The following article is a guest post and opinion of Prabal Banerjee (Co-founder of Avail) and Shailey Singh (Marketing Manager and Researcher at Avail)
Imagine a world where you walk into a bank and apply for a $1 million loan. Instead of handing over your full income history and credit report, you generate a cryptographic proof confirming you meet every loan criterion without exposing actual numbers or documents. The bank verifies the proof instantly. No raw data changes hands. No paper trail for hackers to follow.
Today, for a financial institution to verify a fact—whether it’s a customer’s loan eligibility or proof of compliance—it must reveal every underlying piece of data, including sensitive personal information. That data lives in centralized systems, secured by or shared with third parties, creating an ever-expanding attack surface.
This is the paradox at the heart of modern finance: compliance demands disclosure, but disclosure erodes privacy and security. Zero-knowledge technology flips that script.
In a world of mounting cyber threats, regulatory scrutiny, and customer fatigue, zero-knowledge proofs (ZKPs) offer a better model for trust: verifiable, privacy-preserving, and future-ready. ZKPs let one party (the prover) convince another (the verifier) that a statement is true, without revealing why or exposing the underlying data.
Integrating ZK technology into traditional finance may seem futuristic, but the truth is, we need it now.
A Surge in Cyber Risk
Data privacy and security go hand in hand. The financial sector is under siege. In 2024, the average cost of a data breach for banks and insurers skyrocketed to $6.08 million—about 22% higher than the $4.88 million cross-industry average. Companies take an average of 168 days to detect and 51 more to contain these breaches, prolonging operational chaos and reputational damage.
In 2023, the financial industry accounted for 27% of all data breaches handled by Kroll—more than any other sector. These aren’t outliers; they’re bleeding-edge trends that cut into profits and erode public trust. Consider Equifax, which lost over $5 billion in market cap and 13% stock value after its 2017 breach; or Bank of America’s vendor-related breach that exposed the records of 7.6 million customers, prompting forensic investigations and intensified regulatory scrutiny.
Compliance Overload
Regulatory demands have outpaced legacy infrastructure. In the United States, Dodd‑Frank and SOX require firms to disclose detailed or near-real-time compliance data.
Europe’s MiCA adds granular reporting for crypto companies. Firms face nonstop exposure, rising complexity, and compliance fatigue. The result: bloated tech stacks, siloed data, and mounting vulnerability under constant internal and external scrutiny.
Banks Demand More Personal Data
Banks and fintechs are asking users to surrender increasing amounts of personal data: documents, income history, even biometric data, just to get started. Customer acquisition has become a leak-prone liability.
A 2023 Fenergo study found 67% of banks have lost potential clients due to clunky KYC and onboarding. Banks contact new customers an average of 10 times during onboarding, requesting countless documents, costing around $128 per customer and seeing an average 18% abandonment rate, per a 2024 report. These data-hungry paths are alienating users while making institutions data-rich and danger-rich.
Zero-Knowledge Tech: Proof Without Exposure
Zero-knowledge proofs change this calculus. ZKPs are built on decades of cryptographic research. Foundational work by researchers like Shafi Goldwasser, Silvio Micali, Oded Goldreich, Amit Sahai, and others laid the groundwork for modern zero-knowledge systems, defining both their theoretical limits and practical designs. Today, ZKPs have moved from mathematical concepts to real-world tools.
Under the hood, zero-knowledge systems rely on advanced cryptography to generate compact, verifiable proofs. No raw data ever needs to be revealed. Rules and inputs are programmatically smart-contract encoded, the proof is generated without exposing the underlying data, and the verifier receives a tamper-proof cryptographic assurance that all conditions were satisfied.
Recent breakthroughs have made these proofs fast enough for real-time use and efficient enough to scale across high-volume financial systems.
After the collapse of crypto giants like FTX, proving reserves became a top priority for crypto firms, especially exchanges. Centralized exchanges like Kraken, Gate.io, and OKX have already proven reserves without exposing sensitive details.
Traditional banks can adopt similar mechanisms to prove Basel III compliance or liquidity thresholds without ever leaking proprietary risk models.
Some already have. In 2023, Société Générale Forge explored zero-knowledge technology to enhance confidentiality in digital bond issuance (fully subscribed by AXA Investments and Generali Investments) on Ethereum L1. In March 2024, the European Banking Authority began exploring ZKPs as part of its digital compliance toolkit. Singapore’s MAS has also funded ZK-based pilots for cross-border data privacy.
The other important aspect is scale. Interbank markets process trillions daily, but most require full disclosure for settlement—from counterparties to trade details. ZK-rollups can batch thousands of trades into a single proof, offering near-instant finality without revealing anything other than what needs to be proved.
Why Now? Tech + Timing
Zero-knowledge proofs aren’t new. But what is new is that they’re finally fast, scalable, and accessible.
Proof generation speed has improved dramatically in the past two years alone. With zk-SNARKs and zk-STARKs, proofs can now be generated in seconds and verified in milliseconds—even for complex financial computations. Developers are advancing ZK tech in the context of rollup architecture acceleration, with Ethereum’s rollup-centric vision.
Tooling has matured as well. Today, developers can plug into open-source libraries like Halo2, PLONK, or zkVMs with real-world use cases. Platforms like Polygon, zkSync, StarkWare, and Scroll are already deploying ZK-powered financial apps.
Legacy institutions may face challenges in upgrading entrenched infrastructure, aligning with regulatory frameworks, building internal cryptography domain expertise, and educating teams. But these limitations are shrinking fast.
Today, the pieces are in place. The time to act is now.
Those who move early will set new standards. The new model of trust is “verify, never reveal.” Early adopters will set the standard and win the clients.
