What are Blockchain Rollups?
|— Due to tremendous growth in network usage and applications, Ethereum suffers from high traffic and network congestion.|
— Blockchain rollups help in improving the scalability of Ethereum by processing transactions off-chain.
— There are two major types of blockchain rollups – ZK-rollups and Optimistic-rollups.
— Here we explain how each one functions to improve scalability on Ethereum.
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If you are finding it hard to wrap your head around blockchain rollups, this article helps you. Here, we explain everything you need to know about blockchain rollups.
According to State of the Dapps, around 3,000 decentralized applications are built on Ethereum out of about 4,000 dapps that exist today. Ethereum also dominates the DeFi market, having 191 DeFi projects powered by the network out of the total 216 DeFi projects in the ecosystem. The second-largest cryptocurrency is also the most-used network for NFT projects and NFT transactions.
However, the increased usage of Ethereum has reached its capability limitations and eventually led to network congestion. The delay in transaction processing is a major reason why Ethereum has developed multiple competitors.
To serve the need for scalability in Ethereum and other blockchains, layer2 scaling solutions have emerged. Rollups are one of the scaling solutions that help improve the transaction processing on the layer1 mainnet. In this article, we discuss what are rollups and how they work.
The regular blocks on Ethereum can only store a limited amount of data. Because of the increasing number of users and applications built on Ethereum, the network traffic increases.
Since there is limited space in each Ethereum block, the network takes more time to process transactions. While the mainnet prioritises a selected few transactions with the highest bids, all other transactions would have to wait.
We can post two types of information on the Ethereum mainnet – transactions and data. The storage of transaction information and on-chain processing can be heavy for the mainnet. On the other hand, data resulting from a transaction is less heavy and remains the same no matter the number of transactions. It is similar to how a cheque weighs the same irrespective of the amount on it.
So, instead of storing a whole transaction and processing it, we can store data that includes a bunch of transactions. Processing transactions off-chain and only submitting the resulting data to the mainnet can help the network process more transactions. There are two benefits to this – off-chain processing reduces the burden on the mainnet and one single data can hold multiple transactions.
Blockchain rollups ‘roll up’ or compile a bunch of transactions and turn them into one single data and submit it to the Ethereum mainnet. They take the transactions out of the mainnet and process them off-chain, convert them into one single piece of data, and submit them back to the Ethereum mainnet. This is why rollups are also called ‘off-chain scaling solutions.’
By processing and submitting more transactions in one single piece of data, rollups play an important role in improving the scalability of Ethereum. There are two types of blockchain rollups with different security models. Let us discuss each of them.
ZK or Zero Knowledge rollups help scale the Ethereum mainnet by moving computation and storage off-chain. ZK-rollups chain is an off-chain protocol that is built on top of the Ethereum blockchain.
ZK-rollups can bundle thousands of transactions in a single batch and execute them on its layer2 protocol. . They produce a ‘validity proof’ to confirm the correctness of the processed transactions. And finally, they submit the minimal summary data to the mainnet. Let us discuss the two types of ZK-rollups.
ZK-SNARK stands for Zero-Knowledge Succinct Non-Interactive Argument of Knowledge.
In ZK-SNARKS, verifiers and provers, go through all the transactions in a specific rollup and verify the transactions off-chain. Verifiers repeatedly challenge provers to confirm the validity of transactions. When they find the transactions legitimate, they submit the ‘validity proof’ of these transactions to layer1 Ethereum.
By off-loading some of its work to the ZK-SNARK checker, Ethereum can process more transactions. ZK-SNARKs are known for their small proof sizes and constant-time verification.
Let us understand each term of the ZK-SNARKS acronym.
ZK – Zero-knowledge. It implies that no additional information is needed other than the validity of the transactions.
S – Succinct, which means short. It implies that the proof size is small which results in processing the transactions quickly and easily. This feature of ZK-SNARKS helps Ethereum process more transactions.
N – Non-interactive. It means, no interaction is required with the people who verify the work or transactions.
ARK – Argument of Knowledge. This means the validity proof provided by the checker (that these transactions are legitimate) holds true. This part implies the quality of computational strength of ZK-SNARKS.
ZK-SNARKs ensure the security and privacy of the transactions. However, they are susceptible to certain types of hacks called quantum computing hacks.
ZK-STARK stands for Zero-Knowledge Scalable Transparent Argument of Knowledge. They are currently being developed by StarkWare Industries and are mainly concerned with scalability.
ZK-STARKs work similarly to ZK-SNARKS. They also bundle up transactions, verify the transactions off-chain, create validity proofs, and submit them to the Ethereum mainnet. However, they are more recent and improved versions of ZK-SNARKs, mainly because of their improved scalability and transparency.
Let us understand each term of the ZK-STARK acronym.
S – Scalable. It highlights how ZK-STARKS are more scalable than ZK-SNARKS. They utilize advanced technology which helps them generate proofs quicker than ZK-SNARKs. Hence, ZK-STARKS are more scalable.
T – Transparent. This implies the most significant difference between ZK-SNARKS and ZK-STARKS. These rollups do not depend on trusted parties which makes them more transparent than ZK-SNARKs.
ARK – Argument of Knowledge. This implies the same as ZK-SNARKS but they use a different computation approach and eliminates the need for trusted setups.
Though ZK-STARKs generate proofs quicker because of their advanced technology, they create larger proof sizes which take more time to verify than ZK-SNARKs. ZK-STARKS are more scalable,more secure, and transparent when compared to ZK-SNARKS.
Additionally, ZK-SNARKs are estimated to consume only 24% of the gas fees. This way, they make the transaction execution less expensive for the end user. Despite employing advanced technology, ZK-STARKs are still in the initial phases and it may take time to prove their efficiency.
Optimistic rollups also process transactions off-chain and submit the transaction data called ‘call data’ to the main chain. Optimistic rollups employ compression techniques to reduce the amount of data posted on Ethereum. This way, they will process more transactions to help improve the scalability.
These layer2 scaling solutions are called optimistic because they assume all transactions are valid by default. And they approve all the transactions to the Ethereum mainnet. This will save a lot of time and effort that would have been required for executing transactions and submitting data to the main chain.
After an Optimistic rollup batch is submitted to Ethereum, anyone can challenge these transactions within a certain time window called the ‘challenge period.’
While ZK rollups use validity proofs, optimistic rollups involve fraud proofs. They use a fraud-proving mechanism to identify illegitimate transactions.
When a transaction seems invalid and is proven to be illegitimate, the roll-up protocol re-executes the transactions and updates the rollup. And, if a transaction is invalid, its block validator will receive a penalty.
Smart contracts on Ethereum control the operation of optimistic rollups. So, they depend on the Ethereum mainnet for security. However, they still have increased chances of fraud when there is a lack of honest validators or nodes.
Optimistic rollups are easy to implement and less expensive when compared to ZK-rollups. One of the reasons for this is, ZK-SNARKs require high-end hardware to produce ‘validity proofs’ of the processed transactions. Coming to transparency, ZK-STARKs and Optimistic rollups are more transparent when compared to ZK-SNARKs.
A Scalable Future
Blockchain rollups are innovative – and essential – solutions to improve the scalability of the Ethereum network. There are multiple iterations, approaching the issue in slightly different ways, depending on how they balance the elements of security and efficiency.
With blockchain rollup technology still nascent, we are yet to see the full potential and impact of this solution. But the very existence of rollups – and other solutions taking aim at blockchain’s current tensions – makes an important statement: the blockchain ecosystem is far from its final state. And with so many stakeholders invested in making the technology efficient and scalable, the variety of uses for blockchain seems set to expand as we move into the future.