What Are ZK Rollups? The Future of Smart Contract Blockchains

Are ZK rollups the layer-2 scaling solution that will help blockchains deliver a new secure and decentralized digital economy?

article-image

Blockworks Graphic by Crystal Le

share

Talk and excitement around the zero-knowledge rollup is heating up as layer-1 protocols take significant steps toward implementing the solution at scale. The technology promises to remove a critical bottleneck in the development of Web3: cost and scaling ceilings. Layer-1 blockchains such as Ethereum struggle to meet full user demand because of high transaction fees and congestion, which work in conjunction with one another. 

While various types of rollups and layer 2 solutions have been created to address this problem, the ZK rollup hasn’t been tested at the scale needed to open Web3 to the masses. While rollup technology introduces new advantages, it also brings some new challenges in regards to how they manage data availability in a way that is decentralized and censorship resistant. Implementing rollups without first addressing this issue is like putting the cart before the horse. The path to mass adoption needs to lead with decentralization and security first in mind.   

Some blockchains are closer than others. For example, Syscoin announced a PoDA (Proof-of-Data Availability) solution, which is already working on testnet, that will work hand in hand with rollups once they are deployed on mainnet. Unlike other approaches, its rollup can effectively inherit the security of the base layer, which is Bitcoin in Syscoin’s case, by protecting against censorship and centralization vulnerabilities. But before explaining how they achieve this we need to explain zero-knowledge proofs and the various approaches to ZK rollups.

What are zero-knowledge proofs?

Zero-knowledge proofs (ZK proofs) are a digital verification method where the prover can show that they have access to a piece of information without necessarily revealing it. MIT students Shafi Goldwasser and Silvio Micali introduced the concept in a research paper in 1985. 

ZK proofs have evolved significantly since then, finding real-world use cases in developing privacy and security-oriented systems. Unsurprisingly, ZK proofs also enhance cryptography and powers privacy-oriented coins such as Zcash. 

However, ZK proofs can do much more for cryptocurrency. They are a fundamental block for building rollups — solutions that significantly improve scalability and performance for blockchain networks.

What are rollups, and how do they differ? 

Rollups are layer-2 scaling solutions that bundle millions of transactions into one, which is then submitted on the base layer (e.g., Syscoin) as a single transaction. Rollups spread the single transaction cost across many users, thus making them a cheaper option. Additionally, the off-chain process ensures that rollups offer a faster settlement, thus easing the load on the base layer and unlocking mainstream-level capacity for blockchain networks. There are currently two main types of rollups: Optimistic and ZK rollups. Both approaches solve the blockchain scalability issue but with unique advantages and disadvantages.

Optimistic rollups explained

Optimistic rollups are layer-2 scaling solutions that scale throughput by assuming (optimistically) that each transaction bundled within a rollup is valid. Hence, even though transactions on the layer-2 network are processed instantly, there is a window (usually seven days) for users to contest fraudulent transactions. However, these users are not required to wait 7 days, as there are bridges that front liquidity across the chains that let people exit. Barring any challenges, the network automatically adds the rollup transactions on the parent chain for final settlement at the end of the window.

The waiting period guarantees security as the second layer can reverse fraudulent transactions before updating the state on the parent network. However, it also introduces a significant bottleneck. Users must wait a long while to withdraw deposited funds from the layer-2 network. Further, the model fosters censorship, as the project team or a limited group of validators manages core infrastructure and can potentially reverse transactions. This is true for ZK rollups as well if the sequencer is centralized. Therefore, one must decentralize the sequencer as Syscoin is doing, so it’s not an issue on either type of rollup.

Arbitrum and Optimism are the most popular examples of layer-2 solutions already utilizing optimistic rollups to scale Ethereum. However, another type of rollup – ZK rollups – seems to be the end game for the technology because of the unique capabilities it brings to the table.

So what are ZK rollups? 

ZK rollups are another suite of layer-2 scaling solutions that handle computation and process dozens of transactions off-chain before submitting a rolled-up version on the parent chain. The critical difference is that zero-knowledge rollups offer near-instant settlement on both layers, unlike optimistic rollups. 

ZK-rollups tap into their zero-proof technology to submit regular validity proofs to associated smart contracts on the parent network, confirming the accuracy of the transactions on the layer-2 network. The reliance on zero-proofs also reduces the volume of shared transaction data,  thus making ZK rollups privacy-focused by default.

In addition to privacy, ZK rollups eliminates the need for users to wait several days before withdrawing funds from the layer-2 solution. However, the technology’s nascent nature is its most significant disadvantage. 

ZK rollups are more complex to build, requiring a heavy reliance on a few developers to maintain the entire system. Additionally, the network structure often involves setting up sophisticated and otherwise expensive hardware to validate transactions. And depending on the approach, ZK rollups can present some of the same censorship risks if the validation sequencing is centralized. Because not all ZK rollups are the same, these centralization factors need to be examined independently. 

The primary ZK solutions utilized in cryptography are zk-Stark, zk-Snark and Validium. The latter is a novel ZK rollup already pioneered by Syscoin to scale blockchain systems.

zk-Snark vs. zk-Stark

Zero-Knowledge Succinct Non-Interactive Argument of Knowledge (zk-Snark) are proof systems that enable the prover to publicly verify that they own vital information, such as the private key to a cryptocurrency address and the amount they’re trying to transfer. Once the user provides cryptographic proof, they can transfer funds without disclosing essential details such as the associated addresses, transaction history and balances. The Zcash cryptocurrency project implements zk-Snark to enable anonymous and private transactions for users. Notably, zk-Snark has a fundamental risk. The requirement of trusted third parties to set up the system increases centralization and makes it vulnerable to attacks. 

Zero-Knowledge Scalable Transparent Argument of Knowledge (zk-Stark) solves the initial setup risk with zk-Snark by eliminating the involvement of a few trusted parties. It handles off-chain computation and immediately relays only an insignificant amount of secure data on the parent chain for validation. Zk-Stark technology provides excellent scalability, and privacy features which are immensely valuable to smart contract blockchains.

Validium on Syscoin

Validium, a ZK-rollup solution deployed on the Syscoin network, is a unique kind of zero-proof technology with potentially higher throughput than both zk-Stark and zk-Snark. Validium’s core proposition is its data storage location. 

Validium enables Syscoin to handle up to four million transactions per second (TPS), a remarkable feat for a smart contract blockchain. Unlike existing ZK-rollups that store such transaction information on-chain, Validium stores data off-chain. This allows the technology to free up additional space on the base layer.

The different ZK rollup projects

Despite being in their infancy, ZK rollups are seeing broad adoption across the crypto industry because of the immense benefits the system brings to decentralized applications. These applications expand far beyond the Ethereum ecosystem, with more use cases expected to emerge as the technology improves.

For example, zkSync is a popular scaling solution utilizing ZK rollups. The earliest version of the protocol enabled privacy-focused and cheap token transfers and payments. However, the solution recently launched zkSync 2.0 will unlock the ability for developers to deploy dapps on the network.

StarkNet is another ZK rollup project enabling Ethereum-based applications to scale throughput. Leading decentralized protocols like dYdX and ImmutableX already implement StarkNet’s solution, allowing low-cost transactions and fast settlement on their platforms.

Outside of Ethereum, advanced networks like Syscoin harness ZK rollups (and Optimistic) in a way that provides full scalability without sacrificing decentralization by storing data off-chain. The result is unprecedented scaling and a mainstream-ready solution for dapp developers.  

The data availability problem and Syscoin’s solution

Blockchain transactions involve significant volumes of data that only grow as the network expands. The data demand especially takes its toll on smart contract blockchains where users perform complex transactions. As the data volume increases, every network faces a data availability challenge. 

The challenge involves devising a means for participants (both validators with sophisticated hardware and light-client nodes) to verify that a block producer included all transaction data in a proposed block. This verification is essential to show that the block producer did not censor participants by enforcing any restrictions that would prevent them exiting the rollup. The ultimate goal is to inherit the security of the base layer. 

There are several approaches to solving the data availability challenge. Ethereum’s previous, vision was to roll out sharding, a process that practically splits the network into different bits (shards). But after a recent change in their roadmap, their plan is to go a different route that uses KZG commitments to shard data blobs. Reducing the data into smaller segments makes it easier for validators and light-node operators to access the data. 

Both the Ethereum and Syscoin dev teams independently arrived at similar solutions around the same time. But while Ethereum sharding is at least a year away from production, Syscoin’s PoDA (Proof-of-Data Availability) is already on testnet. It uses the Syscoin blockchain to verify that the correct execution data was provided and confirmed by the network, giving the opportunity for any person the ability to store it and retain censorship resistant properties. In addition, it will automatically use a committee of trusted safe-keepers as well as decentralized storage options such as filecoin/arweave and others for long-term archiving.This approach frees up the base layer for greater scalability. It also minimizes the data availability challenge since a zero-knowledge implementation generates less data than a public smart contract blockchain.

The future of blockchain scalability and virtual machines

Syscoin offers the most advanced smart contract platform secured by Bitcoin’s impeccable proof-of-work (PoW) through merged mining. Syscoin also delivers remarkable scalability on the Syscoin NEVM, which supports the deployment of Ethereum-native applications.  

Syscoin is paving the future of blockchain scalability and virtual machines by implementing secure rollups and increasing data availability. They are implementing scaling solutions that not only account for technical bottlenecks, but also regulatory ones. They integrated a base layer of opt-in regulatory compliance for all smart contract tokens. This will let token issuers provide users the necessary tools to stay compliant — a tool that would prove useful against complaints from regulatory authorities. They have implemented this feature on their UTXO side and are working on it for the NEVM side for compliant rollups. Mainstream-scale blockchain adoption is possible and can be served over secure and high-performant networks that offer a seamless experience for all network users.

This content is sponsored by Syscoin.


Don’t miss the next big story – join our free daily newsletter.

Tags

Upcoming Events

Hilton Metropole | 225 Edgware Rd, London

Mon - Wed, March 18 - 20, 2024

Crypto’s premier institutional conference returns to London in March 2024. The DAS: London Experience: Attend expert-led panel discussions and fireside chats Hear the latest developments regarding the crypto and digital asset regulatory environment directly from policymakers and experts.

Salt Lake City, UT

WED - FRI, OCTOBER 9 - 11, 2024

Pack your bags, anon — we’re heading west! Join us in the beautiful Salt Lake City for the third installment of Permissionless. Come for the alpha, stay for the fresh air. Permissionless III promises unforgettable panels, killer networking opportunities, and mountains […]

recent research

Research report - cover graphics (1).jpg

Research

In this report, we dive into crypto private market data to gather insights on where the future of the industry is headed. Despite a notable downturn in private raises, capital continues to infuse promising projects that aim to transform payments, banking, consumer experiences, community, and more, with 2023 being the fourth-largest year for crypto venture capital.

article-image

BUZZ holds shares of Coinbase, Robinhood and MicroStrategy

article-image

Opinion: Even though I didn’t pay for my “Diamond Hands” burger with BTC, don’t let that fool you into thinking that crypto’s development is futile

article-image

The results mark “a major positive inflection point,” one analyst says, as the exchange carries net income momentum into a crypto rally

article-image

While the slate of 10 US spot bitcoin funds have tallied $4.6 billion of net inflows thus far, half of the field is lagging the leaders

article-image

Trading volumes totalled $154 billion in Q4, including $125 billion in institutional volume

article-image

DeFi on Bitcoin is all the rage right now and Stacks is positioned to benefit