The crypto-centric investment arm of venture capital firms claims that modern encryption technologies, such as zero-knowledge proof, protect users’ privacy and yet law enforcement can crack down on bad actors.
In a report Tuesday, Aiden Slaven, A16Z’s crypto policy partner, and regulatory advisor David Sverdloff, said ZK Proof, which tests the credibility of the data without disclosing detailed personal information, has “the greatest potential” by showing the origins of the funds, but will not publicly deploy personal information.
Their report came just two weeks after Roman Storm, co-founder of Crypto Mixing Service Tornado Cash, which allows users to mask the origins and destinations of cryptocurrencies, happened just two weeks later.
Law enforcement and prosecutors at Tornado Cash Case argued that mixing services that obscure the origins of funds would help promote criminal activity by providing a means to hide grumpy benefits.
“If a user can provide such evidence when he exchanges Crypto for Fiat currency, the cash-out points will have a reasonable assurance that the cryptos will come from criminal proceeds and that the user will be able to retain more privacy than on-chain transactions,” Slaven and Sverdlov said.
sauce: A16Z Crypto
ZK Proof has a variety of privacy-related uses
Slaven and Sverdlov also suggest that Zk-Proofs is using more than just funds. They can help other everyday tasks, such as proof of national citizenship and equivalents.
“With zero knowledge proof, a person can prove the proposal to someone else without disclosing their driver’s license, passport, birth certificate or other information,” they said.
“Zero knowledge proof allows us to confirm the facts of certain or additional information that could undermine privacy (either with address, date of birth or indirect password hints.”
Hester Peirce, a member of the Securities and Exchange Commission, repeated similar sentiments in the Science of the Blockchain Conference on August 4, insisted that privacy protection technologies should be protected.
Privacy technology ready for mainstream adoption
According to Slaven and Sverdlov, critics raise scalability concerns about cryptographic privacy technology, but advances such as reducing computational overhead make large-scale implementations more practical.
“Cryptographers, engineers and entrepreneurs continue to improve the scalability and ease of use of zero-knowledge proofs, making them an effective tool to meet the needs of law enforcement while maintaining personal privacy,” they said.
The US government’s July crypto report flagged ZK-Proofs as a way to protect user privacy while enabling compliance checks. JPMorgan’s private blockchain, Nexus, uses technology for tokenized cash settlements and interbank messaging.
Related: Sec’s Peirce defends trading privacy as Tornado Cash Verdict Looms
Other crypto privacy technologies worth exploring
In addition to ZK-Proofs, Slaven and Sverdlov said there are other options worth exploring, such as homogenous encryption, a kind of encryption technique that allows some of the data, such as numbers, to be used without decorating other personal information.
Other possibilities include differences in privacy that ensure that multiple people can work together to calculate private data without revealing it to anyone, or that aggregated data collected via methods such as research to ensure that individuals cannot be identified.
“From telegraphs and telephones to the internet, new technologies have constantly sparked new uneases about the imminent end of privacy,” Slaven and Sverdloff said.
“Blockchain has not proven different, and blockchain privacy is often misunderstood because it creates dangerous levels of transparency and creates a shelter for crime.”
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