Yesterday, I finished organizing the content of the Midnight Network white paper Day 1 with everyone, and I also thoroughly explained the industry contradiction between 'transparency and openness' and 'compliance and privacy' in blockchain. Many friends privately messaged me asking: I understand the reasoning, but how can blockchain, being a public distributed ledger, achieve the simultaneous recording of accounts while hiding specific amounts and identities?
The questions are very practical. Today, I will take everyone deep into the technical core of Midnight, using straightforward language to break down the top cryptographic technology in the cryptocurrency world: ZK zero-knowledge proofs, as well as Midnight's unique core technology—the Kachina protocol. Master these, and when you look at the so-called privacy public chains on the market, you will be able to see their true level at a glance.
1. Simplified understanding of ZK Zero-Knowledge Proof: You can verify qualifications without revealing the entire proof.
Speaking of the underlying technology of Midnight, the frequently mentioned ZK-Snarks (Zero-Knowledge Succinct Non-Interactive Arguments of Knowledge) in the white paper may seem obscure, but the logic is quite understandable.
What exactly is Zero-Knowledge Proof? A real-life example is: going to an internet cafe, the boss wants to confirm that you are over 18 years old.
- Traditional methods (current Ethereum/Web2): Directly presenting an ID, the boss not only knows you are of legal age, but also sees your name, address, and photo, completely exposing your privacy.
- ZK Zero-Knowledge Proof: Using a cryptographic algorithm tool, after inputting identity information, it will only output a certificate with a valid verification mark, proving 'of legal age'. The boss can release it once the certificate is validated, and throughout the process, no personal information is visible, yet it can confirm with 100% certainty that you meet the requirements.
This is the core advantage of ZK. In the Midnight network, when users or institutions trade, there is no need to publicly disclose account information, transfer amounts, or transaction objects; they only need to submit a mathematical proof, and after node verification passes, the transaction can be normally recorded on-chain.
Without revealing the bottom line, one can also self-prove compliance, which is the core foundation for large funds to dare to conduct business on-chain.
2. The industry's old problem: ZK is useful, but can it support smart contracts?
Since ZK technology is so powerful, why are there not many privacy DApps on Ethereum? Why has Zcash, after many years of development, only been able to implement simple transfers and cannot support complex DeFi businesses?
The root cause lies in a hardcore underlying contradiction. Smart contracts rely on public states, such as Uniswap liquidity pools, which must disclose the number of assets in the pool to calculate prices and complete transactions.
But the core of privacy transactions is the private state; if all balances are encrypted data, smart contracts cannot obtain valid information, and logic such as liquidation and lending cannot be executed.
The inherent conflict between the public state’s shareability and the private state’s confidentiality is the core reason why most privacy public chains have struggled to build a complete ecosystem over the past decade.
3. Key to breaking the deadlock: The exquisite design of the Kachina protocol.
To solve this industry challenge, Midnight has introduced core technology—the Kachina protocol.
Kachina is not merely a simple accumulation of functions, but the foundational results developed over many years by the top cryptography team in collaboration with IOG, the parent company of Midnight (also the developer of Cardano).
Its core breakthrough lies in the innovative fusion model of state separation + local computation, directly splitting the smart contract into two parts:
1. On-chain public state: Only non-sensitive public data is stored, responsible for verifying the ZK proof submitted by users.
2. Local private state: Sensitive information such as balance and identity is completely not stored on-chain, but retained within the user's own device (mobile phone, computer) client.
4. Actual transaction process: Privacy computation is completed off-chain, and only verification is done on-chain.
With a compliant DeFi lending transaction, let’s understand the complete operational logic under the Kachina protocol:
1. Local computation: When users initiate lending operations, the device client will retrieve local private asset data and calculate it in conjunction with on-chain public pool data.
2. Generate proof: After completing the computation locally, automatically generate a ZK-Snark proof, which is the 'verification certificate' mentioned earlier.
3. Submit to the chain: Only upload the proof document and the public data that needs to be updated to the chain, while the core private information is not transmitted externally throughout the process.
4. Node verification: On-chain nodes only verify the validity of the proof; after verification, the public state of the entire network is updated synchronously.
This design is exquisite, transferring the computational process with high computational power consumption and high privacy risks to the user's local device, which protects privacy while alleviating the congestion problem of public chains; the blockchain only focuses on doing what it does best—objectively verifying results without touching private data.
Final summary
After sorting out the core technologies of Day 2, one can clearly feel the solid accumulation of Midnight in underlying technology.
Many projects in the market wave the ZK flag, but in essence, they only implement Layer 2 scaling Rollup applications, while Midnight relies on the Kachina protocol to reconstruct the smart contract operating logic from the Layer 1 underlying architecture.
It enables Web3 developers to achieve what was previously difficult: writing a set of codes that can implement Ethereum-level complex DApp business logic while strictly protecting user privacy like traditional financial institutions.
This is not only a breakthrough on the technical level but also the key to unlocking traditional trillion-level business scenarios to land Web3.