BLOCKCHAIN – PUZZLE
Scalability has long been viewed as one of the biggest challenges facing mainstream blockchain adoption. Although the number of transactions a network can process varies greatly according to the underlying technology associated with Bitcoin, Ethereum and its myriad competitors, for years a viable industry-wide solution to the “scalability problem” was perceived by some to be as elusive as Moby Dick.
The mood music has started to change, thanks in large part to the emergence of protocols like Solana, Polkadot, Avalanche and Terra, which are often dubbed “Ethereum killers” due to their ultra-fast confirmations and satisfyingly low gas fees. The arrival of these alternative networks owed much to the DeFi boom of 2020, when surging demand for NFTs and dApps in turn spurred the growth of blockchain platforms capable of handling the volume after Ethereum hit its capacity.
A Scalability Arms Race
Suffice to say the scalability problem has been tackled in a number of ways. Solana, for instance, uses a consensus system that combines Proof of History and a custom implementation of Practical Byzantine Fault Tolerance known as Tower BFT. Together, these innovations help Solana power up to 65,000 transactions per second (tps). Polkadot, meanwhile, uses sharding, a process wherein separate chains known as “parachains” independently connect to the main Relay Chain and execute parallel transactions according to their own rules. By unburdening the main chain, Polkadot could eventually reach 1 million tps according to founder Gavin Wood.
Despite the seemingly endless onslaughts launched on Ethereum’s citadel, the smart contract platform has its own vaunted plans for addressing the scalability issue that has continually hampered its current iteration due to the DeFi explosion. The long-anticipated Ethereum 2.0 upgrade is projected to handle 100,000 tps, although the vast majority of transactions are actually expected to be handled off-chain through ZK-Rollups, a novel solution that combines on and off-chain processes.
Described as a “layer 2 construction that increases scalability through mass transfer processing rolled into a single transaction,” ZK-Rollups vastly reduce the computing and storage resources required to validate blocks, by decreasing the amount of data in a transaction. This is made possible through cryptographic zero-knowledge proofs (ZKPs), whereby a party can prove that they know or have something without surrendering any information about what it is they know or have.
Because such validity proofs (SNARKs) are instantly verifiable, they are able to dramatically improve metrics such as throughput and scalability while slashing transaction fees for users.
“The unique thing about zero-knowledge proofs is that they stay small even when the work that is verified with them grows significantly,” observes Lucas Vogelsang, Co-founder and CEO of Ethereum-powered DeFi platform Centrifuge, “This will make them very attractive even as blockchains themselves scale more.”
Vogelsang is more than a little familiar with the technology. Centrifuge, which unlocks liquidity for real-world assets by tokenizing them as NFTs, allows developers to leverage ZKPs in their decentralized applications thanks to an integration with ZoKrates, a toolbox for zkSNARKs (Zero-Knowledge Succinct Non-Interactive Argument of Knowledge). By tapping into zero-knowledge proofs, Centrifuge enables all transactions across its network to be completely hidden from any third party. This means that sensitive information, like your ownership of a pricy piece of real estate, for example, is not exposed publicly when minting an NFT that represents this asset.
Ethereum’s transition to a more environmentally friendly proof-of-stake (PoS) model, coupled with the use of energy-efficient ZK tech, couldn’t be more timely. This week, the vice-chair of the European Securities and Markets Authority called for the proof-of-work (PoW) system to be banned altogether. Erik Thedèen urged EU regulators to clamp down on PoW mining currently used by the Bitcoin and Ethereum networks and promote PoS instead.
Can ZK-Rollups Level Up The NFT Space?
Centrifuge isn’t the only NFT-focused Ethereum project making use of ZK tech. Another, Immutable X, has created a new layer-2 scaling solution that combines NFT specific exchange and proof logic with pioneering roll-up technology developed by the execution platform StarkWare.
The latter’s proprietary scalability engine, StarkEx, enables the Sydney-based blockchain gaming venture to broaden the appeal of the NFT economy, which has been accused of resembling a walled garden due to skyrocketing transaction fees. Because all transactions are bundled off-chain, Immutable X users are able to mint and trade NFTs cheaply and quickly, without sacrificing the security or network effects of leading NFT network Ethereum. With the ability to process up to 9,000 tps at near-zero gas fees, Immutable X expects to massively enhance user experience for traders, collectors and creators.
“ZK-Rollups are by far the easiest way to scale high-throughput transactions while still inheriting the security of the L1,” says Immutable X Co-Founder and President Robbie Ferguson, “We’ve seen a huge amount of value lost through hacks on sidechains or alternative L1s this year, so this is a very real concern for projects and games building NFTs.
“Global demand for NFTs across gaming, collectables and IP has made scaling solutions move from a vitamin to a painkiller. The moment we have a major game studio go all in on NFTs, they’ll swamp the rest of NFT transaction volume combined, so it’s essential to have a solution which costs precisely zero in gas for creation or trade of these assets.”
Interestingly, Immutable X’s zkSTARKs proofs differ somewhat from the aforementioned zkSNARKs counterparts. The former’s larger proof sizes mean they take longer to verify and thus require more gas. Despite this, StarkWare received a $12 million grant from the Ethereum Foundation and has quickly become one of the industry’s go-to scaling solutions.
Of course, Ethereum is not the only blockchain that has invested heavily in ZK tech. Polygon, another factory of NFT mania, recently acquired Ethereum scaling startup Mir Protocol for $400 million, taking its investment in ZK up to $650m since August, 2021. A Polygon-focused ZK Rollup is expected to land later this year. And then there’s Syscoin, a network that purports to represent the best of Bitcoin, Ethereum and ZK tech.
Syscoin’s Network-Enhanced Virtual Machine (NEVM) actually does combine elements of the industry’s blue riband blockchains. Settlements are secured by Bitcoin’s proof-of-work (PoW) security model via merged-mining and devs can deploy smart contracts using the familiar EVM tools and resources they’ve become accustomed to while working in the Ethereum environment.
The implementation of ZK-Rollups on Syscoin means that the network will be capable of processing 210,000 transactions per second from Q1 of 2022. DeFi platform Mute is already preparing to utilize rollups on Syscoin’s NEVM, as it strives to create a fast, privacy-focused finance suite.
“Not until useful quantum computing arrives do I see another form of technological achievement as monumental as zero-knowledge proofs,” predicts Syscoin’s CTO Jagdeep Sidhu.
“With our preferred approach to scaling, we are beckoning a way to create economies of scale. ZK-Rollups clear the bottleneck in such systems by amortizing over the number of transactions. Furthermore, more efficient ASICs (specialized hardware required for cryptocurrency mining) zero-knowledge proof-proving systems are being developed to cut the computation costs down even further.”
Different Perspectives
Evidently, ZK-Rollups are making a big impression in the blockchain world. But Ethereum founder Vitalik Buterin has sounded a cautious note, stating his belief that it will “take years of refinement and audits for people to be fully comfortable storing their assets in a ZK-Rollup.”
Sidhu is more optimistic, “Eventually, end users will most likely be on some sort of ZK-Rollup system whereby what they settle will be abstracted away from them most of the time and they will use Web3 applications without any knowledge of the technology that makes it all possible, no different from your average smartphone user today.”
When it comes to ZK-Rollups, there is a general sense that we are only at the precipice. The wide-spread scaling is likely to be aggressively competitive as networks and solutions scrap and skirmish for market share, but users will ultimately be the beneficiaries as throughput, security, and convenience improves.
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