ConsenSys gives a breakdown of Layer 2 roll-ups, specifically ZK roll-ups and where the space is heading in the third Build section of the 2023 CMC Crypto Playbook
An overview of Layer 2 rollups
Over the past few years, Layer 2 (L2) rollup solutions have come to the fore as activity on the Ethereum network has increased. Activity and engagement with non-fungible tokens (NFTs) and decentralized finance (DeFi) has caused an increase in layer 1 (L1) blockchain activity. In turn, the demand for block space, represented by gas costs, has increased. And the transaction completion time has increased due to increased network load. While the Ethereum merger laid the groundwork for future gas fee optimizations; it did not directly reduce transaction gas fees.
In the year between summer 2020 and peak demand in summer 2021, the cost of gas in Gwei on the Ethereum network increased by up to 1300%. The need to make transactions fast and affordable has spurred the creation of two main forms of rollup: Optimistic and Zero-Knowledge (ZK).
Rollups help remove computational demands on the Ethereum network by moving transaction processing off-chain, converting them into a single piece of data, and then sending them back to Ethereum in batches to reduce associated cost and time. The big difference between the two is that Optimist rollups use cheat proofs, while ZK rollups rely on zero-knowledge proofs to verify changes to the main chain.
Optimistic cumulations and ZK: proofs of fraud vs proofs of validity
Fraud evidence aggregates off-chain transactions and then reposts them to the L1. Once a packet has been submitted on the L1, there is a challenge period, during which anyone can challenge the rollup result by calculating proof of fraud. Similarly, zero-knowledge verifies off-chain batch transactions and submits them in a single transaction. Where they differ is rather than assuming that transactions are correct initially, they use proof of validity to instantaneously prove whether transactions are valid. Once transactions have been confirmed as valid, they are then submitted to L1. This is how they get their respective names – fraud proofs are where transactions are retrospectively checked to see if there are any fraudulent transactions, while validity proofs are completed before transactions are made. are subject to L1.
Although there are important projects for both, they each have their own respective advantages and disadvantages. Optimistic roll-ups have the advantage that evidence of fraud is only required if something goes wrong. This means that they require less computational resources and can scale well. The problem lies in the challenge period. A longer dispute period increases the likelihood of fraudulent transactions being identified, but it also means users have to wait longer to withdraw their funds. For major optimistic stacking solutions, such as Arbitrum and Optimism, this waiting period can last up to a week. Alternatively, ZK rollups have the advantage of always reflecting a correct L2 state. Their downside is that proofs are required for all state transitions, rather than only when contested, which limits scalability. This situation is further aggravated by the complex nature and early stage of the technology.
Despite their respective challenges, ZK rollups are heralded as the future of rollups. This is mainly due to the automatic generation of validity proofs increasing the security of the protocol, the significantly reduced withdrawal time due to the lack of a challenge period, and the fact that ZK rollups provide better data compression. For these reasons, we will focus on the current state of the ZK-rollup space, the latest innovations, and what lies ahead in the future.
The ZK-Rollup space
As we discussed, ZK rollups are mostly in focus with players like zkSync, Starknet, Polygon zkEVM, and Scroll all raising big capital to develop their solutions despite StarkNet launching on the mainnet ($780 million). dollars in total). Each of these projects has taken its own angle, differing mainly in their strategy for the availability of cumulation data and their proof algorithm. The data availability policy determines where a roll-up’s state data is stored, on-chain storage has increased security but it uses block space on the Ethereum network, which reduces throughput. transactions.
The proof algorithm is the way to generate a proof of validity, which can be STARK or SNARK. These two algorithms help developers move compute and storage off-chain, increasing scalability. They are also able to verify if a user has sufficient funds and the correct private key without having to access the information themselves, improving security. You can read more about the technical differences here. STARKs have the advantage of offering more scalability, security and transparency than SNARKs. But the downside of STARKS is a larger proof size, which takes longer to verify, and SNARKs comparatively only use 24% of the gas. For SNARKS and STARKS, we have the trade-off between speed and cost versus scalability, security, and transparency. While many different methods are being explored, there is still no definitive answer as to the best way to implement a ZK rollup. Each configuration brings respective advantages and many developers are still exploring the optimal choice or combination for their roll-up designs.
Obstacles to overcome
As we discussed, ZK rollups are still in development and various challenges need to be overcome before blockchain users can take full advantage of them. Language compatibility is one such challenge; Translating Ethereum Virtual Machine (EVM)User-friendly programming languages, such as Solidity, in a custom language specifically optimized for ZKP can help increase their efficiency, but this leads to adoption challenges for developers. For example, StarkNet seeks to solve this problem with Warp, a Solidity to Cairo language compiler (StarkNet’s ZKP language) which seeks to automatically convert Solidity to Cairo. Using Warp removes the need for developers to rewrite their code in Cairo, making it a much smoother process.
Other challenges include the secretive nature of the projects, many of which run counter to the open source ethos of crypto due to concerns about first-mover advantage and capturing a sticky user base. Most of the ZK rollups launched for the first time this year, highlighting the amount of work that still needs to be done in the space.
Finally, although rollups (both optimistic and zero-knowledge) have the advantages of improved speed and cost, they tend to come at the expense of decentralization. This is due to the inherent need for sequencers, actors aggregating transactions and submitting evidence to the L1. All rollups currently need a centralized sequencer and use scalable smart contracts that are managed by a single entity. Because the space is still so early, a central focal point is usually required to quickly fix bugs in code. Add to that that the projects are not open source, which creates another obstacle for community members to act as sequencers. Many projects have indicated that they plan to decentralize their sequencer functions in the future, but this will undoubtedly take additional resources and time.
The launch of an open-source token and code will be the next step for many projects seeking decentralization. Tokenizing these services to drive business and decentralize the product is another area where we expect to see a myriad of different solutions appear as projects seek to create the most scalable, decentralized and active L2 on the market. . Both StarkWare and zkSync plan to launch a token, and Polygon could potentially use MATIC to support Polygon’s zkEVM initiative. Token engineering on ZK rollups is an even more nascent space than optimistic rollup technology and finding an efficient and sustainable model can differentiate and drive adoption.
zkEVMs are still in their infancy and the race is on to get into the mainnet. StarkNet has the first-mover advantage, but still has challenges when it comes to Solidity feature support due to the use of Cairo, leaving room for competitors to make improvements. Projects able to accumulate large user bases will attract Decentralized applications (Dapps) developers, in turn bringing more dapps to their platform and increasing the feature set. ConsenSys’ zkEVM is currently moving to testnet and is specifically focused on dapp developers for this reason, leveraging tools like MetaMask, Infura, and Truffle so they can deploy and manage applications as if they were using Ethereum directly.
And although we have discussed the current players in the zkEVM market, other prominent aggregation solutions such as Polygon, Optimism, and Arbitrum still hold significant market share. As zkEVM solutions mature, we may see these projects seek to transition to proof-of-validity or hybrid solutions, leveraging their existing user bases to attract dapp development and maintain dominance. of the market. Ultimately, the many deployment solutions (and increased competition between them) will continue to improve the web3 user experience and introduce application platforms to integrate the next generation of users.
Given these threats, we are not surprised at the secrecy of projects in space, but we believe that the real winner will be able to take advantage of the effectiveness of ZK rollups and combine it with developer experience and user interface to impose itself. .
This is a CoinMarketCap guest post with Consensys and has been edited for style. The original article was published here and was also included in the third Build section of the 2023 CMC Crypto Playbook.
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