Three emerging technologies for 2023

Have you ever heard of “Zero-Knowledge-Proofs”, “Self-Sovereign-Identity” or “Account-Abstraction”? What sounds like supercoder slang is actually meant to meet the very simple needs of the Web3 industry. Because with every innovation comes new challenges. And these technologies make the applications of tomorrow simpler, more intuitive, and show that crypto is more than just price speculation. Anyone who knows them today can be at the forefront of the next wave of innovation.

1. Zero-knowledge proofs

Zero-knowledge proofs (ZK proofs) were already a topic at the end of this year. In the next, they could cause a veritable explosion of individual sectors. Because ZK proofs seem to be able to offer many areas of the crypto industry the long-awaited fuel.

Simply put, it is cryptographic (read mathematically) proof of the accuracy of information without having to reveal its contents. This not only protects privacy in general, but also enables a new way of dealing with sensitive digital data in the otherwise transparent blockchain industry.

The ingenious thing about ZK proofs: The computational effort for validating undisclosed information is minimal. Complex cryptography in a compact package, if you will. This makes them particularly attractive for blockchain scaling. Importantly, Ethereum would theoretically be infinitely scalable using ZK proofs.

Over the next year, the Ethereum ecosystem will be expanded with ZK-based layer 2 blockchains in addition to bullish rollups such as Optimism and Arbitrum. These include Starkware’s Starknet, ZK-Sync and Polygon’s zkEVM. The first two are already in the early stages of their mainnet. They will soon be usable with common DeFi applications.

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But the scaling of smart contract blockchains isn’t the only one getting a boost. ZK proofs are great for protecting privacy. Web3 users no longer need to reveal sensitive information to interact with various applications. This should significantly change online KYC procedures (“Know Your Customer”).

ZK proof can be used, for example, to verify the identity of users without having to know details such as address or date of birth. In (crypto) loans, on the other hand, the creditworthiness of users would be ensured without further delay, which significantly shortens the application processes.

2. Digital identities

With the growth of ZK technology, we can expect a blossoming of digital identities next year – the Sovereign Identity (SSI). As user-friendly as Web2 platforms were, in retrospect the handling of personal data on them was disastrous. This is also evidenced by recent reports of compromised user data on Twitter.

We are essentially making the same mistake as storing our private keys through centralized exchanges. “Not your keys, not your coins” is the saying. Or should we now say: “Not your keys, not your identity”? If I can keep my own money with private keys, why not my own data?

Polygon, for example, has been working on digital identities since the beginning of this year and is expected to use them at all levels with the start of the zkEVM blockchain. In the coming year, this will not only pave the way for on-chain verification in various DeFi protocols, but also make social media on the Web3 suitable for the masses.

New crypto regulations are expected to come into effect in the coming year with the MiCA in Europe and the DCCPA in the United States. They are primarily aimed at combating money laundering and tax evasion, as well as protecting privacy. Regardless of the usefulness of these regulatory approaches, it is now questionable whether the sector can then continue to exist in its current form.

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Because regulation will force central and decentralized crypto service providers to verify the identity of their users – aside from the fact that it goes against the nature of the DeFi industry. In the rest of crypto-finance, massive, centralized data storage would create new vulnerabilities and pose increased threats to privacy.

With the ISS, users and service providers could meet this requirement without giving up the protection of their own data and the decentralization that prevails in the sector. This technology is therefore expected to grow in importance in response to new regulations in the coming year.

3. Account abstraction

Apart from inflation, energy crisis, and crypto crash, the lack of mass adoption in the blockchain industry was due to the ever-difficult handling. Self-custodianship of your own cryptos and their use in the DeFi space remains cumbersome and unintuitive.

Future crypto users are drawn to platforms whose benefits outweigh their complexity. Through account abstraction, complex blockchain processes are moved to the background. Instead, users interact with the new Web3 protocols with the familiar ease of Web2 applications.

In this case, a blockchain user account with the associated address is simply replaced by a smart contract. This has many more functional options. Now transactions can be signed in batches, elimination limits can be set and payments can be automated. Payment service provider Visa recently presented concepts to ensure the latter using account abstraction on Ethereum.

With smart contract wallets, gas fee payment could be transferred to the corresponding application, instead of users paying for each individual interaction. Additionally, users can manage their private keys more flexibly using the built-in key manager. It would therefore be possible to create a respective session key for the individual applications instead of a permanent private key. This can then be rotated or, if in doubt, restored using a digital identity.

Account abstraction has been planned for some time on Ethereum with EIP-4337. However, with Starknet and ZK-Sync, layer 2 blockchain solutions are already working with a native account abstraction, which could lay the groundwork for mass adoption in the coming year.

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