The Grand Plan For Ethereum: An Analysis Of Zero-Knowledge Scaling From ETHDenver 2023

Without a high-level understanding of zero-knowledge (ZK) technology running on the Ethereum Virtual Machine (EVM), it’s hard to conceptualize the benefit this innovation brings to the crypto economy.

After attending Ethereum’s largest industry conference in Denver earlier this month, Benzinga was able to distinguish between the leading ZK projects, and why the technology is mission-critical to bring crypto to the mainstream.

Before diving into some of the leading projects building ZK infrastructure, it’s important to understand what ZK Proofs are.

Zero Knowledge Proofs

ZK Proofs allow verifiers to prove that a party meets a certain set of criteria without revealing the specific information that qualifies the party to meet those criteria. In the case of transactions, ZK networks can verify transactions while sending the minimum possible data to Ethereum’s mainnet, allowing for maximum scalability.

Regarding ZKs in DeFi, the technology can be used to preserve the privacy of users while enabling these users to leverage their data for financial functions.

Benzinga discussed use cases for ZKs and income-backed DeFi loans with Huma Finance co-founder Richard Liu. Here's what he said:

“In our case, we want to look into off-chain income in order to borrow against it. Working in fintech, there’s a lot of user information associated with income. In crypto, privacy-preserving technology is so important; I only need to know you have that capacity, I don’t need to know the details that prove it," he says. "We’re looking into ZKs to receive the essential information we need without extracting any additional information from users.”

Builders have already begun to build on top of Huma Finance using Zero-Knowledge proofs. Building a credit-enabled ZK wallet, the hackathon group Joey Finance deployed Huma onto ZKsync in order to reap the benefits of Zero-Knowledge proofs for credit building.

Technical Differences Between ZK Networks

Benzinga then talked with Scroll, a leading ZK EVM.

There are currently three approaches to zero knowledge networks, as Pseudo, the team’s researcher, distinguishes below:

“There are three categories of ZK EVMs: Byte-code compatible, language compatible, and ZK VM. Byte-code compatible would be Scroll and Polygon Hermez, which means at the lowest level of compilation for solidity contracts, all the opcodes are mapped to circuits, allowing for all the ZK stuff to be abstracted away under the hood. With language-compatible ZKs, there’s an intermediary virtual machine; in ZKSync’s case it’s the LLVM. It’s kind of like an emulator. With ZK VMs, you need to use different languages, but it’s more circuit-friendly, which makes things easier; this is the case for Starkware. At Scroll, applications on Ethereum can port over to our network with no changes in their code.”

Multiple ZKEVMs Existing In Tandem

ConsenSys has an umbrella of influential products with millions of users, including Metamask and Infura.

Consensys head of research Nicolas Liochon explained that it’s useful to have multiple ZK EVMs exist in tandem.

"We see the future of ZKs similar to where layer 1 is now. On layer 1, there are multiple clients, so no one client has too much power. We think the long-term positioning of ZK EVMs will be the same, while not being that different from one another. At the end of the day, it’s not about having different capabilities of ZK EVMs, it’s about having a choice between them, that’s key.”

Liochon advocates for multiple ZK EVMs for decentralization. Also, as a part of security, ZK EVMs are using complicated cryptography, he says. Because of the complexity, there is the risk of bugs that will persist.

"By having multiple provers, just like on layer 1, if there’s a bug on one of the provers, there won’t be the same bug on all of the provers," Liochon adds. "Because of this, bugs can’t be used to take my money and so on.”

ZKs could also be integrated into Ethereum’s layer 1. However, his optimistic outlook predicts zero knowledge on layer 1 is still five to 10 years away from coming to fruition. He continues:

“The fact that people can trust the layer 2 means that there will be more users and applications. Once the technology is proven and trusted with time, it can move to the layer 1. Then, the layer 1 can use this logic; it’s a possible future but it may take 5 or 10 years. I think I’m optimistic on the timeline unfortunately, but it’s a very valid vision.”

The Beginnings Of ZKEVM Technology

Mint Ventures explained the earliest ZKEVM equivalent projects and their importance for scaling Ethereum. As a research-based venture firm for digital assets, Mint Ventures continuously releases reports on trends in the blockchain space.

According to Mint Ventures researcher Snapp Ye:

“In July 2022, Polygon was the first to announce the implementation of ZKEVM equivalence. Within a month, the Polygon token price soared from $0.34 to $0.95. Polygon’s surge caused unprecedented Layer 2 fever... Layer 2s are very noteworthy for several reasons; the processing capacity of Ethereum is extremely limited, and a large number of Layer 2s are needed to achieve capacity expansion and thus land in the real world on a large scale. On the other hand, with the drastic increase of on-chain application scenarios, the demand of on-chain applications for execution layer is also more diversified, and massive Layer 2s with different features interacting through the main chain of Ethereum may be the trend of blockchain in the future.”

Many networks have yet to release their own tokens, and future airdrops on these networks are likely, Ye added.

While there will be more airdrops coming from new scaling solutions, many networks informed Benzinga that they are not considering a native token for the network. The ConsenSys ZK has no current plans for a token, while the Scroll team uses Ether as the gas token on the network.

Regardless, ZKs will continue to have a huge impact on blockchain scalability, and there will be investment opportunities spurring alongside the technologies development. Even if networks opt to forgo a native-token, applications will arise that take advantage of the innovation in various ways.