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"Blessed is he who plants trees under whose shade he will never sit."

— Indian proverb

Crypto’s market cap will be vindicated (without crypto)

Here’s my no-math explainer of what can be done with "zero-knowledge proofs":

Imagine you’ve counted every grain of sand on a beach and you want to impress a friend with this knowledge but you don’t want them to know the actual number. To do so, ask your friend to turn their back and secretly put a few grains of sand in their hand. You’d then recount the entire beach and subtract that number from the number you got on the first count: The difference is the number of grains in your friend’s hand — and amazing them with your knowledge of that number will prove you know the total for the beach.

In short, zero-knowledge proofs are a way to "convey no additional knowledge other than the correctness of the proposition in question," as its mathematician inventors described it.

This is worth keeping in mind because it feels like the world is on the verge of having a zk moment. 

First conceived in 1985, zk tech has long been confined to theoretical mathematicians as the computational power and infrastructure to bring them to reality was the stuff of science fiction — until recently.

Zk tech is now possible, and — most importantly — crypto is providing the incentives to pursue it: Crypto researchers are pouring money and resources into developing zk proofs that can both scale blockchains and make blockchain transactions private. 

This may or may not turn out to be important — blockchains might not need to be any faster than they already are and regulators might stop private, zk-based blockchains from ever going mainstream.

But even if so, such efforts will not have gone to waste because zk tech has applications far beyond crypto.

You probably won’t ever need to prove you know how many grains of sand there are on a beach without revealing the number of grains of sand on a beach.

But you might want to prove that you’re over 21 without revealing your age (embarrassingly far over, in my case) or that you can afford the rent of an apartment without revealing your income (embarrassingly not so far over, in my case).

There are many more such situations.

Any transaction involving data and identity (as so many do these days) could be radically transformed by widespread adoption of zk tech — this would allow us to reap the benefits of the internet without trading away our privacy to do so.

It may be that none of those privacy-maximizing transactions will involve crypto (no tokens will be required).

But if they do ultimately become commonplace, it will be because so much of the crypto industry’s resources have been devoted to zk research. 

This makes me feel much better about crypto’s $2 trillion market capitalization. 

Totally worth it

So, crypto could go to zero (not financial advice) and still have a long-lasting legacy from its role in developing things like zero-knowledge proofs.

This is not the "productive bubbles" argument that is often cited in defense of crypto — the idea that high crypto prices are creating an overbuild of blockspace that will prove to be as useful as the dotcom-bubble’s overbuild of fiber-optic cables. 

Instead, it’s the idea that crypto investment will prove to have been valuable even if all that blockspace is never used.

We might call this the "Black & Decker" argument because the better precedent for crypto is perhaps how cordless tools were first invented at the request of NASA for use on moon-bound spaceships (which don't have electrical sockets, I guess?).

NASA is also credited with inspiring scratchless sunglasses, memory foam, cameras that can fit in smartphones and the popularization of powdered drinks (like Tang).

I wouldn't say any of those minor miracles can justify the $25 billion of taxpayer money that NASA expends each year — they might have to colonize Mars to do that.

But the development of zk proofs, by contrast, probably will end up justifying all the money that investors have poured into crypto.

It won’t have to do so on its own, though, because there’s more — like passkeys.

Signing into crypto apps is a much nicer experience than signing into websites because crypto apps do not require passwords — you use a self-custodied private key instead, and that is both much easier and much safer (you can neither forget nor steal a password that doesn’t exist).

Passkeys work about the same way, except they are also recoverable, which is why they are starting to catch on — in crypto.

If passkeys spread from crypto to the rest of the internet (as they should), crypto will have helped realize a giant improvement in everyone’s life — many billions of dollars will be saved from hacking attacks and many billions of minutes will be saved from resetting passwords.

But that’s still not all that crypto may do for us.

A recent a16z podcast episode went in-depth on a long list of areas where crypto is advancing the understanding of non-crypto subjects: mechanism design, governance, automated market makers, batch auctions, monetary theory and trusted execution environments, among others. 

I found it convincing, but if that sounds too niche for you, consider as well that crypto-adjacent tech may be what saves us from the AI-robot takeover by providing proof-of-humanity, combating bot-generated fake news and democratizing LLMs. 

None of these things will require a crypto token, sadly, so they’re unlikely to make us rich. 

But if just a few of them hit, crypto will have been worth it — even if the tokens all go to zero.

— Byron Gilliam

Your all-time favorite newsletter author will be IRL at Permissionless chatting with the top liquid token fund managers on how they seek and find alpha in the digital asset space. Don’t miss it!

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