Learn: Is an Increased Focus on Layer-2 Scaling and ZK Technology Justified?

The many layers of a financial revolution.

As blockchain technology grows in popularity, so does the need for increased scalability. While the blockchain is a secure and immutable distributed ledger, its scalability limitations have become a major impediment to the widespread adoption of blockchain-based solutions.

Layer-2 scaling and Zero-Knowledge (ZK) technology have emerged as promising scalability solutions. In this article, we will look at why Layer-2 scaling and ZK technology is becoming more popular.

Layer-2 Scaling Solutions

Layer-2 scaling solutions are critical to the blockchain scalability roadmap. They are intended to address the limitations of the base layer by off-chaining some processing while maintaining the blockchain's security and decentralization.

This method enables the blockchain to handle more transactions while maintaining security and decentralization.

State channels, sidechains, and Plasma are the most popular layer-2 scaling solutions. State channels are a technique that allows two parties to conduct off-chain transactions without having to broadcast each transaction to the blockchain network.

Instead, transactions are only recorded on the blockchain when the channel is closed, allowing for high-volume transactions without affecting the scalability of the blockchain.

Sidechains are independent blockchains that can communicate with the main blockchain. They enable faster transactions and greater scalability by offloading some of the processing from the main blockchain. Plasma is a scaling solution that works as a sidechain tree.

It is intended to support high-volume transactions while minimizing data storage on the main blockchain.

ZK Technology

ZK technology is a type of encryption that allows for secure and private transactions. It allows users to prove that they have certain information without disclosing it to anyone else.

It is based on mathematical proofs, which allow for verification without revealing the underlying data.

ZK technology is especially useful for privacy-sensitive applications like cryptocurrency transactions. Users can conduct transactions using ZK technology without revealing their identities or the details of the transaction.

This is accomplished by creating cryptographic proof that verifies the transaction without revealing any sensitive data.

Furthermore, this is being used to increase the scalability of blockchains. It is used in many layer-2 scaling solutions, including ZK-rollups and ZK-SNARKs.

ZK-rollups are a type of sidechain in which multiple transactions are compressed into a single proof that can be verified on the main blockchain using ZK technology. This method reduces the amount of data that must be stored on the main blockchain, which improves scalability.

ZK-SNARKs are a type of proof that allows transactions to be verified without revealing any sensitive information.

Why Use ZK Technology? A Glance at ZK-Rollups on the Ethereum Blockchain

On the Ethereum network, there are mainly two things which can be posted on the blockchain: transactions and data.

Transactions are a simple concept to understand. You send Ethereum from one address to another and that’s the end of it. It mirrors Bitcoin, plain and simple.

Data, however, is what makes the Ethereum network rather unique because you can pretty much store whatever you like on the network whether it’s a whole program, smart contracts, code, a sentence, and so forth.

Rollups are defined as a solution that performs transaction execution outside the main Ethereum chain, provided that it posts final transaction data on the main chain afterwards.

It is important to understand that Ethereum blocks can only hold a specific amount of data, and so, if there are more people who wish to make transactions than the number of “slots” available, only the highest bidders (users who are willing to pay the highest fees) get their transactions made, while the others have to wait.

Since it is possible that the fees can get somewhat expensive and along with them each transaction, each of them has to be important if you want to include it as soon as possible.

The reason why this all changes when dealing with the Ethereum blockchain is because of how you can write data on it.

As such, one of those transactions can simply be just data and, in the data, a lot of other transactions can be written, meaning that we can use one of the 'transaction' slots to write data containing hundreds of other transactions. Et voila: we have 'rolled up' many transactions into data and effectively increased the number of transactions which get written on the blockchain.

By doing so, a lot of space is saved because of how we’ve successfully managed to write a vastly superior number of transactions into a rollup instead of writing several singular entries on the blockchain.

This is what allows Ethereum to scale.

What Is the Significance of Layer-2 Scaling and ZK Technology?

The need to improve blockchain scalability is driving the focus on layer-2 scaling and ZK technology. As blockchain adoption grows, the need for greater scalability becomes more pressing.

Layer-2 scaling solutions and ZK technology are promising solutions to this problem because they enable increased transaction volumes while maintaining security and decentralization.

The growing interest in decentralized finance is another factor driving the increased emphasis on layer-2 scaling and ZK technology (DeFi). DeFi applications have grown in popularity in recent years, but their scalability is limited by the underlying blockchain.

DeFi applications can process more transactions and provide a better user experience by implementing layer-2 scaling solutions and ZK technology.

Conclusion

Layer-2 scaling and ZK technology are promising solutions to blockchain technology's scalability limitations. These solutions enable increased transaction volumes without sacrificing security or decentralization by moving some processing off-chain and employing advanced encryption techniques.

With the increasing popularity of DeFi applications and the growing adoption of blockchain technology, the focus on layer-2 scaling and ZK technology is likely to grow in the coming years.

While there are still challenges to overcome, such as the complexity of implementing these solutions and ensuring interoperability between different blockchains, the advantages of layer-2 scaling and ZK technology are obvious.

They make blockchain technology more practical for high-volume transactions, making it more applicable to a broader range of applications.

In addition to the technical advantages, layer-2 scaling and ZK technology provide economic advantages. These solutions can help to reduce transaction fees and make blockchain-based solutions more cost-effective by allowing more transactions to be processed.

Overall, the increased emphasis on layer-2 scaling and ZK technology is beneficial to the blockchain industry.

As these solutions gain traction, we can expect to see an increase in the scalability and utility of blockchain technology, making it more suitable for a broader range of applications. As a result, the adoption of blockchain-based solutions in a variety of industries, from finance to healthcare to supply chain management, could be accelerated.

This article first appeared in Finance Magnates