ZK-Rollups: Unravelling Ethereum’s Scalability Issues

Zk-rollups have long been touted as the ultimate solution to Ethereum’s woes. As blockchain and crypto adoption enjoy exponential growth worldwide, scaling solutions are needed to ensure the world’s leading smart contract platform can handle millions of users.

Zero-knowledge proofs and rollup technology aim to boost transaction throughput in the Ethereum ecosystem, but there are still a lot of questions about how zk-rollups work.

In this quick guide, we’ll be simplifying the complex jargon around zk-rollup solutions and making sure that you don’t have zero knowledge about zero-knowledge.

What’s Wrong with the Ethereum Blockchain?

Since the earliest days of Ethereum, every blockchain network has struggled to overcome a single concept: How to solve the Blockchain Trilemma. Coined by Vitalik Buterin, the Blockchain trilemma dictates that the perfect blockchain successfully balances decentralization, security and scalability.

Decentralization – In the true spirit of blockchain, the perfect network is fully distributed. The network is self-sufficient and governed by its users, with miners and validators owned and operated independently worldwide. Bitcoin is a perfect example of decentralization in action.
Scalability – The perfect blockchain is fast and affordable, making it effective and efficient for all users, regardless of the size of their wallet. Low gas fees and fast transactions are the norm, rather than a unique feature.
Security – The perfect blockchain is safe. No one can break into your wallet by force, transactions are protected by complex cryptography, and the correct distribution of tokens prevents hackers from taking control of the network with a 51% attack.

Even with dozens of Layer-1 blockchains competing daily, the blockchain trilemma remains unsolved. The irony of the trilemma is that balancing all three options is impossible because engineers always need to sacrifice one option to achieve the others.

Take Solana, for example. Solana is often considered the fastest and most affordable blockchain available. The network boasts over 4,000 transactions per second (TPS), costing a single transaction less than a penny. Solana is also secure and just as safe as any other leading chain.

On the other hand, Solana suffers from the final point of the trilemma, decentralization. The network is often criticized for constant outages due to centralized points of failure. Solana’s strength and resources came from venture capitalists, who hold a somewhat heavy allocation of SOL tokens.

Despite being the leading Layer-1 blockchain and smart contract platform in the crypto industry, Ethereum has difficulties overcoming the blockchain trilemma.

Ethereum Scalability

If you’ve ever used the Ethereum mainnet at peak traffic, you’ll know that scalability is not Ethereum’s strength. Throughout 2021 and 2022, Ethereum transaction costs were completely out of control. While basic send-and-receive transactions were around $20-30 each, more complex DeFi token swaps or NFT mints often cost over $100 each.

Source: BitInfoCharts.

Transaction fees and throughput are undoubtedly the biggest issues facing Ethereum scaling. During high congestion periods, dApps on the Ethereum network become almost unusable. In many cases, the transaction fee for buying an NFT costs more ETH than the NFT itself. These scalability issues make blockchain technology and decentralized finance (DeFi) inaccessible.

Until these problems are solved, cryptocurrency and blockchain adoption will struggle to onboard the masses. Thankfully, there are plenty of different ways for Ethereum to become the global powerhouse we know it has the potential to be.

Some of the most revolutionary Ethereum scaling solutions are zero-knowledge and optimistic rollups.

What are Rollups?

Rollups help reduce network congestion on the Ethereum main chain. They take computation and state-storage off-chain process transaction data on other blockchains and then send it back to the main chain. Essentially, rollups allow the network to ‘roll up’ a batch of transactions into one cost-effect transaction. This means users can enjoy the security of the Ethereum layer while benefitting from the cheaper gas fees and faster throughput of Layer-2 networks, like Polygon or Arbitrum.

Rollups aren’t the only Ethereum scaling solutions out there. Alternative methods include sharding, sidechains, and state channels. While these are all viable solutions, Buterin himself is most bullish on rolllups and believes that they’ll be an integral part of Ethereum’s future.

Rollups are typically divided into two groups, optimistic rollups, and zk-rollups. The main difference between the two is how they verify transactions. Optimistic rollups rely on fraud proofs to validate transaction data, while zk-rollups use zero-knowledge proofs (ZKPs).

Optimistic Rollups

As the name suggests, optimistic rollups are, well, optimistic. Adopting an ‘innocent-until-proven-guilty’ approach, optimistic rollups assume that each transaction in a rollup is valid. The network all users a set period, usually around a week, to resolve disputes around fraudulent transactions.

By optimistically assuming that every transaction is valid, the network doesn’t have to devote excess time and computation to confirming transactions are accurate. Some of the most popular Layer-2 solutions, like Arbitrum and Optimism, use this technology to settle off-chain transactions before sending them back to the Ethereum main chain.

ZK-Rollups

Zk-rollups use complex cryptography called a zkproof to ensure that all rollup transactions are valid without sharing sensitive information about the transactions themselves. They rely on cryptographic proof and submit validity proofs to smart contracts on Ethereum instead of assuming that all transactions are valid.

This means that all zk-rollup transactions can be processed off-chain, while also reducing the amount of transaction data shared, making them focused on privacy. Moreover, because they don’t need to wait a week for fraudulent transactions to be contested, zk-rollups are considered a much faster and superior technology to Optimistic rollups.

The most common zk-proofs we see in cryptography are zk-snarks and zk-starks. Simply put, these systems allow users to prove that they know vital or sensitive information, such as transaction data, without publicly revealing the data.

Examples of a few zk-rollup projects include Starknet and Immutable X.

Pros and Cons of Zero-Knowledge Rollups

Zk-rollups have made significant progress in addressing Ethereum’s scalability issues. They’ve introduced faster and more affordable transactions secured on the main chain and made DeFi more accessible than ever. That being said, they’re far from a perfect solution.

Advantages of Zk-rollups

Validity proofs ensure that off-chain transactions are correct before being secured on the main chain.
Increased transaction throughput and low gas fees.
Trustless cryptographic proofing ensures security is enforced by code instead of relying on validators, as we see with optimistic rollups.
Users can withdraw funds from zk-rollups without experiencing the week-long delays common on optimistic rollups.

Disadvantages of Zk-rollups

Zero-knowledge rollups and proof systems are complicated to build and deploy.
You need specialized hardware to produce validity proofs, making them a centralization risk.
Zk-snark proof systems rely on an established, trusted setup for ongoing use. If misused, this setup is a security risk.

The Ethereum Virtual Machine (EVM)

If you’ve ever hopped between the most popular blockchain networks like Ethereum, Binance Smart Chain or Avalanche, you’ve probably noticed that many dApps and wallets have a similar interface and user experience. This is thanks to a convenient technology called the Ethereum Virtual Machine, or EVM.

In its purest form, the Ethereum Virtual Machine is a database and machine state for interacting with Ethereum accounts and contracts. Developers use the EVM to build and deploy dApps on the Ethereum network, as well as by users who interact with these applications using their crypto wallets.

What’s special about EVMs is that they’re not Ethereum-exclusive. Many other blockchains run their own EVM, which makes it possible for Ethereum-based dApps and tools to be easily ported over and deployed on other networks.

For example, many decentralized exchanges like PancakeSwap on the Binance Smart Chain or Quickswap on Polygon were created using Ethereum smart contracts. See the similarities between UniSwap and PancakeSwap’s UI?

Each respective network’s EVM makes it possible to write Ethereum-based code and applications and replicate them on other networks. This makes blockchain development between EVM-compatible chains far more interoperable and gives developers and users greater flexibility.

zkEVM

As the name would suggest, a zkEVM uses zero-knowledge technology and proofing within an Ethereum Virtual Machine. Most importantly, they support smart contract development on zk-rollups, giving these powerful scaling solutions greater utility. Without a zkEVM, zk-rollups would be limited to simple transactions like basic send and receive functions.

Essentially, a fully functional zkEVM will bring the complete Ethereum experience, including DeFi and NFTs, to the scalable and secure environment of a zk-rollup network.

An effective zkEVM can securely process thousands of transactions per second. This is a significant improvement from the Ethereum main chain, which struggles to clear more than 20 TPS.

The zkEVM Race

Competition within the zkEVM field is tense, with some of the biggest names in the crypto space, like Polygon, hustling to be among the first to deploy a functional zkEVM. The Polygon team has had their eyes set on a zkEVM for some time after purchasing the Hermez Network for $250M back in 2021.

Polygon has since launched a zk-rollup solution named Polygon Hermez in mid-2022. While this represented a key milestone in the zk-rollup sector, Polygon Hermez is limited to simple token transactions, such as sending and receiving payments.

The Polygon zkEVM is expected to launch in 2023 and will bring greater utility and smart contract support to their zk-rollup scaling solution.

Other projects like Matter Lab’s zkSync are leading contenders to release the world’s first zkEVM, alongside notable competitors like Starknet and Scroll.

On the Flipside

While zk-rollups are arguably more scalable and secure, Optimistic rollups like Arbitrum attract more users and process more transactions than other Layer-2 scaling solutions. However, this could change with the launch of the first zkEVM, which will bring greater utility to zk-rollups.

Why You Should Care

The Ethereum network is ill-prepared to accommodate growing adoption and an influx of new users. Zk-rollup scaling solutions and zkEVMs will make blockchain technology and cryptocurrency far more accessible than before and drive mass adoption worldwide.

FAQs

What are the top zk-rollups?

The world of zk-rollups is competitive, with plenty of top teams working on zero-knowledge scaling solutions, including Polygon, Starknet, and zkSync.

Why are zk-rollups better than optimistic rollups?

Zk-Rollups are arguably better than optimistic rollups because they use zk-proofs to validate transactions, making the network faster and more secure.

What is the biggest L2 crypto?

Polygon (MATIC) is the most well-known Layer-2 (L2) crypto and Ethereum scaling solution. That said, rival L2s like Arbitrum and Optimism are gaining traction to compete with Polygon for the top spot.

Is Arbitrum a zk-rollup?

While being a powerful Layer-2 scaling solution, the Arbitrum network is not a zk-rollup. Arbitrum uses the Optimistic rollup framework, which assumes that all transactions are valid, instead of verifying transactions using a zk-proof system.