models. FINMA is currently looking into a number of different cases.”

That the agency would begin investigating the funding use case in Switzerland is perhaps unsurprising, given the growing number of regulators that have undertaken such actions in recent months. For example, South Korea’s government unveiled new measures today to restrict ICOs, stating that token sales run afoul of domestic capital market slaws. That move followed a similar crackdown in China earlier this month.

Yet how the situation in Switzerland will develop remains to be seen. According to FINMA, ICOs are not regulated under Swiss law because they do not have a third-party intermediary and are launched for one own’s platform. However, that does not mean ICOs are completely free from legal obligations, the agency added.

“Due to the underlying purpose and specific characteristics of ICOs, various links to current regulatory law may exist depending on the structure of the services provided,” FINMA wrote.

Image Credit: Lee Yiu Tung / Shutterstock.com.

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VanEck’s Bitcoin Futures ETF Effort Dealt Blow By SEC

An effort to launch a bitcoin futures ETF saw a setback today after SEC officials pushed back against the proposal, public records show.

Last month, The Global Blockchain reported that New York-based money manager VanEck had filed to create the VanEck Vectors Bitcoin Strategy ETF, which would be used to invest in “U.S. exchange-traded bitcoin-linked derivative instruments…and pooled investment vehicles and exchange-traded products that provide exposure to bitcoin.” It was one of a growing number of efforts to create financial products around the cryptocurrency that offer indirect exposure to investors.

Yet a new letter addressed to the SEC’s Division of Investment Management, VanEck assistant general counsel Matthew Babinsky indicates that officials at the agency won’t consider reviewing the firm’s request because of the nascent state of the derivatives market for cryptocurrencies like bitcoin.

As a result, VanEck is seeking to pull back (at least for now) the filings it made in August.

The letter explains:

“The Trust notes that on a call with the Staff on September 20, 2017, the Staff expressed the view that it is the Commission’s policy to not review a registration statement for a fund where the underlying instruments in which the fund intends to primarily invest are not yet available. The Staff requested that the Trust withdraw the Amendment until such time as the underlying instruments in which the Fund intends to primarily invest (i.e., bitcoin futures contracts) become available for investment.”

Babinsky added in the letter that, to date, “no securities have been sold in connection with the filing.”

Image via Shutterstock

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Edward Snowden: Zcash Is ‘Most Interesting Bitcoin Alternative’

Noted whistleblower Edward Snowden has come out in support of the privacy-oriented cryptocurrency zcash, calling it the “most interesting alternative” to bitcoin.

Writing in response to a tweet from technologist Mason Borda which read: “Zcash is the only altcoin (that i know of) designed and built by professional and academic cryptographers. Hard to ignore,” Snowden replied, “Agree.”

He continued:

“Zcash’s privacy tech makes it the most interesting Bitcoin alternative. Bitcoin is great, but “if it’s not private, it’s not safe.'”

Snowden is a prominent privacy advocate and is most well known for his massive leak of classified NSA documents in 2013. Asked for his thoughts on monero, a competing private currency, Snowden said it was “amateur crypto” and pointed to traceability issues within the tech.

Snowden said that such design errors could put fellow whistleblowers at risk, stating: “Mistakes happen and have huge consequences for people like me.”

The statements fed into the existing rivalry between the competing currencies. In the resulting flood of Twitter responses, Monero developer Richard Spagni strongly defended his project’s technology, while the creator of litecoin, Charlie Lee, stated: “I own Monero but not Zcash”.

Zcash and monero are both geared towards providing privacy for their users, but use different tools to – arguably it seems – achieve the same end result.

While zcash is based on a cryptographic operation called zk-snarks, monero works by obfuscating information with ring signatures and stealth addresses.

Snowden posters image via Shutterstock

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Holding Strong? Ether Prices Dip as Korea Bans ICOs

The ether-US dollar (ETH/USD) exchange rate fell to $278 today, a seeming response to news South Korea is joining the global backlash against the initial coin offering (ICO) funding model.

News hit the wires during the Asian trading session, with word that South Korea’s Financial Services Commission would ban “all forms” of ICOs echoing out across the global market nearly four weeks after China declared ICOs similarly illegal.

At press time, however, the market response to Korea’s news has been more tepid.

Despite the fact that South Korea has emerged as a major driver of trading volume, with news its exchanges will list new cryptocurrencies effectively doubling price, treaction was minimal – ether has held tightly to rangebound trading, hitting a high of $303.75 and a low of $280.59 today.

Following China’s ban, ether later extended losses to $200 levels.

Still, over the last two weeks, prices regained poise on speculation that Chinese traders are shifting bases to Japan, South Korea and Hong Kong.

Going forward, any announcement from other regional regulators could likely dampen recovery efforts. This means that while ether’s rebound from $278 to $297 is encouraging, price action analysis indicates it’s not out of the woods yet.

4-hour chart

The chart above shows:

  • A downside break of the triangle formation. The breakdown was on the back of stronger volumes and indicates the sell-off from the record highs above $390 may have resumed.
  • The recovery from the low of $278 lacks substance, i.e. volumes dropped.
  • $307 is strong resistance (confluence of 4-hour 200-MA + former head and shoulders neckline).

View

The recovery from $278 to near $300 levels could be short-lived. A rejection at $300 followed by a break below $278 would open doors for a sell-off to $240 levels.

On the higher side, only an end of the day close above $315 would signal bearish-to-bullish trend change.

Rock climbing rope via Shutterstock

‘The Global Blockchain’ is a leader in blockchain news. ‘The Global Blockchain’ is an independent media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies.

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Source: The Global Blockchain

Disclaimer: This article should not be taken as, and is not intended to provide, investment advice. Please conduct your own thorough research before investing in any cryptocurrency.