Understanding the Layers of Blockchain
Recently, we have heard a lot about the term layer 2. Blockchains layers have the purpose to massively speed up the rate of transactions and reduce costs. There is a lot of math behind the layers concept but we won’t dig into computation in this article. Today we are going to explain simply what is zero knowledge proof, rollups, how the rate of transactions is optimized and costs lowered that much.
Blockchain layers explained
When we talk about blockchains, we often hear the term "layer 1". This term may seem complex or ambiguous, but its meaning could not be simpler. A layer 1 is nothing more or less than a sovereign blockchain. Ethereum and Bitcoin are the two best known examples.
We can visualize blockchain technology as a food pyramid with several layers. Each of them depends on the ones before it, the reverse is not true. The level 0 layer lays the foundation for the entire pyramid. It includes network protocols, Internet protocols and even all the miners, validators and nodes. It is therefore not a blockchain per se, but only a foundation.
Layer 1s are therefore the first entities to be independent of any other blockchain. Indeed, layer 2s like Arbitrum or StarkNet are dependent on their parent blockchain, in this case Ethereum, to operate. This is not the case with Ethereum or Bitcoin, which are layer 1s.
Victims of their adoption, Ethereum blockchain scalability solutions, whose goal is to decongest the latter, must face the very problem they are meant to solve. To alleviate this surge in costs, developers are deciding to look into the creation of Level 3 networks. The latter benefit from the security of the parent blockchain through recursion.
Unlike layer 1 and 2, the 3rd layer is called "special purpose". In other words, each layer 3 blockchain is built with a specific use in mind, for which it will be optimized. This separation of uses allows layer 3s to be very efficient in addition to benefiting from fractal scalability.
At the time of writing, the development of layer 3 solutions is still in its infancy. For the moment, only Avalanche and StarkWare are seriously looking into this option to improve their users' experience.
What is a zk-proof?
First let’s start with what purpose does it serve. It is a little bit like a receipt that you get and something that is a means to an end. The end of a proof is truth or integrity by knowing that something was done correctly. Integrity was defined beautifully by the novelist C. S. Lewis who said that integrity is doing the right thing even in a reliable manner even when no one is watching and especially when no one is watching. So in the context of computer science you would love to know that your funds, your assets and information are being processed in a way that is correct with integrity. Proofs are necessary because you want to know when people deal with your information by processing a transaction that you are getting paid and that the account is updated in the right way. Proofs are a way to get integrity. Zero-knowledge are a technology that has two important aspects to it:
it gives you integrity which is what we really need
it does it in a amazing way that seems impossible to achieve but yet it does hold
The first thing you should know is that the receipt itself, this proof, reveals no information about the inputs that went to it. Someone can prove to you that he processed a thousand transactions and the state of the blockchain is now at this particular stage but you will not know anything about what happened in those thousand transactions. This is in contrast with a standard receipt where you see all of what is going on. Zero-knowledge proof and its zero-knowledge aspect means that you don’t learn anything beyond the fact that the computation was done with integrity. The second amazing aspect, which is what Starkware is innovating on and delivering to the blockchain is this ability to check the correctness of the proof in time that is exponentially smaller than the number of transactions that transpired. So instead of checking each transaction, verifying that it is correct and updating the status, you can check a very short proof and know that a hundred thousand or even a million NFTs were minted correctly and placed in the proper place without spending a million steps going with running the time that is needed to mint those NFTs.
What are roll ups?
By design Ethereum has not been constructed to propose any kind of privacy, a bit like TCP-IP. That is why we build add-on solutions that could basically allow people to have better privacy. It is interesting to see that beyond just proposing scaling, there is also a privacy component. We have seen a lot of layer 2 coming up with different approaches: optimistic roll-ups and zk-roll-ups to name a few. The word roll-up already means that we are taking some of the information and we are rolling it up onto Ethereum. So the first thing we need to know is that roll-ups or layer twos are a complement to Ethereum. They boost and empower the Ethereum even more. In no way are they any sort of a competition or alternative to Etheruem. It allows it to scale far more. Think of the Ethereum blockchain as being the analog of some very expensive real estate, like Champs-Elysées for the French-speaking world or Time Square for Americans. There, it is very expensive and also everyone looks at it so it is really a great place to put stuff. If we are in some business and manufacturing something we definitely want to put some concept stores there and have some front windows where everyone can see the stuff. However, we certainly don’t want to put the manufacturing process of the stuff that we are doing on some places that are as expensive as Champs-Elysées or Time Square and prefer to relay to some places where we know that things are cheap so in some area you do not really care about. Since we took the example of France and the USA, let that place be London or Mexico City. So let’s say that you will have your manufacturing stuck in England or Mexico and then you are going to use your storefront in Champs-Elysées or Time Square in order to display the most important stuff. Layers 2s (L2s) and roll-ups will use will use Ethereum Champs-Elysées or Time Square blocks in order to display the proofs that show that the system is operating with integrity but all the ugly and messy work of processing the transactions is going to be displayed to these manufacturing areas so in London or Mexico City.
How is the rate of transactions optimized and how much is cost lowered?
It is unbelievable how much this new technology is reducing cost. For instance, over a single week of may 2021, Sorare was spending 472 ETH and consuming 2% of all gas on Ethereum. At the time, according to gas prices and Ethereum prices this was more than 1.5 million dollars a week. Now, with a new system it is roughly 7 ETH a week or 1 ETH per day that they are spending on all of their gas costs. For this process to be possible, a ton of math that most of us would probably not be able to understand but there is a chance we could tell you more how this is working.
Previously, without this technology what was happening was that, let’s keep the example of Sorare, each time they wanted to mint an NFT, they would have to ask Ethereum to start working. Now, what they have is an approver off-chain where instead of generating a single NFT you take together a large batch. Moreover, each NFT of course has a hash and you can construct a single hash for this large batch database. Then, what you send on the blockchain is just the hash of all of the NFTs together with a very short proof that attests to the integrity and correct processing of all of this information. And by doing that, all Ethereum just needs to do is to check this one short proof, and once the proof is checked, it accepts the fact that there is a hash for this batch of NFTs.
Layer 2s are solutions that we can use to offload computation. From the point of view of the user, which is the most important thing, it is going to be seamless and we actually encourage our readers to try out some of the systems that are already using this technology.
Disclaimer: All products and projects listed in this article are not endorsements and are provided for informational purposes only. This article is for educational purposes only and is not intended as investment advice. Qualified professionals should be consulted prior to making financial decisions.
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