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Zero knowledge proofs key to enterprise blockchain success

Zero knowledge proof cryptography is a key tool used to keep enterprise-level data private on blockchains, QEDIT vice president of business development Shiri Lemel said.

Using QEDIT’s enterprise solution for preserving privacy on a blockchain, companies can transfer ownership of assets without revealing confidential data and while still maintaining compliance.

Blockchain technology first emerged with cryptocurrency, where assets were anonymously traded between individuals. At that level it worked fine with few complaints, but as entrepreneurs began to see the technology’s merits to address enterprise level issues, that anonymity wouldn’t make sense in an environment where companies must comply with KYC and AML regulations.

“The enterprise blockchain is different in how it’s used there, but the potential is huge,” Ms. Lemel said. “The ability to collaborate within it between enterprises sounds very attractive to lots of companies.”

But it’s not as simple as creating a blockchain and managing permissions, Ms. Lemel cautioned. If competitors are on the same blockchain, they can learn valuable trade information about each other from the meta data. Zero knowledge proof cryptography solves this by allowing parties to share proof of the data’s accuracy without sharing the actual data. Participants can move forward with transactions with the confidence they are basing their decisions on sound information.

Ms. Lemel provided a great illustration. Imagine a prankster stealing the Where’s Waldo books and replacing them with Waldo-less books so kids never find him. The kids are mad and parents no longer buy the books, leaving Waldo nowhere.

New Where’s Waldo books are produced and to prove to the marketplace Waldo is in there somewhere, the publisher clips all of the Waldo pictures from the various pages, puts them in an envelope, shakes them up and shows them to the people buying the books. They open them up and see many Waldos and hand the envelope back, confident that Waldo’s actually in there. The envelope is shaken up once again and the various Waldos are returned to their respective pages.  That way no one can link a specific Waldo to a specific page and ruin the fun.

“It allows you to show the data out of context without providing a way for the person to replicate the steps to get the information,” Ms. Lemel explained.

This development opens up a whole new way of thinking, and with it comes exciting opportunities for the enterprise, she added. But it is also happening as consumers are becoming wary of companies mining their data for profit. Companies are noticing and are beginning to restrict permissions in B2C services.

One immediate application is in the standard asset transfer process where market participants exchange debts, stocks and bonds between themselves. With zero knowledge proofs, the parties can exchange the needed information without any third parties knowing which two parties exchanged which assets.

Supply chain management is a second. It allows for efficient tracking of all participants at every stage. Standard supply chain management processes involve plenty of paper and a high potential for human error. But when you digitize the process, ownership is clear and fraud is reduced, Ms. Lemel added.

Imagine a factory in China making a popular track shoe brand. They keep the legitimate items and ship the knockoffs to unsuspecting retailers. Under a blockchain based system that is ineffective, Ms. Lemel said. The actual items will be assigned a token or provenance that traces directly to the brand while the imitations will not. That limits their value.

“That limits the effectiveness of fraud and gives a new perspective to fraud,” Ms. Lemel said.

It is also important to note these supply chains are private ones, as that has security implications, Ms. Lemel said.  By the nature of their onboarding process, permissioned blockchains won’t accept unverifiable members. Security then focuses on keeping data safe and getting competitors to join the network, knowing decentralized data is very secure.

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Shiri Lemel

“If they are onboarded they are already trusted by the governing body,” Ms. Lemel said.

A recent report from the World Economic Forum on harnessing the power of the blockchain found most data breaches occur not necessarily due to hacker skill, but more to insufficient security measures. That focus on security is a sign the industry is maturing, Ms. Lemel believes. Up until a few months ago most industry discussions focused on finding uses cases for blockchain technology. With that no longer an issue, it’s time to consolidate the gains.

“The main focus was on where to apply blockchain, and security consequences took a back seat,” Ms. Lemel said. “We need to give privacy and security a different level of thought. Market education needs to happen in the field.

“For many, the blockchain equals Bitcoin. To bring (blockchain) into the enterprise world there is a serious discussion which needs to happen on a different level.”

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