Beyond Web3: Understanding the ZKP Application Landscape and Entrepreneurial Opportunities
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Beyond Web3: Understanding the ZKP Application Landscape and Entrepreneurial Opportunities
Zero-knowledge technology, or ZK for short, is a transformative force that will not only change Web3 but also other industries.
Navigating Web3 tides with focused insights
Authors: Mohamed Fouda & Qiao Wang, Alliance DAO
Translated by: TechFlow
In this bleak crypto winter, both primary and secondary markets seem to have reached a "freezing point"—yet one sector remains red-hot and full of FOMO: zero-knowledge proofs (ZKPs), currently the only dominant paradigm in the crypto space.
Why are zero-knowledge proofs (ZKPs) considered a technological revolution—something even more significant than crypto itself?
Today, we share AllianceDAO’s in-depth research on zero-knowledge proofs, exploring ZKP applications and investment opportunities.
Full Article Below:
Zero-knowledge technology, or simply ZK, is a transformative force that will not only reshape Web3 but also impact other industries.
It is a general-purpose technology with many potential use cases, and we are still in the early stages of discovering all its applications.
Some obvious ZK use cases have already found practical implementations, such as transaction privacy and data compression via rollups.
However, for ZK to go mainstream, more use cases and technical advancements are still needed.
In this article, we first review different ZKP applications before discussing what could drive the next phase of this technology, along with several startup ideas that could benefit from it.
ZKP Application Map
Since their invention, zero-knowledge proofs (ZKPs) have established a strong foothold in cryptocurrency.
ZKPs are indeed an exciting and almost magical technology. At a high level, ZKPs allow one party to prove to the rest of the world that they know certain information—or successfully completed a task—without revealing the actual information or execution details.
The magic of ZK allows us to trust knowledge or execution results simply by verifying the generated ZKP. For this reason, the first and most natural application of ZKPs has been privacy-focused crypto networks.
ZKPs are also used to provide validity proofs for Layer 2 transactions on Ethereum, giving rise to the concept of ZK rollups. Additionally, ZKPs have found niche applications across various projects.
Privacy-Centric Payments and Protocols
ZKPs enable privacy, especially in decentralized networks lacking a central authority as a source of truth.
ZKPs allow Web3 users (i.e., provers) to prove to network validators (i.e., verifiers) that their transactions are valid—such as having sufficient balance—without disclosing transaction details like amount, sender, or receiver addresses.
ZKPs were initially developed to support shielded (i.e., private) payments in the Zcash network, then expanded to other networks.
Implementations of private payment networks include:
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Privacy-focused L1s: Zcash, Horizon, Aleo, and Iron Fish
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Privacy smart contracts on general-purpose chains: Tornado Cash
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Privacy-focused L2s: Aztec
Verification in zkRollups
Another major use case of ZKPs is generating validity proofs for rollups on underlying L1 blockchains. General-purpose rollups optimize throughput by not leveraging ZKP's privacy features, instead using ZKPs solely as correctness proofs for L2 transaction execution.
Because some general functions cannot be efficiently proven, generating ZKPs to verify arbitrary smart contract execution is difficult. Solving this requires specialized virtual machines whose operations can be efficiently verified using underlying zk circuits.Due to this complexity, zkRollups initially supported only payments or single applications, such as DEXs, where ZKPs could be easily generated. Examples include zkSync 1.0 and Loopring.
Later, zkEVMs emerged, including Starknet, zkSync 2.0, Polygon zkEVM, and Scroll.
Currently, all zkRollups operate on Ethereum, although the technology could potentially be implemented on other chains, such as Bitcoin.
However, implementing Bitcoin rollups would require changes to Bitcoin’s opcodes and a hard fork—generally unpopular within the Bitcoin community.
Other Zero-Knowledge Proof Applications
Beyond privacy-centric applications and rollups, ZKPs are being applied in other blockchain protocols.
Mina
Mina uses ZKPs to compress the blockchain state into a very small size (~22 KB).
To achieve this, Mina employs recursive ZKPs—proofs of other proofs. When a new block is created on the Mina network, zk-SNARKs generate a proof of its validity. Since each new block references prior blocks, the new block’s ZKP recursively verifies all previous blocks while maintaining constant size.
Filecoin
Filecoin uses ZKPs to ensure storage providers correctly store data.
This process is called Proof-of-Replication (PoReb). Providers generate ZKPs to prove they are storing unique copies of data—not referencing replicas maintained by others. These ZKPs offer guarantees to clients. Moreover, since proof sizes are much smaller than stored data, using ZKPs reduces bandwidth requirements for storage providers.
Celo Plumo
Celo Plumo uses ZKPs to create lightweight network clients usable on mobile phones and other resource-constrained devices.
Despite being lightweight, these clients guarantee the correctness of the state they access.
Dark Forest
Dark Forest is the most popular application of ZKPs in gaming.
While ZKPs naturally align with privacy, their ability to create games with incomplete information represents a unique use case beyond financial applications in payment networks.
Evolution Trajectory of ZKP and Its Applications
Until 2016, ZKPs were merely a research topic discussed within small academic circles.
That changed when the Zcash founding team created zk-SNARKs, a variant of ZKPs, to support private transactions on the Zcash network. With real-world use cases emerging, interest in ZKPs grew rapidly, leading to better and more advanced variants. However, further development is still required for mainstream adoption.
To understand how to further improve the technology, we can learn from similar fields like artificial intelligence. In many ways, ZKP resembles AI and is expected to follow a similar trajectory. Like ZKPs, AI began as a promising technology capable of solving many problems. Yet early AI algorithms had limited capabilities, and computational demands far exceeded available hardware, making AI applications slow and impractical—mostly confined to research labs.
Gradual improvements came through innovations like deep neural networks (DNNs) and leveraging GPUs for faster execution. Breakthroughs followed, such as AlexNet in 2012, which dominated the ImageNet computer vision competition. AlexNet marked the beginning of the modern AI era, paving the way for today’s astonishing AI applications like GPT-3, DALL·E 2, and Stable Diffusion.
Today’s ZKPs resemble early-stage AI—a promising technology still under active development. Learning from AI’s progress, we can identify key bottlenecks that must be overcome for ZKP to take off.
1. Algorithm/Circuit Improvements
Just as AI evolved from LeNet-5 to AlexNet, ResNet-50, and eventually Transformers, ZKP algorithms are expected to undergo similar advancements. We’ve already seen progress: since zk-SNARKs were introduced in 2011, more sophisticated algorithms have emerged.
In 2018, Starkware’s founders developed STARKs—an untrusted setup ZKP method—with shorter proof generation times. This technology underpins several Starkware products, including StarkNet.
With the introduction of PLONK in 2019, ZKPs advanced further. PLONK is a SNARK implementation enabling multiple applications to share a single trusted setup without reinitialization. PLONK spurred multiple implementations now used by various Web3 protocols, including Aztec, Mina, and Celo.
2. Optimized Execution Engines
A major limitation of ZKPs is computational complexity, resulting in long proof generation times. For example, Polygon’s recently announced zkEVM requires about five minutes on a 64-core server to generate a proof for 500k gas worth of computation. Reducing ZKP proof time is crucial for mainstream adoption.
Similar to AI, optimizing software execution engines and utilizing dedicated hardware are both essential.
Software Optimization
Many ZKP operations are parallelizable, meaning parallel processing (e.g., GPUs) can accelerate computation. Dedicated GPU libraries like CUDA can speed up ZKP calculations on Nvidia GPUs. Some projects are developing internal solutions due to varying ZKP algorithms. A notable example is Filecoin’s Groth16 implementation, which uses GPUs to accelerate proving. Another is Edgeswap, which reduced PLONK proving time by 75% using GPUs.
Dedicated Hardware
Since GPU acceleration offers limited gains, another option is using dedicated hardware like FPGAs or ASICs. FPGAs are often used as prototyping platforms before manufacturing ASICs. In the medium term, FPGAs or hybrid GPU-FPGA solutions could play a significant role in accelerating ZKPs for rollups and privacy-centric networks.
However, if ZKP technology advances as expected, ASICs will eventually dominate this market. Currently, hardware acceleration for ZKPs remains underserved, likely due to algorithmic diversity and fragmentation. Nevertheless, we believe companies with the right business model can focus on this layer of the tech stack and build valuable businesses.
3. Software Abstraction Layers
To unlock the full potential of ZKPs, several abstraction layers and tools need to be built. These abstractions are necessary to simplify ZKP application development and allow developers to focus on their core expertise. For instance, app developers shouldn’t need to worry about low-level ZK circuit details.
Again, drawing from AI, massive progress was made possible by creating multiple abstraction layers. With these, AI developers no longer need to manage NN architectures or hardware allocation. Frameworks like TensorFlow and PyTorch abstract away these complexities.
The ZK development stack is not yet as mature as AI’s. However, efforts are underway to build these abstractions. At the base are low-level ZKP libraries like PLONK and STARK. Above them, high-level languages like Noir aim to abstract underlying ZK cryptography, helping app developers focus on logic.
Circom is another popular ZKP language positioned between layers, useful for building complex ZK backends or ZKP-based apps.
Another example in Web3 is StarkWare’s Cairo language, allowing developers to write general smart contracts backed by STARK proofs.
For higher abstraction, Nethermind’s Warp tool enables Solidity developers to directly convert their code into Cairo.
Using Warp, Uniswap V3’s code can be translated into Cairo with minimal changes to the original Solidity.
ZKP Startup Opportunities
Based on our discussion of ZKP’s potential evolution, we’ve identified several ZKP-related startup ideas.
These ideas fall into two categories: tools and applications.
ZKP Tools
1. High-Level Development Frameworks
Similar to TensorFlow and PyTorch in AI, high-level ZKP development frameworks are critical for unlocking innovation at the application layer.
Such frameworks should:
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Abstract away the complexity of underlying ZKP backends
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Support various ZKP backends and hardware environments (CPU, GPU)
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Enable efficient debugging and testing
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Provide a rich development environment with examples and tutorials
The closest equivalents in the Ethereum ecosystem are Hardhat and Foundry, but they won’t support zkEVMs or ZKPs anytime soon. Instead, existing abstraction efforts like Cairo may evolve to fill this gap.
2. ZK Rollup SDKs
ZK Rollups are gaining popularity as customizable L2s for specific applications like games or high-throughput DeFi protocols. These rollups handle execution and settlement, while consensus and data availability remain on L1. However, launching a custom ZK Rollup remains highly complex.
We believe startups offering developer-friendly SDKs for launching custom ZK Rollups will address real demand and can become valuable businesses by providing dev toolkits, developer services, sequencer services, and supporting infrastructure.
3. ZKP Hardware Acceleration
Hardware companies targeting specific use cases and establishing early market leadership can become extremely valuable. This happened with NVIDIA focusing on AI hardware to become North America’s most valuable semiconductor company. It also occurred in Bitcoin mining, where Bitmain, Canaan, and Whatsminer became unicorns by specializing in ASIC miners. Companies designing and building efficient ZKP hardware accelerators will likely follow the same path.
ZKP Web3 Applications
1. ZK Cross-Chain Bridges and Interoperability
ZKPs can generate validity proofs for cross-chain messaging protocols, enabling fast verification of messages on destination chains.
This is analogous to how ZK Rollups are verified on underlying L1s.
However, cross-chain messaging is more complex because signature schemes and cryptographic functions to be verified may differ between source and destination chains.
2. ZK On-Chain Game Engines
Dark Forest demonstrates that ZKPs can enable on-chain games with incomplete information. This is crucial for designing more interactive games where players’ actions remain hidden until they choose to reveal them.
As on-chain gaming matures, we expect ZKPs to become integral parts of game execution engines.
The opportunity is immense for startups that successfully integrate privacy features into high-throughput on-chain game engines.
3. Identity Solutions
ZKPs open up several opportunities in identity authentication. They can be used for reputation systems or connecting Web2 and Web3 identities. Currently, our Web2 and Web3 identities are separate. Projects like Clique use oracles to bridge them.
ZKPs can advance this by enabling anonymous linking between Web2 and Web3 identities. This could allow individuals who can prove domain-specific expertise via Web2 or Web3 data to participate anonymously in DAOs, among other use cases.
Another use case is unsecured Web3 lending based on a borrower’s Web2 social status (e.g., number of Twitter followers).
4. Compliance-Friendly ZKPs
Web3 enables anonymous online accounts to actively participate in financial systems. In this sense, Web3 delivers massive financial freedom and inclusion.
As Web3 regulations increase, ZKPs can help achieve compliance without compromising anonymity.
ZKPs can be used to prove a user is not a citizen or resident of a sanctioned country.
They can also verify accredited investor status or any other KYC/AML requirement.
5. Web3-Native Private Debt Financing
Traditional finance often uses debt financing to help growing startups accelerate or launch new business lines without raising additional venture capital. The rise of Web3 DAOs and pseudonymous companies creates opportunities for Web3-native debt financing.
For example, using ZKPs, a DAO or pseudonymous company could obtain unsecured loans at competitive rates based on proofs of growth metrics—without revealing borrower identity to lenders.
6. Privacy-Preserving DeFi
Financial institutions typically keep users’ transaction histories and risk profiles confidential. Due to advances in on-chain analytics, this is difficult to maintain when using on-chain DeFi protocols. One solution is developing privacy-focused DeFi products to protect participants' privacy.
Penumbra’s zkSwap is a protocol attempting exactly this.
Additionally, Aztec’s zk.money offers private DeFi yield opportunities by obscuring users’ interactions with transparent DeFi protocols. Generally, protocols that successfully implement efficient, privacy-preserving DeFi products can attract significant volume and revenue from institutional participants.
7. Web3 Advertising
Web3 promotes user ownership of personal data—such as browsing history and private wallet activity—and enables monetization of this data for user benefit.
Since data monetization may conflict with privacy, ZKPs can play a key role in controlling which aspects of personal data are shared with advertisers and data aggregators.
8. Private Data Sharing and Monetization
Much of our private data could have significant impact if shared with the right entities. Personal health data could aid researchers in drug development.
Private financial records could be shared with regulators to detect and punish corruption. ZKPs can enable private sharing and monetization of such data.
9. Decentralized Intelligence Organizations
ZKPs could give rise to decentralized intelligence organizations. In such networks, spies, data scouts, and informants could contribute without knowing or communicating with each other.
Participants could use ZKPs to prove knowledge of certain intelligence data, then receive private payments in exchange. Such systems could also support collaborative and composable methods to enrich or interpret collected data while preserving participant anonymity.
10. Private Governance
With the surge of DAOs and on-chain governance, Web3 is moving toward direct participatory democracy. A major flaw in current governance models is lack of privacy.
ZKPs can fundamentally solve this. Governance participants could vote without revealing their choices.
Moreover, ZKPs could restrict DAO members’ visibility into governance proposals, enabling DAOs to maintain competitive advantages.
Conclusion
ZKP technology is one of the most innovative in the Web3 space, offering diverse opportunities for revolutionary protocols and startups.
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