TL;DR
We already discussed ZkSync Era, a Layer 2 on Ethereum with Zero-Knowledge (ZK) Technology. Launched in April 2023, it quickly gained a lot of value locked. Let’s have a look at how it and three compadre Layer 2s are doing. For this review, we leave out ZK Layer 2s that already have a token, such as Polygon’s ZkEVM. Why? Well, airdrops are on the horizon…
Layer 2s (L2s) allow developers to build apps on Ethereum with low gas fees and high/fast throughput, backed by the security of Ethereum.
What is special about Zero-Knowledge Layer 2s? With Zero-Knowledge technology, a batch of transactions can be processed together on the L2. A single proof representing the entire batch’s validity is then posted to the main chain – without giving insight into the transactions themselves (this is the zero-knowledge/privacy aspect). This process significantly reduces the amount of data processed and stored on Ethereum.
As the name suggests, enhanced privacy is a key benefit: zero-knowledge rollups allow one party to prove to another that a statement is true without revealing any information beyond the validity of the statement itself. Imagine that I can prove that I am the legitimate owner of a valid passport, without showing my passport to the clerk at customs, or to the car rental agency!
This adds a layer of privacy to transactions that is not necessarily present in traditional blockchain transactions (even though ZK-rollups are also hot again on Bitcoin).
ZK rollups are designed to be compatible with Ethereum’s ecosystem, including smart contracts and decentralized applications (dApps). Without this compatibility there is no use for a Layer 2: you want different services and protocols to seamlessly interact with each other, even if they’re on a different layer.
The Difference Between Zero-Knowledge Rollups and Optimistic Rollups
Popular Layer 2s such as Arbitrum and Optimism are so-called ‘optimistic rollups’. This type of scaling solution is currently more mature than ZK-rollups. (Arbitrum and Optimism have already released their tokens but the ZK Layer 2s under discussion haven’t yet. We smell… opportunity.)
In the case of optimistic rollups, transactions are ‘optimistically’ posted to Ethereum Layer 1. This means it is assumed they are valid until proven otherwise. Validators have a dispute period of a week. This means that withdrawal latency is longer for optimistic rollups compared to ZK-rollups.
On the flipside, ZK-rollups have faster finality and withdrawal times, and better privacy.
ZK-technology is more complex to build though.
The choice between Optimistic and ZK-Rollups depends on the specific requirements of the application, such as speed, cost, privacy, and EVM compatibility.
Ethereum founder Vitalik Buterin has predicted that ZK-Rollups will eventually outcompete Optimistic Rollups. But in terms of adoption, they have some ground to cover.
Types of ZK-rollups
Different ZK-rollups make different tradeoffs: some are more compatible with the Ethereum Virtual Machine (EVM) and thus existing tools. Compatibility is important if you want your ZK-Rollup chain to be able to do more than only for example token swaps.
Other ZK-rollups perform better (faster, more throughput). This is Vitalik’s classification of ZK-rollup types:
- Type 1, fully Ethereum-equivalent: perfect…
Erik started as a freelance writer around the time Satoshi was brewing on the whitepaper.
As a crypto investor, he is class of 2020. More of a holder than a trader, but never shy to experiment with new protocols.
