Pushing layer-1 blockchain networks to the next level
Zero-knowledge technology has become a key topic of conversation among many major players in the crypto world. In particular, zero-knowledge (ZK) rollups have garnered a great deal of attention as a low-cost, secure Layer 2, which is a Layer 1 scaling solution. This is in part due to the support of major players like Ethereum ($ETH) creator Vitalik Buterin and Polygon co-founder Mihailo Bjelic. Buterin has even stated that ZK-rollups are the solution to scaling Ethereum.
Zero-knowledge technology cryptographically proves something is true without doxxing the source of the information. It will become useful to pay attention to ZK narratives as the technology continues to enhance technological privacy measures. This article dives into the functions and benefits of ZK technology to provide a glimpse of how it is changing Web3 development.
What are ZK-rollups?
First of all, what is a rollup?
Types of Rollups
Rollups are Layer 2 scaling solutions for Layer 1 mainnets, such as Ethereum, that bundle (or “roll up”) transactions into batches that are executed off-chain. The bundled transactions are then included as a single transaction on the mainnet network. This process helps increase throughput of the network as blockspace on the L1 can now process orders of magnitude more transactions, therefore addressing scalability challenges.
One type of rollup is an optimistic rollup, in which the base layer assumes the transactions are legitimate. If a network verifier disputes the block, a fraud-proof is generated to verify invalidity. On the other hand, ZK-rollups use validity proofs (also known as zero-knowledge proofs) to instantly identify if each block is valid. Leading ZK-rollups protocols at the time of writing include zk-Sync and Starkware.
How do ZK-rollups Work?
ZK-rollups are most prevalent on Ethereum and are supported by two on-chain smart contracts: a main smart contract and a verifier smart contract. The main contract and verifier contract in ZK-Rollups interact to enable a scalable and secure layer 2 solution for the Ethereum network.
The main contract handles state updates and asset management, while the verifier contract validates zero-knowledge proofs to ensure the integrity and privacy of the off-chain transactions. Additionally, a ZK-rollup’s architecture includes an off-chain virtual machine to process transactions; then, validity proofs are posted on-chain to confirm the validity of these off-chain activities.
Zero-knowledge Ethereum Virtual Machines (zkEVMs)
Unlike optimistic rollups, ZK-rollups are not inherently compatible with the Ethereum Virtual Machine (EVM). However, recent developments in zero-knowledge technology have wrapped EVM computation into zero-knowledge proofs, creating zero-knowledge Ethereum Virtual Machines (zkEVMs).
What are the benefits of zero-knowledge rollups?
ZK-rollups offer many benefits, which make them an attractive technology to builders looking to maximize privacy, scalability, and user experience.
ZK-rollups are a promising scalability solution because of the way they validate transactions. Instead of all the data from every transaction in a batch being kept on the mainnet, only the validity proof is, which results in less congestion and more scalability for the mainnet.
Faster Transaction Speeds
ZK-rollups’ immediate validation process ensures fast transaction speeds. Unlike optimistic rollups that may require relatively longer transaction times to validate the legitimacy of transactions, ZK-rollups’ validity proofs instantly verify transactions.
Security is another major advantage of ZK-rollups. Since every change of state must be verified before the state can be updated, it would be difficult to submit invalid batches. Also, because ZK-rollups operate off-chain but derive security from the main chain, they are safer than other scalability solutions responsible for their own security.
ZK-rollups are also a potential approach to eliminating MEV bot nuisance. MEV stands for maximum extractable value and refers to the maximum value that can be extracted from block production in excess of the standard block rewards and gas fees by including, excluding, and changing the order of transactions in a block.” Most MEV extraction today on Ethereum comes from arbitrage activities, where bots monitor and capitalize on discrepancies in prices or liquidity between decentralized exchanges. Consequently, traders may experience higher trading costs, diminished profits, and an unfair competitive landscape due to the sophisticated tactics employed by MEV bots.
With a ZK-rollups, it is possible to reorder and censor traders’ transactions to extract MEV. However, adding a secondary state with another layer of zero knowledge can potentially eliminate this issue. Known as a ZK-squared rollup, this would make transactions private and thus make it harder to extract MEV. Initially, this would decrease efficiency, but over time this may become the best option.
Conclusion: zero-knowledge technology
ZK-rollups are changing the world of blockchain scalability with their efficient, low-cost, and secure techniques. It is thus worth keeping an eye on notable players in zero-knowledge technology, like Polygon. Immutable X ($IMX) also uses ZK-rollups to eliminate gas fees for minting and trading NFTs, and Loopring ($LRC) relies on ZK-technology to maintain low transaction fees. These are just some of the many developments happening with this scalability solution, and there are likely to be many more.
Blockpour is a technology firm that specializes in Web3 data and analytics, providing traders and businesses with the tools and metrics they need to navigate the world of crypto. Users can leverage Blockpour’s real-time multi-chain data feeds via API or intuitive platform interface to identify trends across DEXes, dApps, and AMMs to discover their alpha. To learn more about Blockpour, check out our website and follow us on Twitter and LinkedIn. For sales or inquiries about the API, contact [email protected].
The above article is for informational purposes only and is not financial advice. Blockpour is a data aggregation and analytics platform only that does not, and will never, provide financial advice or services of any kind.