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ZK-Rollups & Their Impact on the Blockchain

ZK-Rollups & Their Impact on the Blockchain

Learn why zk-rollups have become a favorite in the crypto community and why they could become more prominent over the coming year.

Blockchains promise to revolutionize everything from financial services (DeFi) to the Internet (Web3). But in their current state, most are still too slow and expensive for mainstream use. While Visa transactions process at a fixed cost in a fraction of a second, Ethereum transactions can take minutes to process during congested periods with unpredictable costs.

Fortunately, blockchain developers are working on ways to overcome these bottlenecks. Layer 1 improvements, such as Ethereum 2.0, promise to speed up transactions. Meanwhile, layer 2 scaling solutions, like rollups and state channels, eliminate congestion by moving transactions off primary blockchains to process them more quickly and cost-effectively.

ZK-rollups have become a favorite in the crypto community thanks to their decentralized approach and privacy focus – and they could become more popular with the rise of zkEVMs.

Scalability 101

Vitalik Buterin describes blockchain’s challenges as a “blockchain trilemma.” This term refers to the trade-offs between security, scalability, and decentralization. In short, the idea is that any improvements to scalability will sacrifice decentralization or security. For example, a centralized intermediary could speed up transactions but hurt decentralization.

Ethereum and other blockchains hope to address these challenges by changing consensus mechanisms and introducing concepts like “sharding.” For instance, sharding would divide the blockchain into individual parts called “shards.” Each shard would have its own state and transaction history, opening the door to the parallel processing of transactions.

In addition to these “layer 1” changes, “layer 2” solutions introduce off-chain processing capabilities. For example, optimistic and zk-rollups process batches of transactions off-chain before reintroducing them as a single “rolled up” transaction. State channels use two-way communication channels between participants to confirm transactions.

What Are ZK-Roll Ups?

Zero-knowledge (ZK) rollups bundle transactions to improve a blockchain’s throughput while lowering transaction costs. With support for instant, secure, and decentralized transfers, the approach addresses blockchain scalability concerns without succumbing to the blockchain trilemma (although it’s more computationally expensive than others).

Here’s how they work in a little more detail:

  1. A user sends a transaction to a zk-rollup smart contract on the Ethereum mainnet.
  2. The zk-rollup operator executes the transaction in an off-chain environment.
  3. The operator generates a cryptographic proof validating the transactions executed correctly without revealing the actual transaction data.
  4. The operator submits the proof to the zk-rollup smart contract.
  5. If valid, the zk-rollup contract is updated to reflect the new state.

The secret to its success lies in the cryptographic proof. While the mathematics are complex, you can visualize the broad approach as a series of tests. Suppose someone claims to be the best baker in the world, but they won’t provide a recipe to verify the claim. They could prove to you that they’re the best baker via a series of taste tests without revealing their recipe.

zkEVMs Accelerate Adoption

ZK-rollups represent just ~$1 billion of the $30+ billion of total valued locked (TVL) in Ethereum – or about 3% of the total market. The most popular solutions include zkSync Era and dYdX, although Starknet, Loopring, and other protocols also remain popular.

zkEVMs Accelerate Adoption
The zk-rollup landscape has shifted following new solutions. Source: TheBlock

Still, zk-rollups face a couple of hurdles to more widespread adoption. First, many crypto enthusiasts hope Ethereum 2.0 will negate the need for such solutions (although these changes will have little impact on gas prices). Second, until recently, most zk-rollup solutions weren’t EVM-compatible, making them not-so-useful for most Ethereum use cases.

The rise of zkEVMs, or EVM-compatible zk-rollups, could help the zk-rollups capture more market share. These solutions support smart contracts and dApps while lowering gas costs and increasing Ethereum’s network throughput. Best of all, developers can easily migrate their smart contracts to zkEVMs without completely rewriting their applications.

Zk-rollups blockchain
zkEVM compatibility varies depending on their approach. Source: Mirror

There are several types of zkEVMs in development:

  • Type 1 – Type 1 zkEVMs strive for full compatibility with Ethereum without altering Ethereum’s core. However, the purity comes at the price of higher prover times, making them less efficient than other types. Example: Scroll zkEVM.
  • Type 2 – Type 2 zkEVMs balance compatibility with slight changes to improve prover times. While most Ethereum dApps would work with them, they might need slight alterations to improve performance. Example: Optimism.
  • Type 2.5 – Type 2.5 zkEVMs, also known as gas-equivalent zkEVMs, reduce worst-case provider times by increasing gas costs for some operations. While more costly, the approach is less risky than making more profound changes to the EVM.
  • Type 3 – Type 3 zkEVMs make compromises to improve prover times and are easier to develop. While most applications will still work, some may require rewriting to become compatible with the zkEVM. Example: Polygon zkEVM.
  • Type 4 – Type 4 zkEVMs compile smart contract source code directly to ZK-SNARKs, resulting in very fast prover times. However, this introduces more incompatibility with certain applications since contract addresses may not match those on the EVM and may not fully support the EVM bytecode. For example: zkSync Era.

Polygon and zkSync launched the first zkEVM solutions in late March 2023. While both solutions have a laundry list of crypto projects that plan to make the switch, both teams cautioned to use these early versions carefully. They may undergo developmental growing pains and security upgrades before becoming fully viable solutions.

Alternatives to ZK-Rollups

ZK-rollups may be the preferred approach for its security and privacy, but they aren’t the only approach to scaling blockchains – optimistic rollups remain a viable alternative.

Optimistic rollups assume that all layer 2 transactions are valid unless challenged and proven wrong by a validator – hence the name “optimistic.” With a built-in dispute period, challengers have several days to submit a fraud-proof to challenge a set of transactions. If the fraud proof is valid, it nullifies the transaction and assesses a penalty for the malicious validator.

While optimistic rollups are more technologically mature, they suffer some critical shortcomings compared to zk-rollups. Reliance on third-party validators means that malicious actors can steal funds if no honest nodes challenge the invalid transactions. And the transactions themselves are necessarily transparent, which sacrifices some privacy.

The Bottom Line

Scalability remains a key barrier to more widespread adoption of blockchain technology. While many blockchains are making structural improvements, layer 2 solutions could be the most effective near-term resolution. And zk-rollups are the most crypto-friendly option that prioritizes and preserves decentralization and security.

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Justin Kuepper