Applications Of Zero-Knowledge Proofs On Bitcoin

TL;DR

This paper investigates how zero-knowledge proofs, especially zk-STARKs, can improve Bitcoin's privacy, security, and scalability through protocols for reserve proofs, light clients, and private rollups, analyzing their practicality and trade-offs.

Contribution

It introduces concrete protocols for Bitcoin using zk-STARKs for reserve proofs, light clients, and privacy-preserving rollups, assessing their security and efficiency.

Findings

ZK proofs enable on-chain reserve audits without revealing sensitive info.

Light clients can verify Bitcoin's chain using succinct ZK proofs.

Privacy-preserving rollups can keep transaction data confidential.

Abstract

This paper explores how zero-knowledge proofs can enhance Bitcoin's functionality and privacy. First, we consider Proof-of-Reserve schemes: by using zk-STARKs, a custodian can prove its Bitcoin holdings are more than a predefined threshold X, without revealing addresses or actual balances. We outline a STARK-based protocol for Bitcoin UTXOs and discuss its efficiency. Second, we examine ZK Light Clients, where a mobile or lightweight device verifies Bitcoin's proof-of-work chain using succinct proofs. We propose a protocol for generating and verifying a STARK-based proof of a chain of block headers, enabling trust-minimized client operation. Third, we explore Privacy-Preserving Rollups via BitVM: leveraging BitVM, we design a conceptual rollup that keeps transaction data confidential using zero-knowledge proofs. In each case, we analyze security, compare with existing approaches, and discuss implementation considerations. Our contributions include the design of concrete protocols adapted to Bitcoin's UTXO model and an assessment of their practicality. The results suggest that while ZK proofs can bring powerful features (e.g., on-chain reserve audits, trustless light clients, and private layer-2 execution) to Bitcoin, each application requires careful trade-offs in efficiency and trust assumptions.