Zk-Auction: A Cross-Blockchain System for Efficient Auctions combining Zero-Knowledge Proof and NFT
Tuan-Dung Tran, Phong Khuu Minh, Chuong Dang-Le-Bao, Nguyen Tan Cam, Van-Hau Pham · 2024
Although online auctions have gained popularity as a marketplace format, they encounter challenges stemming from bidders withdrawing high bids without penalty, and wasting organizer resources due to redundant auction rounds. This behavior, known as overbidding, undermines efficiency and remains a longstanding issue in traditional auction designs. It’s worth noting that one of the common reasons for bid withdrawals is exceeding their financial capacity. Participants bid beyond their budgetary constraints, not necessarily with the goal of obtaining the asset but for alternative motives. In an effort to address these overbidding inefficiencies, this paper presents Zk-Auction, a decentralized blockchain-based cross-chain auction system. Zk-Auction leverages the privacy-preserving capabilities of zero-knowledge proofs to cryptographically verify bidder funds for each bid, deterring inflation beyond actual holdings. A novel sidechain architecture simulates interoperability between independent "Banking" and "Auction" blockchains, enabling bid authentication without revealing identities or balances. By tackling the core challenges of existing centralized auction platforms, Zk-Auction adopts a distributed off-chain matching and on-chain settlement approach to maintain security and interoperability across heterogeneous distributed ledgers. The integration of Zero-Knowledge Proofs in bid validation ensures a privacy-preserving manner. Additionally, a proof-of-concept prototype demonstrates feasibility at scale. Evaluations of the system show enhanced participant accountability, thereby incentivizing sincere bidding behavior in contrast to traditional designs that are susceptible to wasteful overbidding.