What is Zether

Zether Explained

Zether, a privacy-focused protocol, is introduced by Benedikt Bünz, Dan Boneh, and a few other professionals from Visa Research.

Zether is designed to support confidential and anonymous transactions on blockchains that support smart contracts like Ethereum. Zether is created as a smart contract commonly known as Zether Smart Contract (ZSC). It has a token named Zether token (ZTH), which is transferred between Zether accounts, which are EIGamal public keys.

Simply put, Zether works like a cryptocurrency implemented in an Ethereum smart contract. The local token here is ZTH, while the addresses is ElGamal public keys.

Zether ensures anonymous and confidential transactions. For example, the transaction amount is encrypted using Elgamal encryption, meaning that the sender is doing an authorized fund transfer.

Let’s better understand Zether transactions with a practical example — when person A creates an Elgamal key pair (sk, pk) and sends a transaction enclosing pk and depositing some ether in Zether Smart Contract (ZSC). ZSC will create an account pk with an equivalent amount of Zether (ZTH).

Person A can send Zether (ZTH) to anyone on their ZTH account confidentially and anonymously. The amount is encrypted, and the account details can be hidden if person A chooses the anonymity set. Thus, the transaction details and amount will be hidden from other users on the blockchain. Furthermore, person A can convert the ZTH tokens back to Ether.

Prime Features of Zether

Zether is an innovative start for building decentralized applications. Here are some of the prime features of Zether that make it stand out from other cryptocurrencies.

1. Decentralization

Zether acts like a dedicated decentralized infrastructure, supporting a distributed network. Thus, Zether ensures enhanced security and autonomy while preventing centralization.

2. Proof of Work

Zether utilizes the PoW-based consensus mechanism, the Ethash algorithm to facilitate decentralization, network stability, and integrity.

3. Aggressive Tokenomics

The block reward structure of Zether starts at 10,000 and gradually decreases over time. It is designed that way to encourage long-term participation.

4. EVM Compatibility

Zether supports smart contracts and decentralized applications (DApps). Thus, developers can build smart contracts and DApps on the Ethereum Virtual Machine (EVM) seamlessly.

5. No Premine

Zether offers an unbiased strategy with zero pre-mined coins. Thus, Zether ensures a reliable platform with a fair distribution of rewards among network participants from the beginning.

6. No Instamine

Zether has implemented sufficient initial block difficulty to prevent instamining. Hence, it enables fair coin distribution from the genesis block reward.

7. Minimal Charges

Zether offers low transaction costs, allowing affordable and efficient transactions. That, in turn, enhances the network’s usability and accessibility.

8. No Uncle Rewards

Zether has an organized mining reward system focused predominantly on main blocks. Thus, it ensures network clarity while simplifying miner incentives.

Technical Details of Zether

Here are the technical details of Zether that developers may need to leverage Zether to build robust applications. Zether is specifically designed to offer high performance and scalability.

Prime Ideas behind Zether

Here are some of the prime ideas behind Zether.

1. Pending Incoming Transactions

Zether solves the problems commonly faced by the account model. In a UTXO (Unspent Transaction) model, every UTXO can be spent independently, as the blockchain network can verify whether the UTXO is spent or not.

However, in the account model, the blockchain needs to check whether the account has enough balance for the transaction. Since the transaction amount is hidden in the account model, the blockchain cannot verify whether the account has sufficient balance.

The sender needs to submit proof of the transaction amount. However, if someone else transfers funds to her account before the transaction gets processed, then the proof will become invalid as the account state has changed.

Zether solves this problem by not updating the recipient’s balance instantly while keeping them in a pending state. The pending transactions are later rolled over to the account.

Though there is no way to trigger actions in smart contracts, Zether keeps a pending transactions queue for every account where it stores the incoming transactions. However, there is no way to trigger transactions periodically. The recipient has to trigger rollover on Zether and pay the fees.

Hence, if person A wants to send Zether (ZTH) to person B, the transactions will stay in the pending state unless recipient B tries to send ZTH to someone else or convert ZTH to Ether through a burn transaction.

2. Replay Protection with Nonce

The proof for transaction verification must contain a nonce to avoid reusing it. Ethereum uses a counter with each address that serves as a nonce in a transaction and increases with each transaction by the address.

However, this concept won’t work with Zether. Zether differentiates the account only when the sender changes the nonce of the account in the anonymity set. The sender cannot change the nonce of other accounts.

Zether leverages zero-knowledge proofs to overcome the issue. The downside of this approach is that the sender can send only one transaction.

Limitations of Zether

Here are some of the potential limitations of Zether that users should be aware of.

• Every Ethereum transaction demands gas. Users will need to pay in Ether to buy gas and an Ethereum address. That can be cumbersome for users.
• The transaction should processed at the end of the current epoch as proofs are created based on the current epoch. That can be challenging in a busy network.
• The sender should ensure that accounts in the anonymity set do not receive transfers in the current epoch during anonymous transfers.