The international law firm Holland & Knight used an NFT built and airdropped by its asset recovery team to serve a defendant in a hacking case.

The law firms Holland & Knight and Bluestone used a nonfungible token to serve a defendant in a hacking case with a temporary restraining order, marking the first documented legal process assisted by an NFT.

The so-called "service token" or "service NFT" was served to an unknown defendant in a hacking case involving LCX, a cryptocurrency exchange based in Liechtenstein that was hacked for over $8 million in January. The attack compromised the platform's hot wallets, resulting in the loss of Ether (ETH), USD Coin (USDC), and other cryptocurrencies, according to Cointelegraph at the time.

On June 7, LCX claimed that around 60% of the stolen cash had been frozen, with investigations ongoing in Liechtenstein, Ireland, Spain, and the United States. Based on a court judgment from the New York Supreme Court, Centre Consortium, a company created by USDC issuer Circle and crypto exchange Coinbase, has frozen around $1.3 million in USDC.

The monies were laundered through Tornado Cash, according to LCX, but were later tracked using "algorithmic forensic analysis." The organization was also able to identify wallets linked to the hacker as a result of the investigation.

In light of these findings, the law firms representing LCX, Holland & Knight and Bluestone, served the unnamed defendant with a temporary restraining order issued on-chain using an NFT. According to LCX, this system "was allowed by the New York Supreme Court and is an example of how innovation can bring legitimacy and transparency to a market that some say is ungovernable."

You can make a proof for the statement "I know a secret number such that if you take the word ‘cow', add the number to the end, and SHA256 hash it 100 million times, the output starts with 0x57d00485aa". The verifier can verify the proof far more quickly than it would take for them to run 100 million hashes themselves, and the proof would also not reveal what the secret number is.

In the context of blockchains, this has 2 very powerful applications: Perhaps the most powerful cryptographic technology to come out of the last decade is general-purpose succinct zero knowledge proofs, usually called zk-SNARKs ("zero knowledge succinct arguments of knowledge"). A zk-SNARK allows you to generate a proof that some computation has some particular output, in such a way that the proof can be verified extremely quickly even if the underlying computation takes a very long time to run. The "ZK" part adds an additional feature: the proof can keep some of the inputs to the computation hidden.

You can make a proof for the statement "I know a secret number such that if you take the word ‘cow', add the number to the end, and SHA256 hash it 100 million times, the output starts with 0x57d00485aa". The verifier can verify the proof far more quickly than it would take for them to run 100 million hashes themselves, and the proof would also not reveal what the secret number is.

In the context of blockchains, this has two very powerful applications:

1. Scalability: if a block takes a long time to verify, one person can verify it and generate a proof, and everyone else can just quickly verify the proof instead
2. Privacy: you can prove that you have the right to transfer some asset (you received it, and you didn't already transfer it) without revealing the link to which asset you received. This ensures security without unduly leaking information about who is transacting with whom to the public.

But zk-SNARKs are quite complex; indeed, as recently as in 2014-17 they were still frequently called "moon math". The good news is that since then, the protocols have become simpler and our understanding of them has become much better. This post will try to explain how ZK-SNARKs work, in a way that should be understandable to someone with a medium level of understanding of mathematics.

Why ZK-SNARKs "should" be hard

Let us take the example that we started with: we have a number (we can encode "cow" followed by the secret input as an integer), we take the SHA256 hash of that number, then we do that again another 99,999,999 times, we get the output, and we check what its starting digits are. This is a huge computation.

A "succinct" proof is one where both the size of the proof and the time required to verify it grow much more slowly than the computation to be verified. If we want a "succinct" proof, we cannot require the verifier to do some work per round of hashing (because then the verification time would be proportional to the computation). Instead, the verifier must somehow check the whole computation without peeking into each individual piece of the computation.

One natural technique is random sampling: how about we just have the verifier peek into the computation in 500 different places, check that those parts are correct, and if all 500 checks pass then assume that the rest of the computation must with high probability be fine, too?

Such a procedure could even be turned into a non-interactive proof using the Fiat-Shamir heuristic: the prover computes a Merkle root of the computation, uses the Merkle root to pseudorandomly choose 500 indices, and provides the 500 corresponding Merkle branches of the data. The key idea is that the prover does not know which branches they will need to reveal until they have already "committed to" the data. If a malicious prover tries to fudge the data after learning which indices are going to be checked, that would change the Merkle root, which would result in a new set of random indices, which would require fudging the data again... trapping the malicious prover in an endless cycle.

But unfortunately there is a fatal flaw in naively applying random sampling to spot-check a computation in this way: computation is inherently fragile. If a malicious prover flips one bit somewhere in the middle of a computation, they can make it give a completely different result, and a random sampling verifier would almost never find out.

It only takes one deliberately inserted error, that a random check would almost never catch, to make a computation give a completely incorrect result.

If tasked with the problem of coming up with a zk-SNARK protocol, many people would make their way to this point and then get stuck and give up. How can a verifier possibly check every single piece of the computation, without looking at each piece of the computation individually? There is a clever solution.

By Surojit Chatterjee, Chief Product Officer

2021 proved to be a breakout year for crypto with BTC price gaining almost 70% yoy, Defi hitting $150B in value locked, and NFTs emerging as a new category. Here’s my view through the crystal ball into 2022 and what it holds for our industry:

1. Eth scalability will improve, but newer L1 chains will see substantial growth — As we welcome the next hundred million users to crypto and Web3, scalability challenges for Eth are likely to grow. I am optimistic about improvements in Eth scalability with the emergence of Eth2 and many L2 rollups. Traction of Solana, Avalanche and other L1 chains shows that we’ll live in a multi-chain world in the future. We’re also going to see newer L1 chains emerge that focus on specific use cases such as gaming or social media.

2. There will be significant usability improvements in L1-L2 bridges — As more L1 networks gain traction and L2s become bigger, our industry will desperately seek improvements in speed and usability of cross-L1 and L1-L2 bridges. We’re likely to see interesting developments in usability of bridges in the coming year.

3. Zero knowledge proof technology will get increased traction — 2021 saw protocols like ZkSync and Starknet beginning to get traction. As L1 chains get clogged with increased usage, ZK-rollup technology will attract both investor and user attention. We’ll see new privacy-centric use cases emerge, including privacy-safe applications, and gaming models that have privacy built into the core. This may also bring in more regulator attention to crypto as KYC/AML could be a real challenge in privacy centric networks.

4. Regulated Defi and emergence of on-chain KYC attestation — Many Defi protocols will embrace regulation and will create separate KYC user pools. Decentralized identity and on-chain KYC attestation services will play key roles in connecting users’ real identity with Defi wallet endpoints. We’ll see more acceptance of ENS type addresses, and new systems from cross chain name resolution will emerge.

5. Institutions will play a much bigger role in Defi participation — Institutions are increasingly interested in participating in Defi. For starters, institutions are attracted to higher than average interest-based returns compared to traditional financial products. Also, cost reduction in providing financial services using Defi opens up interesting opportunities for institutions. However, they are still hesitant to participate in Defi. Institutions want to confirm that they are only transacting with known counterparties that have completed a KYC process. Growth of regulated Defi and on-chain KYC attestation will help institutions gain confidence in Defi.

6. Defi insurance will emerge — As Defi proliferates, it also becomes the target of security hacks. According to London-based firm Elliptic, total value lost by Defi exploits in 2021 totaled over $10B. To protect users from hacks, viable insurance protocols guaranteeing users’ funds against security breaches will emerge in 2022.

7. NFT Based Communities will give material competition to Web 2.0 social networks — NFTs will continue to expand in how they are perceived. We’ll see creator tokens or fan tokens take more of a first class seat. NFTs will become the next evolution of users’ digital identity and passport to the metaverse. Users will come together in small and diverse communities based on types of NFTs they own. User created metaverses will be the future of social networks and will start threatening the advertising driven centralized versions of social networks of today.

8. Brands will start actively participating in the metaverse and NFTs — Many brands are realizing that NFTs are great vehicles for brand marketing and establishing brand loyalty. Coca-Cola, Campbell’s, Dolce & Gabbana and Charmin released NFT collectibles in 2021. Adidas recently launched a new metaverse project with Bored Ape Yacht Club. We’re likely to see more interesting brand marketing initiatives using NFTs. NFTs and the metaverse will become the new Instagram for brands. And just like on Instagram, many brands may start as NFT native. We’ll also see many more celebrities jumping in the bandwagon and using NFTs to enhance their personal brand.

9. Web2 companies will wake up and will try to get into Web3 — We’re already seeing this with Facebook trying to recast itself as a Web3 company. We’re likely to see other big Web2 companies dipping their toes into Web3 and metaverse in 2022. However, many of them are likely to create centralized and closed network versions of the metaverse.

10. Time for DAO 2.0 — We’ll see DAOs become more mature and mainstream. More people will join DAOs, prompting a change in definition of employment — never receiving a formal offer letter, accepting tokens instead of or along with fixed salaries, and working in multiple DAO projects at the same time. DAOs will also confront new challenges in terms of figuring out how to do M&A, run payroll and benefits, and coordinate activities in larger and larger organizations. We’ll see a plethora of tools emerge to help DAOs execute with efficiency. Many DAOs will also figure out how to interact with traditional Web2 companies. We’re likely to see regulators taking more interest in DAOs and make an attempt to educate themselves on how DAOs work.

Thanks to our customers and the ecosystem for an incredible 2021. Looking forward to another year of building the foundations for Web3. Wagmi.