JPMorgan partners with Zerocoin to enable privacy of settlement transactions on the blockchain
Will ZCash’s zero knowledge proof protocol make private transactions possible on a public blockchain? JPMorgan seems to think so.
In the last week of May 2017, CoindeskCoinDesk, a cryptocurrency focused media business, hosted Consensus 2017, the third edition of their annual blockchain fintech industry conference. A notable feature of this year’s conference was a slew of showcase projects from financial industry and technology consulting giants who have vied with or partnered with blockchain start-ups to develop solutions for blockchain applications and technologies.
One such example was global financial services firm JPMorgan’s announcement of a partnership with the Zerocoin Electric Coin Company, creators of anonymous cryptocurrency Zcash. The companies announced plans to integrate ZSL, Zerocoin’s zero-knowledge security protocol to enable private transaction settlements on JPMorgan’s Quorum platform built on the Ethereum blockchain.
This article covers this development.
Privacy and security concepts concerns in blockchain technology
Privacy has been one of the greatest concerns with Bitcoin from the perspective of enterprise applications, with privacy trade-offs addressed in Satoshi Nakamoto’s original paper on Bitcoin. The Bitcoin blockchain is a distributed public ledger where consensus rules prevent the “double spending” problem without the need of a trusted third party. However, transactions while using public key anonymity, can be traced to wallets and users spending histories from public addresses and endpoints such as web wallets and exchanges. Services such as coin mixing, hardware wallets and off chain transactions have been some of the multiple strategies adopted to enhance privacy. However, these still leave users vulnerable to wallet thefts or loss as well as the sophisticated methods used not only by hackers but also state actors such as surveillance agencies.
Open Bitcoin Privacy Project (OBPP) is an open source, global organization whose mission is to improve financial privacy within the Bitcoin ecosystem. A research report published this year by OBPP earlier this year, identified the top four privacy threats for Bitcoin users in 2016. These were, merging co-owned funds, reusing bitcoin addresses, linking network identity to bitcoin address and linking bitcoin addresses together through network activity, all of which leave users vulnerable to tracing and identification, from attackers analysing the public blockchain or via network based attacks through nodes or web wallets.
With the arrival of blockchains such as Ethereum and the concept of “permissioned blockchains” advocated by global banking intermediaries such as JPMorgan Chase, new privacy models and protocols have been entering the blockchain technology ecosystem. Zcash is the outcome of one such project which is in the market both as a cryptocurrency and as a protocol that can add a privacy layer to any distributed ledger platform such as Bitcoin and Ethereum.
About Zerocoin and the ZSL protocol
Zerocoin Electric Company, the start-up behind Zcash and ZSL, the zero knowledge protocol layer that will be used for Quorum, has its origins in a research project that focused on addressing privacy (or lack of) on Bitcoin.
In 2013, at an IEEE Privacy and Security Symposium a paper titled “Zerocoin: Anonymous Distributed E-Cash from Bitcoin” published by researchers at The Johns Hopkins University Department of Computer Science, Baltimore, USA, introduced “Zerocoin”, a cryptographic extension to Bitcoin that augmented the protocol to allow for fully anonymous currency transactions, without requiring new third parties or changing the security model of Bitcoin.
A year later, at the IEEE symposium 2014, the original team in a collaboration with cryptographers at MIT, The Technion, and Tel Aviv University presented a new cryptographic protocol, Zerocash. In the paper titled “Zerocash: Decentralized Anonymous Payments from Bitcoin”, the team explained that “With the new Zerocash protocol, unlike the old Zerocoin protocol, users can make direct payments to each other with a vastly more efficient cryptographic protocol that also hides the amount of the payment, not just its origin.”
Zerocash made possible decentralized anonymous payment schemes that enabled users to directly pay each other privately, resulting in an encrypted transaction record that hid the payment origin, destination and transaction amount. To verify the transaction record on the public chain, the paper also introduced the underlying “zero knowledge proof” protocol, referred to zero-knowledge Succinct Non-interactive ARguments of Knowledge (zk-SNARKs).
In 2015, led by CEO Zooko Wilcox, the Zcash or Zerocoin Electric Company was launched. This time, the Zerocoin protocol was deployed to create a new cryptocurrency Zcash on its own blockchain, receiving wide coverage, for “reviving the dream of truly anonymous money”. The Zcash blockchain went live in October 2016.
In March 2017, Zerocoin announced on their blog, that Zcash’s privacy-preserving technology can meet many of the confidentiality and privacy requirements for enterprise distributed ledgers. Separate from Zcash blockchain, the post explained how Zcash’s architecture enabled zero-knowledge proof security layer, or ZSL, for use as a separate security layer on top of any distributed ledger. Further transaction privacy can be selectively enabled giving users control over the type of transactions such as payment receipts that can be publicly viewed.
The post also cautioned that ZSL did not automatically enable privacy and confidentiality for all the underlying distributed ledger features. It stated, “For example, integrating ZSL with the Ethereum codebase would make it possible to use shielded transactions to protect users’ privacy, but smart contracts would still need to be executed transparently.”
JPMorgan’s blockchain initiatives and the Zerocoin partnership
Zcash’s zero knowledge proof security and the development of ZSL aligns well with the enterprise blockchain strategy of global financial institutions. JPMorgan Chase was one of the early blockchain adopters when Bitcoin and the underlying blockchain technology started drawing global attention from governments and business enterprises. Since 2015, JPMorgan has invested in multiple blockchain projects such as R3 largely driven by a vision to build a permissioned, private blockchain for financial transactions. In 2016, JPMorgan shifted strategy to also build their own blockchain platform called Quorum™, on Ethereum blockchain.
As described on JPMorgan’s Quorum website page, “Quorum™ is an enterprise-focused version of Ethereum. Quorum supports both transaction-level privacy and network-wide transparency, customizable to business requirements.” JPMorgan also explained the objective behind the platform. “”The idea is to satisfy regulators who need seamless access to financial goings-on, while protecting the privacy of parties that don’t wish to reveal their identities nor the details of their transactions”.
At Consensus 2017, CoinDesk’s annual blockchain technology industry summit, Zerocoin Electric Coin Company and JPMorgan made an official announcement of partnership to add ZSL to J.P. Morgan’s Quorum platform. With the integration of ZSL, Quorum would extend private settlement of contract transactions on the blockchain.
Zooko Wilcox, CEO of the Zerocoin Electric Coin Company said, “We’re delighted to be working with J.P. Morgan on this project. Quorum’s innovative, open source design demonstrates that J.P. Morgan is leading the way for applications of distributed ledger technology in global finance. Zcash is the leading technology for cryptographic protection of assets on a distributed ledger. Combining these will unlock transformative possibilities.”
“By adding the Zero-knowledge Security Layer into Quorum, we are able to explore how state of the art cryptographic privacy technology will enhance the next generation of financial services applications.” stated Suresh Shetty, J.P. Morgan Executive Director and Blockchain Center of Excellence Lead Architect.
Impact of the Consensus 2017 announcement & Outlook
Although the partnership between JPMorgan and Zerocoin does not involve the Zcash currency or blockchain, the news has had a positive impact on the new currency. The value of Zcash surged nearly threefold from May 1 to $255 and a market capitalization of $350 million in the follow-up to the announcement.
Zcash’s zero knowledge proof protocol has the potential to make privacy and anonymity on public blockchains a reality. This in turn brings true fungibility to cryptocurrency and enable cryptographic protection of digital assets.
It is likely that as enterprise applications of blockchain technology go into mass adoption, security and privacy concerns will dominate the field. As an early entrant and innovator in this space, fintech start-up Zerocoin may well have a potential winner on their hands.