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What do you mean by Zero Knowledge Proof?
Zero knowledge proofs are cryptographic techniques that allow users to confirm the validity of a transaction without giving any details about the transaction. This is accomplished by developing a digital signature that a third party can use to validate the transaction while concealing all sensitive information. This is crucial for blockchain technology because it enables users to confirm the legitimacy of a transaction without disclosing the actual data contained in the transaction. Zero knowledge proofs will further help blockchain networks become more scalable and secure.
Let’s try to understand it with an example: You have a one dollar bill in your pocket. What is the substance behind it that builds trust and brings value to this piece of note?
It is the signature of the Treasury Secretary and the Treasurer of the United States. It is a kind of a promissory note which gives an assurance to the bearer that the currency being held by the holder is legal tender which is applicable for use.
Now, this note can also be regarded as a Zero Knowledge proof as we do not need to know who is the Treasurer. The bills in circulation automatically prove and provide assurance to the validity of the bills, hence, empowering them to the exchange medium in the country.
What are ZK Rollups?
ZK Rollups, also known as Zero Knowledge Rollups, are a layer 2 Ethereum solution that enables quicker, more affordable transactions. In order to save storage and execution costs, ZK Rollups operate by performing all transactions as a single Ethereum transaction as opposed to several transactions.
How Do ZK RollUps Work?
There are essentially two smart contracts that help in the functioning of ZK-rollups: the main contract and the verifier contract.
- The verifier smart contract is responsible for transactions’ authentication utilizing zero-knowledge proof.
- The main smart contract manages and stores rolled up transactions. It also oversees the state of the blockchain to be in sync with the state of users’ withdrawals and new deposits.
HOW DO ZK-ROLL UPS FEES WORK?
Rollups are layer-2 scaling solutions that bundle transactions together into a single transaction which is subsequently submitted on the base layer. Being published on the blockchain as a single transaction, it allows for off-chain aggregation reducing the data required to be stored on-chain, thereby allowing for faster and cheaper transactions.
As the transactions are bundled into a single transaction, this spreads the cost across the users, thus reducing the per head transaction cost. Additionally, it brings in the capability of faster settlement as the off-chain process eases the load of transaction handling on the base layer while submitting the proof on-chain. There are mainly two types of rollups: Optimistic and ZK rollups. Both approaches solve the blockchain scalability issue but with unique advantages and disadvantages.
Benefits of ZK Rollups
Improved scalability: ZK Rollup can bundle a large number of transactions off-chain, enabling higher transaction throughput than Ethereum itself.
Lower transaction costs: By batching off-chain transactions and compressing data, ZK Rollup charges lower fees than traditional Ethereum transactions.
Improved privacy: Offloading off-chain transactions allows users to keep their data more private than on-chain transactions.
Security: ZK Rollup uses cryptographic proofs to ensure the validity of transactions.
Faster Transactions: It takes less than a second to process transactions, enabling faster settlements.
Compatibility: ZK Rollup can easily be integrated into existing Ethereum infrastructure without modification.
Reduced network congestion: By reducing the amount of data sent over the Ethereum network, it reduces network congestion.
Cheap data storage: ZK Rollup can reduce the amount of data stored on the Ethereum blockchain as it compresses the data before sending it.
Open Source: ZK Rollups technology is open source, so developers can easily use and extend it.
Cross-chain compatibility: ZK Rollup is compatible with multiple blockchains, making it more versatile than an Ethereum-only solution.
ZK rollups vs Optimistic Rollups
Here is a comparison table of ZK rollups vs Optimistic rollups:
| Feature | ZK Rollups | Optimistic Rollups |
| Technology | ZK rollups are a layer 2 scaling solution that uses zero-knowledge proofs. | Optimistic rollups on the other hand rely on optimistic verification. |
| Security | ZK rollups provide strong security assurances due to the use of zero-knowledge proofs, which ensure the computation’s accuracy. | Optimistic rollups provide lesser security guarantees because they are based on the premise that the majority of participants are honest. |
| Transaction Throughput | ZK rollups can process up to 2,000 transactions per second (TPS), which is higher than Optimistic rollups. | Optimistic rollups can process up to 1,000 transactions per second. |
| Gas Fees | By combining numerous transactions into a single proof, ZK rollups reduce the gas cost per transaction significantly. | Optimistic rollups also save on gas fees, although not as much as ZK rollups. |
| Privacy | ZK rollups ensure that no sensitive information is leaked. It offers strong privacy guarantees, as the transactions are validated off-chain using zero-knowledge proofs. | Optimistic rollups offer limited privacy guarantees, as the transactions are validated on-chain, thus they can potentially expose sensitive information. |
| Adoption | ZK rollups have gained significant adoption with multiple projects like Matter Labs, Loopring, Arbitrum etc implementing the technology. | Optimistic rollups are also gaining adoption, but are not as widely used as ZK rollups yet. |
| Transaction settlement | Processed instantly but has a window for 7 days for users to contest any fraudulent transactions. | Near instant settlement |
The main difference between Optimistic Rollup and ZK Rollup is the way transactions are validated and the amount of data that needs to be stored on the main Ethereum network. Optimistic rollup uses an optimistic approach to transaction validation, while ZK rollup uses zero-knowledge proofs.
Additionally, Optimistic rollups involve submitting the transaction data and a fraud proof to the main network, thus they require more data to be stored on the main Ethereum network than ZK rollups.
Challenges and Limitations of ZK Rollups
ZK Rollup has the potential to revolutionize blockchain scalability, but there are some challenges and limitations that must be addressed.
One of the biggest challenges is the computational power required to generate and verify zero-knowledge proofs. This might hinder the ZK rollup adoption in large applications.
Additionally, the complexity of zero-knowledge proofs can make it difficult for a developer to build and deploy the ZK rollup solution. Furthermore, ZK-Rollups has limited functionality, making it difficult to implement more complex dApps with ZK-Rollups.
Projects that have implemented ZK rollup technology
Matter Labs: Matter Labs is another project that has developed ZK rollup technology, known as ZK Sync, which delivers quick and safe transaction processing for Ethereum users. It employs zero-knowledge proofs and is compatible with existing Ethereum wallets and infrastructure. It raised a $200 million Series C funding round co-led by Blockchain Capital and Dragonfly.
StarkWare: StarkWare is a project dedicated to creating scalable blockchain infrastructure. For high-speed trading and settlement with an emphasis on non-custodial trading solutions, it leverages zero-knowledge proofs on its StarkEx platform. In May 2022, it raised $100 million at a valuation of $8 billion.
Loopring: Loopring is a DEX built on ZK rollup technology, offering high throughput and low transaction fees for users. It has a market cap of $468 Mn as of writing.
These three projects showcase the potential of ZK rollup technology backed by the market validation as justified by their fundraise in hundreds of millions. It seems to be a great solution that would increase blockchain scalability and provide consumers with quick, safe, and affordable transactions.
Conclusion
The use of ZK Rollups is becoming increasingly popular in the blockchain space as it can improve transaction speeds and reduce fees while maintaining a high level of security. As a layer 2 scaling solution, ZK Rollup brings great benefits to Ethereum and other smart contract blockchains.
However, there are still challenges and limitations that need to be addressed, such as the computational power required to generate and verify zero-knowledge proofs.
Despite these challenges, ZK Rollup offers increased privacy and security while charging less cost. The technology has the potential to revolutionize blockchain scalability and provide the foundation for the next generation of decentralized applications.
