ZK-ID in the Context of DeFi | European Blockchain Convention 9

[Music] 2 1 hello everyone uh I'm Adam from alzero we're working on layer one with uh privacy framework today I'm going to talk about ZK ID in the context of defi so ZK ID stands for zero no zero knowledge identity and it connects to seemingly opposite Concepts so zero knowledge as you some of you may know is all about anonymity and privacy while identity especially onchain identity is all about accountability traceability and uh well connecting all the actions to one user so uh before I actually dwell into into how how to connect these two opposite terms uh maybe one comment on on on anonymity on blockchain very many people think that blockchains by default are are private or Anonymous so this is by far not true and pretty common problem is that whenever I as an account owner transact or interact with a with another party this party is able to backtrack my transaction and see my entire transaction history so like provided that I'm actually using my account to to buy things well it's a bit like with browser history so like my transaction history doesn't need to be illegal to be sensitive I mean definitely there there are things there which I wouldn't like to reveal to to the open public and this is what happens by default on blockchains everything is public and everything is revealed to the open public uh so not only Bob here with which I interacted with C everything but also all the evil actors of the world can see everything uh one I think that well we can create create another account but actually there is not so hard to see through such uh such actions and there are even even companies which are specializing in backtracking uh such such patterns so what many many people do is that whenever they want to interact with a new party uh what they do they use centralized exchange as kind of a mixer so they are sending tokens to centralized exchange and then they are sending in somewhere from this centralized exchange uh so the goal here is that well it's not really possible to back tracking anymore because this address of centralized exchange possibly has thousands of millions of dollars in it and uh and acts on behalf of thousands of users so yes this effectively well at least achieves the this thing but it's not public to everyone what I'm doing it's still of course uh possible to uh to see by by owners of this particular exchange but it's still a bit better although obviously a problem here is that uh while we are living in this decentralized world we're trying to build the decentralized systems and now out of a sudden the only privacy we can get is through centralized exchanges which is well not what we've been fighting for uh so what people are doing are is replacing the centralized exchanges by crypto phography so but in particular ZK snarks this is the buzzword many of you possibly have seen already uh the idea here is that this is this acts as a trusted third party but actually there is no manager there this is just pure cryptography I'm not going to go deeper into that because of the time constraints uh what I want to comment on though is that this is actually a b bit too good it gives a bit too much privacy in the sense that well it's often abused so uh the history shows that this is by far the favorite Financial instrument by hackers and uh other illicit actors so majority of blockchain hacks uh have share the same story someone steals the funds and then this funds end on a crypto mixer and then they are the trace is effectively Lo lost and there is like literally no mathematical way of uh of backtracking it which is bad uh so one thing is that it's of course bad that the illicit funds are getting mixed but the other thing which is also bad is that uh well the an CH analysis claims that 23% of suns funds sent to mixers are illicit but while the remaining 70 7% of users are are also affected by sanctions which well is also uh kind of like bad thing so what we're trying to do in lfz and what zkid is all about uh in the context at least of blockchain uh blockchain actions uh is solving this problem so making such an anonymity pull that will somehow uh ban Hackers from it so in a moment I I'm going to show how in theory it's possible but first what is blockchain ID in general so the pattern like for for General blockchain IDs as follows Alice can show some documents or phe or some other information to to a trusted provider then the St trusted provider means some kind of U ID token to Alice which resides on her wallet from then on then for example whenever she interacts with some decentralized exchange this exchange can request her to to well to check her ID so because maybe it's exchange which which does not accept some some kind of user so she needs to be verified that that her ID is good enough to to use this particular contract and after it is verified the trade is executed there are two ways you can think about it one is that this ID can be transferable between accounts in some cases it may sense in some cases it does not and there is also concept of sbound ID which is forever bound to account so in all practical aspects it's forever bound to uh to specific person accounts are rather not transferred between people because it's hard to transfer private key uh so what is blockchain ZK ID then it's actually pretty similar with the but the the core difference is that much less things are visible on chain so that's why we call it zero knowledge uh so again Alice shows some documents uh to The Trusted party but right now The Trusted party does not publicly meant token what happens instead is the trusted party establishes a secret ID with Alice so now when Alice wants to use some Financial is strument which is uh which is not for everyone which which requires some specific identification uh this identification happens in zero knowledge which means that she is able to cryptographically prove only the thing that she is allowed to use this exchange or this particular Financial instrument no information over that is ever leaked so she provides this clever cryptographic proof to the de and then uh after the proof is verified she is able to interact with it as uh as a accepted user so why uh what are the properties of it so uh first uh Alis transaction origin is UN unidentifiable meaning that uh while provided that she was keeping some kind of a address hygiene the the ID system itself does not reveal any additional information than what would be revealed without it so uh yeah so the Privacy is not sacrificed because of this uh this additional requirements the other thing Alice can do it from any of her accounts uh that's because we do not have any specific token which is account bounce right now what what we have instead is Alice which knows some information and she has an ability of creating this proofs and she can create this proof from any any address she wants these proofs are are things she computes on um on her machine and hence she can attach them to a transaction originating from any particular address this is also um very good from the Privacy perspective because Alise can freely uh change between addresses and from for any of these addresses she can use the same true identity of herself for any practical reason and uh what's very important here is that if the transaction is later found to be fraudulent the kyc provider can link it to Alice out afterwards so the system have a property that there is this specific actor which is the kyc provider which actually can track Alis transactions the provider does not do it uh on a daily basis although Whenever there is a specific transaction which is seemingly fraudulent a KC provides can look into it can see what id was uh was attached to it and can uh can identify all the trays of the of this particular transaction so this is the first iteration of the system that we uh that we're building this is a very sensitive component this this decision Factor so who we want to reveal and who we do we do not want to reveal so initially we're thinking about it in a way that there will be a single KC provider that will be deciding based on uh Court judgments which uh which transactions needs to be revealed which and which not in the further iterations we're planning to have a dowo of uh of different kyc providers and the common the consensus on the decision will be required to reveal any transaction thank you uh that's concludes the presentation if there are any questions I think I should have a couple of minutes [Applause] can we support the question anybody have any questions okay uh the first version does it seem super centralized for having something very private I mean you have like a single point of failure which is your kyca then why I want to hide my identity since that guy knows everything about me yeah so that's true it's it's centralized in this sense although uh what we're replacing is the system where entire world can see everything about you with a system when where there is a single provider uh which can see these things about you the provider we're working with already supports almost a million users and it never revealed anyone uh because it never got a court claim so uh I do agree that this version is suboptimal and as it's centralized but it's still significantly better than what is meant to replace hello hello sorry my name is an know so if the Lazarus group could U hack those bridges they can also hack this uh centralized place where all these IDs are stored um well of course I mean everything can be huged the the thing is that bridges are huged because a lot of tokens are stored in the bridges so they are hacked for economical reasons because well bridges are contracts which traditionally store the most value inside uh so right now like with this system in place in order to hack a bridge and and escape with the funds you need to hack two things already you need to hack bridge and on top of that you need to hack um this anonymizer so well I'm not going to claim that this is unhackable everything is hackable to some extent uh the the thing is about the costs uh so hacking two independent systems is obviously significantly harder than hacking a single system and U yeah I guess that's the best answer I give one more question and maybe on top of that Hing just this system without stealing any funds doesn't bring you any value because well you don't have stolen funds to to anonymize so like indeed you actually need to hack two systems in order to to get away with it hello um thank you so much for like what you're doing first of all uh and second of all uh what is the main difference with the polygon super nets for instance because as far as I know this is one of the best uh sh chain IDs uh solution yeah so I we are obviously not the only ones uh building building system like that uh I'm from the top of my head I'm not sure what's the decision process in polygon for for revealing stuff uh yeah I'm sorry I I I'm just don't know from the top of my head the the polygon solution deep enough uh but I assume that uh yeah I so sorry I'm just not sure okay sorry like for this question but uh do you do any research with uh competitors yeah obviously obviously we do uh right now the the solutions that we see as most similar is actually not polygon uh but sorry Avalanche or near I mean these are the layer ones we what we're uh usually researching are the Privacy systems so things like for example rail gun on ethereum or uh like we we do a lot of uh things when it comes to private defi so projects as penumbra on Cosmos also uh yeah we Al Alo have a have a very very similar um framework when it comes to privacy to to us so yeah we of course do uh comp competitive research just uh like when it comes to the specific item of polygon I'm sorry from the top of my head I I cannot answer it okay great thank you so much thank you very