If you ask most people in crypto what is their biggest frustration is, their answer would be related to ethereum gas fees. When it costs you $100 to send $75, then you have a network with a problem. And this is a relatively common problem on Ethereum. So what can you do about it?
This is where all the interest in Layer 2 protocols comes from. Layer 2 means a way to access Layer 1 protocols but sometimes faster and cheaper. And one of the most common methods Layer 2 protocols use is ZK Rollups.
Ever heard of them? You’ve probably used them before without even knowing. Therefore, in this article, we are going to talk about ZK Rollups and how you can start using them now.
What Are ZK Rollups?
A zero-knowledge (ZK) proof rollup is a way to batch many transactions together. We know that most of you are investors and not technologists, and we aren’t technologists either. But, it’s important to understand the ZK behind the ZK Rollup.
Zero-knowledge (ZK) is like proving that you know a secret to someone without revealing that secret to anyone else. And this matters because the secret, in this case, is your crypto transaction. So done right, Zero-knowledge is private and secure.
Then, we have the rollup part where these zero-knowledge proofs are all batched together into fewer transactions so we can save on gas fees. Every blockchain suffers from the ‘Blockchain Trilemma’. The Trilemma is how to balance the needs for decentralization, security, and scalability. All together.
Every chain sacrifices in favor of the other two. Ethereum, which is the reason we need these ZK rollups, has the problem of scalability. They suffer from low throughput or a lower number of transactions per second and high gas fees in combination with their throughput problem.
So not revealing the secret, of our crypto transactions, but being able to prove them and batch them together for speed and cost savings makes a lot of sense.
Advantages & Disadvantages of ZK Rollups
Here are three advantages besides speed and cost savings when we use ZK Rollups:
- It encourages decentralization by validating blocks in a parallel computing model.
- Increases scalability.
- Doesn’t require a KYC process.
So we improve 2 of the 3 parts of the Blockchain Trilemma by using them.
On the other hand, it’s not all great all the time or everyone would use them. Here are some disadvantages:
- Time-consuming: After all, additional requests for proof from a validator make the transaction more secure but take up more time instead of just asking for proof once.
- ZK Rollups promote centralization: At first, they require trust when trust cannot be proven. In this case, the trust is that both the validator and prover are acting honestly.
- Quantum computing could open it up to hacks.
- Expensive to implement: ZK Rollups are using cryptography to build their blocks to add to the chain with individual provers. It’s almost like adding a sidechain.
Now that you know more about ZK Rollups, here are the Top ZK Rollups projects:
Top Five ZK Rollup Projects
So now we see the benefits of ZK Rollups in helping Ethereum scale, let’s look at the investment opportunities in this market. Here are 5 projects:
Hermez is an open-source ZK Rollup that is already EVM compatible. They’ve been working with both Polygon and ETH transactions for safe, fast ERC-20 token transfers. This means Hermes’s transactions can be executed with very low CO2 emissions.
What makes Hermez unique is its “proof-of-donation” protocol that gives 40% of the winning bid back as a donation to reinvest. It has its native token, $HEZ, which currently has a market cap of more than USD 124 million with a growth of 116% in the last 12 months.
Nowadays, the cost of each transaction is $0.25 (In ETH) and now, Hermez is part of Polygon. The result is that $HEZ will delist fully in January and the wind-down process for their token started in December. Also, it means that Polygon added Hermez’s market cap to its TVL and it is reflected in the price of MATIC. Polygon avoided the recent crypto bloodbath and is up 58% in the last 30 days.
Loopring is the oldest and likely best-known ZK rollup on this list. It has some great features like:
- Audited code
By far our biggest request💙
Can I send $LRC directly from a CEX to Loopring L2 to set up a new counterfactual wallet?
Now you can do this through @layerswap with a step by step video guide to walk you through it🔥
— Loopring (@loopringorg) January 19, 2022
It’s also the first rollup deployed on Ethereum that maintains Ethereum’s security standards. Nowadays, the cost of each transaction is $0.37 (In ETH), where the price of Loopring’s native token, $LRC, is at $0.96 with a marketcap of $1.1 billion and a 24-hour trading value of $209 million.
ZKSync also does scale with security. Its features include:
- Has no upper limit on how much volume it can move safely in L2, this enables the DeFi ecosystem to grow without limits.
- Assets can move efficiently and fast between ZK rollup and L1. This means that protocols can migrate from L1 to L2 gradually.
- The platform has the lowest real transactions cost across all ZK-rollups.
Rollup transactions on Ethereum are cheap.
But they will get much cheaper in next few months via 3 methods:
1. better data compression
2. EIP4488 (or 4490) making it cheaper to put data on mainnet
3. more rollup transactions means splitting the mainnet fees with more people pic.twitter.com/UKt5oMkIKX
— Evan Van Ness 🐬 (@evan_van_ness) November 26, 2021
Nowadays, the cost of each transaction is $0.45 (In ETH). This company does not have a native token yet, so they haven’t attracted massive investment.
4. Arbitrum One
Arbitrum uses rollups and bridges and lots of tools to help scale Ethereum transactions. Therefore, here are three features from Arbitrum:
- Developers can start using Arbitrum with no setup required in the testnet.
- Running nodes.
- L1/L2 interoperability.
WE KNOW YOU'VE BEEN WAITING…
WE'RE PROUD TO ANNOUNCE…
BRIEF YOURSELF BELOW 👇, WE'LL SEE YOU IN L2.https://t.co/fQT8EyyldL
— Arbitrum (@arbitrum) August 31, 2021
Moreover, Arbitrum has a huge ecosystem where you can find wallets, dApps, tools, and bridges. Nowadays, the cost of each transaction is $2.90 (In ETH).
Optimism is a super fast and super cheap alternative to Ethereum’s transactions. Any Ethereum dApp can work faster and cheaper using Optimism. They’ve processed more than 2.2 million transactions from more than 100k unique addresses and more than $100 million saved in gas fees.
— Optimism (@optimismPBC) January 28, 2022
Nowadays, the cost of each transaction is $4.14 (In ETH). This company does not have a native token yet, so they haven’t attracted massive investment.
So to sum it up, we have 5 projects here. They all present options using Zero-Knowledge proofs as a way to scale up the slow, clogged Ethereum system. Here is a summary of them:
- Hermez: It has the lowest cost per transaction, the token has very high potential in investments and it’s the only project that is low in CO2 emissions. And now it’s part of Polygon.
- Loopring: It has the second-lowest-cost per transaction, and is the most famous ZK-Rollup project in the sector, which is reflected in the high marketcap and its trading volume.
- ZKSync: It’s the most scalable since it has no upper volume limit for throughput on transactions.
- Arbitrum: Other than Hermez now being part of Polygon probably has the biggest existing ecosystem in this group.
- Optimism: It’s the fastest and has saved ETH users the most so far.
So if you like the idea behind ZK rollups, that you are revealing you know that secret without revealing the data and what that secret is, then these platforms are worth a look. We would not be surprised if the 2 who currently don’t have a token issued one soon.
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