Despite its position as the second-largest blockchain in the crypto space, Ethereum faces significant hurdles and challenges. One of the key limitations is its inherent scalability issue, which restricts its throughput to approximately 30 transactions per second. The resulting network congestion leads to delays and exorbitant fees. While various layer-2 scaling solutions have emerged to address this problem, they are not without their flaws, particularly in terms of scalability.

Addressing the Blockchain Trilemma

In the realm of blockchain technology, three essential properties are highly sought after: decentralization, security, and scalability. However, the blockchain trilemma posits that any simple blockchain architecture can only achieve two out of these three properties. Consequently, to achieve a high level of security and decentralization, scalability must be sacrificed.

Ethereum's Current Capacity

With over 1 million transactions processed per day and an increasing demand for each transaction, Ethereum has reached its current network capacity. The success of the network, coupled with its growing adoption, has led to a substantial rise in gas prices. Consequently, there is an urgent need for scaling solutions to accommodate this surge in demand. This is where layer-2 (L2) networks come into play.

Understanding Layer 2

Layer 2 refers to a collection of Ethereum scaling solutions designed to handle transactions off Ethereum layer 1 (L1), while leveraging its robust security and decentralization. Essentially, L2 functions as a separate blockchain that extends the capabilities of Ethereum, without necessitating changes to the L1 protocol.

The Role of Layer 2

A layer-2 blockchain maintains regular communication with Ethereum by submitting bundles of transactions, ensuring that it maintains comparable security and decentralization guarantees. L1 retains its responsibilities for security, data availability, and decentralization, while L2 focuses on scaling. By shifting the transactional burden from L1 to L2, congestion on the base layer is reduced, leading to enhanced scalability.

Rollups: The Preferred Layer-2 Solution

Currently, rollups have emerged as the favored layer-2 solution for scaling Ethereum. By utilizing rollups, users can reduce gas fees by up to 100 times compared with layer-1 transactions. Rollups achieve this by bundling hundreds of transactions into a single transaction on L1; consequently, the transaction fees on layer 1 are distributed among all participants in the rollup, resulting in reduced costs for each user.

Ethereum's journey towards scalability faces significant obstacles; nonetheless, layer-2 scaling solutions offer promising opportunities to overcome these challenges. By offloading the transaction load from L1 to L2, Ethereum becomes less congested, paving the way for a more scalable future. With rollups leading the charge, users can enjoy reduced gas fees and enhanced transaction efficiency.

As Ethereum continues to evolve, layer-2 solutions will play a vital role in ensuring its continued success in the ever-expanding crypto landscape.

Exploring Rollup Approaches: Optimistic and Zero-Knowledge (ZK)

In the realm of rollups, there are two primary approaches: optimistic and zero-knowledge (ZK). These approaches differ primarily in how transaction data is posted to layer 1 (L1).

Optimistic Rollups

Optimistic rollups operate under the assumption that transactions are valid, but allow for challenges if necessary. If there is suspicion of an invalid transaction, a fault proof is executed to determine its validity.

• ‍Arbitrum One is an optimistic rollup solution that aims to provide a user experience identical to interacting with Ethereum, while significantly reducing transaction costs from those of L1
  
  Note: Fraud proofs are currently only available for whitelisted users, and the whitelist is not yet open to the public.
  
  Arbitrum One Bridge | Arbitrum One Ecosystem Portal | Arbitrum One Token Lists

• ‍Optimism is a fast, straightforward, and secure EVM-equivalent optimistic rollup that scales Ethereum's technology while also extending its values through retroactive public goods funding
  
  Note: Fault proofs are currently in development for Optimism.
  
  Optimism Bridge | Optimism Ecosystem Portal | Optimism Token Lists

• Metis' new smart L2 optimistic rollup aims to streamline the process of recording transaction bundles, making it easier for validators and proofs to locate, challenge, and approve transactions
  
  Note: Metis rollup has two major disadvantages:

1. Delays in transaction finality due to potential fraud challenges
2. A malicious operator can steal funds by uploading invalid blocks and state commitments in the absence of honest nodes
   
   Metis Bridge | Metis Ecosystem Portal | Metis Tokenomics

Zero-Knowledge (ZK) Rollups

ZK-rollups are a layer-2 scaling solution that utilizes cryptographic validity proofs (SNARKs) to scale computation. Each batch of transactions is accompanied by a cryptographic proof that is verified by an Ethereum smart contract. This ensures that every transaction is fully verified by all Ethereum full nodes before a block is finalized.

• ‍Polygon's zkEVM aggregates multiple off-chain transactions into a single on-chain transaction. This rollup scheme eliminates the need for Ethereum mainnet validators to individually verify transactions by generating a validity proof (zero-knowledge proof) for each rollup
  
  Polygon zkEVM offers an ecosystem of resources, including the Polygon zkEVM ecosystem and the Polygon zkEVM bridge.
  
  Polygon zkEVM Ecosystem | Polygon zkEVM Bridge | Polygon zkEVM Token Lists

• zkSync Era, scaling Ethereum with Zero-Knowledge Rollups, developed by the blockchain engineering and research team at Matter Labs, is a layer-2 (L2) scaling solution that utilizes ZK-rollup technology to enhance the scalability of Ethereum. In June 2020, they launched their initial product, zkSync 1.0 which, although lacking smart contract support, managed to attract over 170 million USD in Total Value Locked (TVL) at its peak. The TVL primarily comprised ETH and the stablecoin USDC
  
  zkSync Bridging Assets | zkSync Ecosystem Portal

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When considering the best suitable scaling solution to the Ethereum blockchain, zkSync Era is widely regarded as the best available solution based on a range of factors. The most significant differentiator is low gas transfers for ETH and ERC-20 tokens. Furthermore, transfers are quick and cheap compared with L1 or optimistic rollups.

The fee structure below gives us an understanding of the significant difference in gas fees charged, though these may be even higher in certain circumstances.

1. Transfer fee: 0.02 USD
2. Withdrawal fee: 1.59 USD
3. One-time activation fee: 0.44 USD
4. Mint NFT: 0.05 USD

Furthermore, zkSync Era supports "gasless meta-transactions," enabling users to pay gas fees using the assets being transferred. For example, when sending DAI, users pay the resulting fees in DAI. Another benefit is smart contract interoperability, allowing developers to reuse the Solidity code. Additionally, zkSync Era supports atomic swaps and limit orders, both crucial functionalities for crypto exchanges. The platform also extends support for native layer-2 NFTs and is completely open source.

Securing funding is crucial for zkSync Era as a startup, and it has successfully raised 400 million USD from various sources, including VC funds, crypto incubators, and investors. Prominent backers include the Ethereum Foundation, Dekrypt Capital, Placeholder, Dragonfly Capital, 1kx, USV, BitDAO, OKX Blockdream Ventures, and Huobi Venture.

The strength of zkSync Era lies in its ecosystem, which includes the participation of notable projects in DeFi, wallets, bridges, NFTs, and infrastructure. Some prominent projects within the ecosystem include Argent, OKX Wallet, 1Inch Network, Balancer, Onto Wallet, Yearn.finance, Curve, ZigZag, Taker, Mute.io, and Reddio, among others. For instance, Argent has chosen ZK-rollup as its first L2 wallet solution. Users who are interested in further exploring the ecosystem can refer to the full list of featured projects.

Looking ahead, zkSync Era has an ambitious Road Map that aims to achieve even higher throughput by leveraging ZK-rollups and sharding technology, targeting a throughput of 100,000 transactions per second. This will position zkSync Era as the most advanced L2 solution for Ethereum. Future developments will also transform the current L2 project into a layer-3 hyperchain, boasting more than 100 times the scalability, along with tokenomics and HyperBridges.

Pros

• Validity proofs ensure correctness of off-chain transactions and prevent operators from executing invalid state transitions
• Offer faster transaction finality as state updates are approved once validity proofs are verified on L1
• Rely on trustless cryptographic mechanisms for security, not the honesty of incentivized actors, as with optimistic rollups
• Store data needed to recover the off-chain state on L1, which guarantees security, censorship-resistance, and decentralization
• Users benefit from greater capital efficiency and can withdraw funds from L2 without delays
• Don’t depend on liveness assumptions and users don't have to validate the chain to protect their funds

Cons

• The cost associated with computing and verifying validity proofs is substantial and can increase fees for rollup users
• Building EVM-compatible ZK-rollups is difficult due to the complexity of zero-knowledge technology
• Producing validity proofs requires specialized hardware, which may encourage centralized control of the chain by a few parties
• Centralized operators (sequencers) can influence the ordering of transactions
• Hardware requirements may reduce the number of participants that can force the chain to make progress, increasing the risk of malicious operators freezing the rollup's state and censoring users
• Some proving systems (e.g., ZK-SNARK) require a trusted setup which, if mishandled, could potentially compromise a ZK-rollup's security model

Conclusion

Rollups have quickly become important tools for addressing Ethereum's fundamental speed and cost inefficiencies.

The two main solutions, optimistic and zero-knowledge (ZK) rollups, offer creative solutions to the problem. Using cryptographic proofs, ZK-rollups seem to offer a more secure solution.

However, the introduction of EVM-compatible ZK-rollups is expected to help developers leverage the scalability and security guarantees of zero-knowledge proofs. More importantly, compatibility with native Ethereum infrastructure means developers can build ZK-friendly dApps using familiar (and battle-tested) tooling and languages.