A zero-knowledge rollup is a Layer 2 blockchain solution that performs computations and storage off-chain while funds are held in a smart contract.
As demand on the Ethereum network started to rise with the NFT and yield farming crazes that began towards the end of 2020, the need for faster processing speeds and cheaper transactions increased. The solution came in the form of Layer 2 blockchains and additional developments like zero-knowledge rollups.
Simply put, zero-knowledge rollups or zk-rollups is a Layer 2 scalability solution that allows blockchains to validate transactions faster while also ensuring that gas fees remain minimal. Zk-rollups manage to perform better than traditional Layer 1 blockchains like Ethereum because they combine on and off-chain processes.
While the Ethereum mainnet explicitly utilizes on-chain activities to process transactions and validate blocks, Layer 2 zk-rollup solutions introduce off-chain functionalities as well. One of the main components that allow zk-rollups to successfully validate transactions faster than Layer 1 blockchains are Merkle Trees.
Merkle Trees are an important mathematical structure that allow blockchains to ensure that no one can fake data in the on-chain records of a zk-rollup. Usually, a zk-rollup consists of two Merkle Trees which are both stored on a smart contract, or in other words, on-chain. One tree is dedicated to storing accounts, while the other stores all balances. Any other type of data generated and used by the zk-rollup is stored off-chain.
One of the reasons why zk-rollups manage to perform significantly better than Layer 1 counterparts is the off-chain storage of data. Merkle Trees only consist of the most important data relevant to the smart contract and are accessed and requested to output information much more infrequently than in Layer 1 solutions. This saves huge amounts of processing power and time for the blockchain. Consequently, as less of the blockchain’s capacity is utilized for transaction validation, gas fees decrease, making Layer 2 solutions, especially zk-rollups, a preferred solution for small-time traders.
Zk-rollups are becoming increasingly popular both among developers who are looking to boost usability, and among investors and traders looking for faster and cheaper transaction processing. Solutions like Zcash are gaining traction among investors because of their use of zk-rollups. As blockchain technology continues to develop, performance and pricing become better. Layer 2 solutions and zk-rollups are only the beginning of the next era of blockchain technology and advanced cryptocurrency systems.