Introduction

The introduction of Ethereum in 2015 marked a significant milestone in the evolution of blockchain technology, offering a platform for innovation and decentralized solutions. However, as Ethereum’s popularity soared, scalability and high gas fees emerged as formidable challenges. Despite these obstacles, Ethereum remains steadfast in its pursuit of extreme scalability without compromising decentralization or security.

To delve into Ethereum’s scaling solutions and the intricate balance between scalability, security, and decentralization, it’s essential to understand the Blockchain Trilemma—a fundamental concept in blockchain technology. This article explores the diverse landscape of scaling solutions, including on-chain and off-chain approaches, focusing on Roll-up solutions. By comparing Optimistic and Zero-Knowledge Roll-ups, this article aims to elucidate each approach’s nuanced trade-offs and benefits, shedding light on their implications for Ethereum’s future and the broader blockchain ecosystem.

The Blockchain Trilemma

The three core features of the blockchain are scalability, security, and decentralization.

Security

This means keeping the network safe from attacks and ensuring all transactions are secure and tamper-proof.

Decentralization

This refers to spreading out the control of the network so no single entity has too much power. It’s about having a network run by many nodes, rather than just one central authority.

Scalability

This is the ability of the network to handle a large number of transactions quickly and efficiently as it grows.

Source: Ethereum

A blockchain’s inability to simultaneously accomplish all of these goals is known as the “Blockchain Trilemma.” Enhancing one frequently means sacrificing others, and this trilemma is believed to restrict the technology’s adoption and potential severely. As an illustration, a greater degree of decentralization (more people in charge) may result in less scalable networks with slower transactions as more nodes must agree on transactions. However, as scalability increases (transactions happen faster), it might become necessary to decrease “decentralization” (fewer nodes are in control), which could have an impact on security. Strict regulations and fewer nodes can cause transactions to become slower and more centralized, which could limit the network’s scalability and decentralization if security is given first priority.

Scaling Solutions: On-chain and Off-chain

The process of on-chain scaling entails making modifications to Ethereum’s layer 1 mainnet protocol, which was originally intended to be scalable through sharding—the division of the blockchain into smaller, verifiable areas. By utilizing less expensive data attachments to Ethereum blocks, layer-2 rollups have emerged as the main scaling technique.

Off-chain scaling solutions, on the other hand, do not depend on Ethereum’s layer 1 and do not need any protocol changes. They gain scalability by processing transactions off of the Ethereum mainnet, and they derive security either directly from Ethereum’s consensus or through independent chains. Sidechains, State Channels, Plasma, Validium, and Roll-ups are some of these layer 2 solutions.

Roll-up Scaling Solutions

Source: DappRadar

Roll-ups, which are secured by Ethereum, increase the scalability of Ethereum by processing and validating transactions off-chain and then sending a condensed summary of the transactions to the mainnet. As a result, the Ethereum L1 mainnet handles less data and computation, which speeds up the network and lowers transaction costs.

Entries and Exit

Exit and entry are the processes of moving funds between Ethereum and a layer 2 (L2) scaling solution.

• Entry: To use an L2 solution, users need to deposit their funds into a smart contract on Ethereum, which locks them until they are withdrawn.
• Exit: To get their funds back, users need to submit proof of their balance on the L2 solution to the smart contract, which releases them to their Ethereum address. Different L2 solutions have different methods of proving and verifying transactions, such as zero-knowledge proofs or fraud proofs. These methods affect the speed, cost, and security of exit and entry.

Understanding Zero-knowledge (ZK) and Optimistic Roll-ups

Zero-knowledge (ZK) and Optimistic Roll-ups are the two categories of Ethereum’s Scaling Solutions.

Zero-Knowledge Roll-ups

Zero-knowledge Roll-ups, popularly known as ZK roll-ups assume all transactions are false until proven valid through zero-knowledge proofs (ZKPs), a sharp contrast to its optimistic counterparts. Here, validators prove a transaction is authentic without revealing any transaction details. This is done by posting validity proofs to Ethereum, eliminating the need for on-chain transaction data. Examples of Zero-Knowledge roll-ups include Starknet, zkSync, and Loopring.

Source: Nervos

Key Features of Zero-Knowledge Roll-ups

A Zero-Knowledge Proof

This is a method allowing a ‘prover’ to demonstrate the truth of a statement to a ‘verifier’ without revealing any information beyond the fact that the statement is true. It ensures privacy and security in validating claims without exposing underlying data.

ZK-SNARKs (Zero-Knowledge Succinct Non-Interactive Argument of Knowledge)

A protocol enables the verification of a statement’s integrity without knowing anything else about it. It’s succinct and non-interactive, meaning proofs are small and verification is quick, requiring only one interaction.

ZK-STARKs (Zero-Knowledge Scalable Transparent Argument of Knowledge)

Similar to ZK-SNARKs but designed to be scalable and transparent, making them faster for larger data sets and free from the need for a trusted setup, although they produce larger proofs.

How Zero-Knowledge Roll-ups Work

1. User Transaction Submission: Users initiate transactions by signing them with their private keys. These Transactions are submitted to ZK-rollup operators.

2. Operator processing: Operators, either sequencers or validators, receive user transactions. Sequencers execute transactions off-chain, aggregate them into batches, and periodically submit these batches to Ethereum’s blockchain. Validators process transactions in a proof-of-stake setup and propose new batches based on stake size.

3. Batch Compression and Submission: Before submitting to Ethereum, the operator compresses transaction data to reduce call data size. This compressed data is then included in an Ethereum transaction and sent to the ZK-rollup smart contract.

4. On-chain Commitment: Ethereum’s smart contract receives the batch data and verifies its integrity. It updates the rollup’s state tree with the new transactions and stores the Merkle root of this updated state.

5. Zero-Knowledge Proof Generation: The ZK-roll-up operator generates zero-knowledge proofs for each batch. These proofs cryptographically attest to the correctness of state transitions without revealing sensitive information.

6. Proof Submission: The operator submits the zero-knowledge proofs to Ethereum’s verifier contract. This contract verifies the proofs and ensures the proposed state transitions are valid.

7. State Root Update: Upon successful verification of the zero-knowledge proofs, Ethereum’s smart contract updates on the rollup’s state root with the new Merkle root calculated from the latest batch of transactions.

8. User Interaction: Users can interact with the ZK-rollup by depositing assets onto Ethereum, initiating transactions, and withdrawing funds. Deposits are made by sending assets to the rollup contract, while withdrawals involve submitting requests with necessary proofs to the contract.

9. Verification and Execution: The roll-up contract verifies withdrawal requests, ensuring they are valid and backed by the necessary proofs. Upon verification, the contract executes the withdrawals, transferring assets to users’ specified addresses on Ethereum’s mainnet.

Advantages of Zero-Knowledge Roll-ups

• Validity proofs: ZK roll-ups use validity proofs to verify the correctness of off-chain transactions, which prevent operators from executing invalid state transitions and offer faster finality.
• Data compression: ZK roll-ups use compression techniques to reduce the amount of data posted on-chain, which can lower the fees for users and increase the scalability of the roll-up.
• Instant withdrawals: ZK rollups allow users to withdraw funds from L2 to L1 without delays, as exit transactions are executed once the validity proof is verified on L1.

Disadvantages of Zero-knowledge Roll-ups

• Proof generation and verification: ZK rollups require complex cryptography and engineering to produce and verify validity proofs, which can increase the costs and challenges for rollup operators and users.
• EVM compatibility: ZK rollups are not readily compatible with the EVM, making it difficult to support general-purpose smart contracts and existing dapps and tools on the rollup.
• Centralization risks: ZK rollups may encourage centralized control of the roll-up by a few parties, as producing validity proofs requires specialized hardware and expertise.

Use Cases of Zero Knowledge Roll-ups

Zero-Knowledge (ZK) roll-ups are an excellent fit for various use cases, particularly those that require a balance between privacy, scalability, and security. Here are some use cases of zero knowledge roll-ups.

Decentralized Identity Verification

ZK-roll-ups can verify an individual’s identity without revealing sensitive personal information. This privacy-preserving feature is valuable for secure authentication and user management.

Privacy-Preserving Transactions

Blockchain nodes can validate transactions without accessing transaction data directly. ZK-rollups enable confidential and efficient transfers while maintaining security.

Voting systems

Voting systems need to ensure anonymity and integrity in elections while allowing public result verification.

Optimistic Roll-ups

Optimistic roll-ups scale Ethereum by moving transactions off-chain and only posting data on-chain. They assume and trust that the off-chain transactions are valid without checking them. However, optimistic roll-ups use fraud proofs to detect errors or fraud in off-chain transactions. The two most popular Optimistic rollups are Arbitrum and Optimism.

The challenge period is the time that comes after a roll-up batch is submitted to the Ethereum network. Anyone can contest a roll-up transaction’s validity during this time. After the challenge period, a roll-up batch is deemed valid on Ethereum if it is not challenged. In contrast, the protocol re-executes the transactions and penalizes the sequencer in question if a fraud-proof is successful.

Source: Nervos.org

How Optimistic Roll-Ups Work

1. User-initiated transaction submission: On the optimistic roll-up network, users start transactions. The sequencer, or operator, receives this transaction.

2. Transaction aggregation and on-chain submission: The operator compiles all of these separate transactions into a block and reduces the size of the data by compressing it, creating a batch of transactions that are prepared for processing. Following that, the operator submits the batch of transactions to the Ethereum network. The transaction data is packaged in this process and posted on Ethereum as call data.

3. Data availability on Ethereum: Ethereum records the transaction data posted/submitted within the call data on its blockchain. This ensures the availability of transaction data for future reference.

4. State transition and commitments: Validators on the optimistic roll-up network, also known as sequencers in some cases, execute the transactions using the current state of the roll-up chain stored off-chain. They verify the validity of transactions and update the roll-up state accordingly. After processing the transactions, the operator commits to the new state of the roll-up chain by generating a new state root. This root is hashed and stored on-chain as a reference to the latest state of the roll-up.

5. Fraud detection and fraud proofs: Validators keep an eye out for any differences between their own executed state and the operator’s proposed state by monitoring the roll-up chain. A validator may launch a challenge to contest the roll-up block’s validity if they find a discrepancy. In case of a challenge, validators can provide fraud proof to Ethereum, demonstrating any inconsistencies in the roll-up block. These proofs serve as evidence of fraudulent activity and trigger penalties for the dishonest operator.

6. Arbitration and Resolution: Ethereum is an arbiter in the dispute resolution process. It evaluates the fraud proofs provided by the challengers and enforces penalties on the operator if fraudulent behavior is confirmed.

7. Finality and Settlement: Once a roll-up block is accepted on Ethereum, it achieves finality, meaning the transactions within it are considered settled and irreversible. This settlement provides users with confidence in the integrity of their transactions on the optimistic roll-up network.

Advantages of Optimistic Roll-ups

• EVM Compatibility: Optimistic roll-ups can support any smart contract or transaction that can run on Ethereum, making them easy to integrate with existing dApps and tools.
• Low Latency: Optimistic roll-ups offer fast transaction confirmation times, as users do not have to wait for validity proofs to be verified on L1.
• High Throughput: Optimistic rollups can process thousands of transactions per second by moving computation off-chain and only posting transaction data on-chain

Disadvantages of Optimistic Roll-ups

• Fraud Proofs: Optimistic rollups rely on fraud proofs to ensure the correctness of off-chain transactions, which require a challenging period and additional gas costs to execute on L1.
• Data Availability: Optimistic roll-ups depend on the availability of transaction data on L1, which can be affected by network congestion or malicious actors.
• Withdrawal Delays: Optimistic roll-ups impose a waiting period for users to withdraw funds from L2 to L1, which can range from several hours to days depending on the roll-up design.

Use Cases of Optimistic Roll-ups

Optimistic roll-ups address scalability challenges in Ethereum-based applications while maintaining trust and security, making them an ideal solution for various use cases across different industries. These include;

Decentralized Finance (DeFi)

Optimistic roll-ups can significantly improve transaction throughput for DeFi platforms, enabling faster and cheaper interactions with protocols like lending, trading, and yield farming.

Gaming

In gaming applications, where real-time interactions and quick confirmation of in-game actions are crucial, optimistic roll-ups offer a way to process transactions off-chain while maintaining security through on-chain data posting.

Supply Chain Management

Optimistic rollups can streamline supply chain processes by handling large transactions off-chain, reducing congestion on the Ethereum mainnet. This is particularly useful for tracking goods, verifying authenticity, and managing inventory.

Identity Verification

Verifying identities and managing user profiles can benefit from optimistic roll-ups. By offloading computation and state storage, these protocols can enhance the efficiency of identity-related transactions.

Comparison of Zero-knowledge (ZK) and Optimistic Roll-ups

Conclusion

The comparison between Optimistic and Zero-Knowledge Roll-ups underscores the nuanced approaches to scalability and security within Ethereum’s ecosystem. While Optimistic Roll-ups prioritize transaction speed and compatibility with existing Ethereum infrastructure, Zero-Knowledge Roll-ups excel in privacy preservation and cryptographic integrity. Both solutions represent significant advancements in blockchain technology, offering unique benefits and trade-offs that cater to diverse use cases.

As Ethereum continues to evolve, adopting and refining these roll-up solutions will play a pivotal role in shaping the future of decentralized finance, non-fungible tokens, and other blockchain applications. Embracing this diversity of scaling solutions underscores Ethereum’s commitment to innovation and resilience in overcoming scalability challenges while upholding the core principles of security and decentralization.