As blockchain integration becomes increasingly mainstream, the boundaries between traditional and innovative finance are rapidly disappearing. But against this backdrop, trust and privacy concerns remain critical hurdles.

The fallout from ‘crypto winters’ – prolonged downturns in cryptocurrency markets, such as the slump of 2022 – and high-profile blockchain scandals has left businesses and regulators questioning how to navigate a complex and evolving landscape.

The permissionless and public nature of the most popular blockchains may attract capital and innovation, but core challenges around privacy and security remain unresolved.

This white paper, Zero-knowledge proofs in blockchain finance: opportunity vs reality, produced by Deutsche Bank’s Digital Assets & Currencies Transformation team in partnership with blockchain research and software engineering firm Nethermind, argues that ‘zero-knowledge proof’ (ZKP) technology could help to solve trust and privacy challenges in blockchain finance, if barriers to widespread adoption can be overcome.

Just some of the possible benefits/use cases identified include:

• Streamlining of anti-money laundering and know-your-client (KYC) verification;
• Supporting proof of reserves for digital asset custodians; and
• Facilitating blockchain scaling solutions, such as zero knowledge (ZK) ‘rollups’.

The report highlights some challenges to widespread adoption, including:

• The need for financial institutions to balance client privacy against controlled regulatory disclosure;
• The legal status of ZKP-based evidence varies across jurisdictions and regions; and
• A lack of common industry standards.

The paper notes that financial institutions that engage early with ZKP technologies will be better positioned to protect client assets, streamline compliance, and drive innovation in digital finance.

To read the white paper in full, download it using the link below: