Last week, the news that Ethereum’s long-awaited transition to proof-of-stake might finally come in September evoked as many “I’ll believe it when I see it” jeers as it did cheers.
Not everything is on track with Ethereum. EthCC, a major Ethereum conference took place in Paris last week. It brought together a trio major announcements (and announcements about major announcements), from Polygon, Matter Labs, and Scroll.
Each team appears to be in the home stretch of launching a zkEVM (zero knowledge Ethereum Virtual Machine), a kind of technology – once thought to be years away – that will allow users to transact on Ethereum with lower fees and shorter delays.
It’s no secret that using Ethereum is expensive and slow relative to other blockchain networks. Ethereum can only process around 15 transactions per second. This is a lot less than other blockchains such as Solana or Tezos. The network can become prohibitively expensive during high traffic periods. For example, a token swap costs $40.
A year ago, so-called Optimistic-rollups like Arbitrum and Optimism were heralded as the best way around Ethereum’s sluggish and expensive user experience. However, these Optimistic Rollups were only a temporary fix and the upcoming launch zkEVMs may make their core technology obsolete sooner than anticipated.
Learn more Ethereum’s Rollups Aren’t All Built the Same
Zero knowledge = zero knowledge. This is not a problem. In this week’s edition of Valid Points, we’ll do our best to walk you through what zkEVMs are and what they mean for the future of Ethereum.
Understanding Ethereum rollups
Understanding zkEVMs involves understanding two fundamental blockchain concepts: rollups as well as zero-knowledge proofs.
Those who have been reading this newsletter for a while will know that rollups are the main way that Ethereum developers are working to scale the network – meaning cheapening fees and increasing transaction speeds and throughput. Rollups typically achieve this by establishing a “layer 2” blockchain atop Ethereum’s “layer 1” mainnet.
These layer 2 networks take transactions and bundle them up to send them back to the layer 1 network. Transactions can be confirmed once they reach the layer 1 chain using sophisticated computer science or other mechanisms.
As Ethereum co-founder Vitalik Buterin explained in a blog post, “Rollups move computation (and state storage) off-chain, but keep some data per transaction on-chain. To improve efficiency, they use a whole host of fancy compression tricks to replace data with computation wherever possible.”
As a result of these efficiency improvements, rollup chains allow users to use smart contracts – the computer programs that run on blockchains like Ethereum – more quickly and inexpensively.
Since rollup transactions are “settled” on Ethereum’s base layer, they have an added bonus of borrowing the layer 1 chain’s security. This is different from sidechains that execute transactions and bundle them together before passing them down to a layer 1. With little more than a pinky promise that the transaction data hasn’t been altered, this is a distinct advantage.
Rollups for optimism and ZK rollups
There are generally two ways that rollups – which borrow Ethereum’s security – are constructed: Optimistic rollups and ZK rollups.
Optimistic rollups like Arbitrum and Optimism use a dispute period – usually around seven days – to ensure transaction truthfulness. These systems allow transactions to take place on the layer 2, but once they are bundled up and sent back to the layer 1, network actors have the time (the dispute window) to review the transaction data and verify that it is accurate.
While a seven-day dispute period can slow down withdrawals (since it takes longer for transactions to officially “settle”), Optimistic rollups are much easier to implement than zero-knowledge rollups, the primary Ethereum scaling alternative. Optimistic rollups were therefore the first to go to market (Arbitrum, Optimism launched in 2021).
Zero knowledge or “ZK” rollups use complex mathematics and computer science – rather than a dispute period – to guarantee that transactions that get bundled up and posted to a layer 1 network are “true.” They do this by constructing so-called “zk-SNARKs” – a kind of cryptographic message that “proves” a statement is true without requiring you to walk through it yourself.
Zero-knowledge technology has many advantages over Optimistic tech. ZK rollups prove that transactions are accurate. This is better than trusting people to reject fraudulent transactions within a specified timeframe (as required by Optimistic rollsups).
If ZK rollups sound complicated, that’s because they are. Teams have worked for years to figure out how to distill complex transactions into easy-to-verify proofs – a problem that was expected to take at least a couple more years to crack.
In the interim it was generally believed that ZK technology would be only useful in simple cases, such as sending tokens among blockchain addresses. Companies like StarkWare and Matter Labs launched tools allowing projects to leverage ZK technology for a small set of applications, but they have yet to translate more complex operations – those used by most smart-contract based applications – into zero-knowledge proofs.
In his 2021 rollup primer, Buterin wrote, “In general, my own view is that in the short term, Optimistic rollups are likely to win out for general-purpose EVM computation and ZK rollups are likely to win out for simple payments, exchange and other application-specific use cases, but in the medium to long term ZK rollups will win out in all use cases as ZK-SNARK technology improves.”
The “medium to long term” time frame seems to have moved up significantly with the advent of the zkEVM.
Learn more Polygon Launches ZK Rollup Testnet, Eyes Mainnet
The rollup holy grail – the so-called zkEVM – allows developers to port any Ethereum smart contract over to a ZK rollup chain without needing to alter their underlying code.
There are some differences between different kinds of zkEVMs being worked on by Polygon, Matter Labs and Scroll, but in general they promise to dramatically reduce fees and transaction speeds for virtually any use-case – even relative to Optimistic rollup solutions like Arbitrum and Optimism.
Roll ups for the State of Optimism
Optimistic rollups were the only viable solution for Ethereum scaling at that time.
According to ycharts.com, the average transaction fee for Ethereum is $0.807 at this time. This is compared to the largest Optimistic rollups, Arbitrum and Optimism. According to L2Fees.info the average fees for these two rollups are $0.11 and 0.13.
Though they work well at slicing fees, Optimistic rollups haven’t seen enough adoption to signal that they’ve truly “scaled” Ethereum.
Rollups are a common practice even though they have been around for a while. Ethereum maintained a significant lead in daily transactions, with 1.2 million transactions recorded on July 18, compared to less than 250,000 transactions across Arbitrum or Optimism.
A look at the value of cryptocurrency committed to Optimistic rollups, often referred to as total value locked (TVL), is an important indicator of a rollup’s health. According to DeFi Llama, Arbitrum and Optimism together have around $1 billion in total value locked. Although this may seem like a lot to some, it is not compared to the $55 trillion Ethereum has locked up.
What happens when you make optimistic rollups?
On top of this lagging adoption, we’re now seeing the rise of the zkEVM – a technology which aims to improve upon Optimistic rollups across almost every metric. What now for the Optimistic Rollup?
One possible future path forward for Optimistic Chains is to move to zero-knowledge technology.
As Buterin put it on a primer on YouTube: “I personally would much rather trust $10 million dollars of my own money to an EVM Optimistic rollup than to an EVM ZK rollup for at least the next couple of years. ZK rollups in the long-term are, I believe, going to be everything. And so, my advice to teams like Optimism and Arbitrum is that I think they should start ZK-ifying themselves fairly soon.”
These chains can also look at other uses, even if it means losing some security.
Arbitrum launched a new chain, Arbitrum Nova, last week, which is intended for social and gaming applications. It has also left its original mainnet, to support NFT and DeFi projects. Nova – which is built using Arbitrum’s AnyTrust technology – offers transactions almost for free, albeit with some compromises to its security model (not unlike most other low-fee blockchains).
And finally, Justin Drake – a researcher at the Ethereum Foundation who has partnered with teams like Scroll and Matter Labs on their zero-knowledge protocols – points to community as a potential saving grace for protocols like Optimism and Arbitrum.
“It turns out that in this space, oftentimes it is not just about technology. Sometimes, it’s the network effects – the culture of the community – that is actually the most important thing. I think a team like Optimism really got a lot of things right from that perspective,” Drake told CoinDesk.
Optimism created a decentralized autonomous organisation (DAO) in May and airdropped their OP token. This token grants token holders the ability to vote on protocol updates and determine protocol incentives. Though the token drop was not without hiccups, Optimism’s unique governance model earned widespread praise throughout the Ethereum community – including from Buterin.
Sage D. Young contributed reporting
Here’s a snapshot of Ethereum Beacon Chain network activity for the week. Check out our 101 explanation on Eth 2.0 metrics for more details.
Disclaimer: All profits made from CoinDesk’s Eth 2.0 staking venture will be donated to a charity of the company’s choosing once transfers are enabled on the network.
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Factoids of the Week