Zether

Zether is a cryptographic protocol that provides confidential payments and confidential smart contracts on public, transparent blockchains like Ethereum. It is a layer-2 solution that uses zero-knowledge proofs, specifically Bulletproofs, to hide the transaction amount and the identities of the sender and receiver while still allowing for public verification of transaction validity. This enables privacy for native token transfers and programmable privacy within decentralized applications (dApps).

The core innovation of Zether is its use of ElGamal encryption in an account-based model, which aligns with how blockchains like Ethereum operate, unlike the UTXO model used by earlier privacy systems. Each user has a confidential account balance encrypted on-chain. When a user sends funds, they generate a zero-knowledge proof that demonstrates they have sufficient balance and know the secret key, without revealing the actual balance or the recipient's address. This mechanism ensures anonymity and confidentiality while preventing double-spending.

A key feature is confidential smart contracts, where Zether's encrypted accounts can interact with smart contract logic. This allows for complex private applications, such as confidential auctions, voting, or decentralized finance (DeFi) operations where transaction amounts and participant identities remain hidden. The protocol is designed to be non-interactive, meaning the proof can be verified by anyone without requiring a back-and-forth communication, making it efficient for blockchain use.

Zether was proposed in a 2019 academic paper by Benedikt Bünz, Shashank Agrawal, Mahdi Zamani, and Dan Boneh. It is considered a foundational piece of research in blockchain privacy, influencing subsequent systems. While not a standalone blockchain, its concepts are implemented in projects like Zether on Ethereum and have inspired privacy features in other networks, providing a blueprint for building confidential decentralized applications without requiring a completely separate, privacy-focused ledger.

Zether is a cryptographic protocol that provides confidential payments and anonymous accounts on public blockchains like Ethereum. It functions as a smart contract that holds encrypted account balances, allowing users to transfer funds without revealing the sender, recipient, or transaction amount on-chain. This is achieved through the use of zero-knowledge proofs (ZKPs), specifically Bulletproofs, which allow a user to prove the validity of a transaction—such as having sufficient balance—without disclosing the underlying private data. The core cryptographic primitive is the ElGamal encryption of account balances, which are stored as public commitments on the blockchain.

A Zether transaction involves several key steps. First, the sender creates a confidential transaction by encrypting the transfer amount under the recipient's public key and generating a zero-knowledge proof that attests to several conditions: the sender has sufficient encrypted balance, the encrypted amounts are correctly formed, and the transaction does not create or destroy money. This proof is then submitted to the Zether smart contract along with the encrypted ciphertexts. The contract verifies the proof and updates the encrypted balances of the involved accounts accordingly, all while the actual values remain hidden from public view.

Beyond simple transfers, Zether supports advanced privacy features. A critical extension is anonymous Zether (AZT), which conceals the identities of the sender and receiver by allowing transactions to be made from a stealth address, breaking the linkability between accounts. The protocol also natively supports confidential smart contract interactions, enabling private state changes within decentralized applications (dApps). Its design is blockchain-agnostic, though it is most commonly implemented and discussed in the context of Ethereum, where gas costs for proof verification are a significant practical consideration.

Zether is a cryptographic protocol that provides confidential payments and private smart contract interactions on public blockchains like Ethereum. It is an extension of the confidential transaction concept, using zero-knowledge proofs to hide transaction amounts and participant identities while maintaining public verifiability. Unlike basic privacy coins, Zether is designed to be a building block that can be integrated into existing smart contract platforms, enabling applications like private auctions, sealed-bid voting, and confidential decentralized finance (DeFi) operations.

The core of Zether is built upon elliptic curve cryptography and zero-knowledge proofs, specifically a variant called Bulletproofs. Each user has a stealth address, and funds are represented as encrypted commitments on the blockchain. When a user sends funds, they generate a proof that the transaction is valid—the sender has sufficient balance, the amounts add up correctly, and no new money is created—without revealing the actual amounts or the recipient's identity to the public ledger. This allows the network to verify the transaction's integrity without learning its confidential details.

A key innovation of Zether is its compatibility with account-based models used by blockchains like Ethereum, as opposed to the UTXO model used by earlier privacy systems. It introduces the concept of a confidential account that holds encrypted balances. This design allows Zether's privacy features to be directly embedded within smart contracts, enabling complex, private business logic. For example, a smart contract could manage a private voting mechanism or a dark pool where bids and offers are kept secret until settlement, all while being executed on a transparent, public blockchain.

The protocol's development has led to further research and implementations, such as Zether-BFT for private payments in Byzantine Fault Tolerant (BFT) consensus systems. While offering strong cryptographic guarantees, Zether faces challenges common to privacy tech, including potential gas cost overhead from proof generation and verification, and the ongoing cryptographic scrutiny required for any novel zero-knowledge system. Its primary contribution is providing a foundational layer for programmable privacy, expanding the design space for developers who require confidentiality in decentralized applications.