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22 December 2022

Exploring Validity/ZK Rollups with John Light

Join John Light and explore the potential of validity rollups for Bitcoin scaling. Read about the interview and what it means for the future of the Bitcoin network.

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Exploring Validity/ZK Rollups with John Light

    Index

    A Diverse Background in...
    What Are Validity Rollups?
    The Path to Validity...
    Applying Validity Rollups to...
    Privacy Matters
    Fee Markets Are a...
    Looking to the Future

We recently had the pleasure of sitting down with John Light, who currently works on product at Sovryn and is a former ZK-Rollups Research Fellow at the Human Rights Foundation. Our conversation revolved around Light's latest research into validity rollups and their potential to revolutionize the Bitcoin network.

This interview discusses Light's research and analysis on validity rollups. It is not meant to evaluate other scaling solutions on the Bitcoin network and focuses on Light’s expertise with emergent Bitcoin technological advancements.

A Diverse Background in the World of Bitcoin

As a devotee of the world of cryptocurrency, Light has long been enamored with the potential of Bitcoin and decentralized technologies. As such, it came as no surprise when he found himself drawn to the realm of tech companies, lending his expertise to a host of ventures — both his own (Bitseed) and those founded by others (Aragon, Abra) — in the early stages of their existence. In addition, with a background in marketing and community management, Light recently transitioned to product management, bringing his considerable skills to bear in this new domain.

Throughout his career, Light said that he was attracted to the technical intricacies of Bitcoin and other cryptocurrencies, which led him to conduct profound research into cross-chain protocols. It is in this arena that Light has found himself particularly enthralled, exploring the potential of atomic swap protocols, sidechain protocols, and other scalability solutions.

Coincidentally, it was during this time that Light found himself involved with a project called Aragon, which was initially built atop the Ethereum blockchain but is now multichain. However, Ethereum's scalability issues, brought on by a deluge of activity on the network, proved problematic for Aragon. In addition, as an app for DAO organizational management, the gas costs associated with every action taken within the app quickly became prohibitive.

"Basically, any button you clicked in the app would cost money. And if you wanted the organization to vote on a proposal, for example, and you've got maybe hundreds or thousands of people in your organization, the gas costs add up very quickly," he said.

In response, Light and his team began investigating solutions for improving scalability, bringing him to validity rollups.

What Are Validity Rollups?

Validity rollups are a type of second-layer scaling solution for blockchains. At the most basic level, they reduce the amount of on-chain data that needs to be written to the blockchain by aggregating data on a separate, off-chain layer. In the case of Bitcoin, validity rollups can compress hundreds or even thousands of transactions into a single on-chain transaction.

Think of validity rollups as similar to a package shipper. A package shipper can consolidate many items into one package, which can then be efficiently shipped to the destination. This is the same concept as validity rollups – they can consolidate many transactions into one single transaction, which is then written to the blockchain.

The Path to Validity Rollups

In early 2022, Alex Gladstein from the Human Rights Foundation published a request for proposals for individuals to research and produce a report on whether or not validity rollups could be helpful in the Bitcoin network. Light, who had a background in Bitcoin and cross-chain research and experience with rollups in the EVM context, saw this as an exciting opportunity. He applied and was accepted to participate in the fellowship, spending the following months researching the potential applications of validity rollups for Bitcoin.

Light wrote a report detailing his findings. In it, Light showed how validity rollups could dramatically increase transaction throughput on Bitcoin while still maintaining a high level of security for users. Not only that, but these rollups could provide a gateway to new capabilities on the network, such as the ability to support more advanced smart contracts and improved privacy protocols. Furthermore, by using rollups, Bitcoin could scale to accommodate a much larger user base without sacrificing speed or security.

Applying Validity Rollups to Scale Bitcoin

Developers are focused on scaling Bitcoin, recognizing that the Lightning Network is one of the most effective paths forward. I asked Light about the role that validity rollups can play in this process and how the two offer different yet complementary solutions.

Currently, the Bitcoin network must record each transaction on its consensus layer, which takes up valuable block space and can lead to congestion on the network and high transaction fees. As a result, the Lightning Network has been the go-to scaling solution for Bitcoin, namely in allowing entities to conduct virtually unlimited off-chain transactions without having to record them on-chain.

While this is a revolutionary development, it doesn't solve the scalability problem entirely, as it merely offloads transactions from the main chain. Furthermore, settling on the main chain still requires a significant amount of data to be written to the blockchain, which can fill block space quickly and lead to bottlenecks.

Every time someone opens a channel — that's a Bitcoin transaction. Every time someone closes that channel — that's a Bitcoin transaction. And if channels are constantly opened and closed, the main blockchain will get bogged down. So even if there are thousands, even millions of transactions, occurring on the Lightning Network, the on-chain transactions required to open, close, and settle these transactions can still congest the main chain.

"It would take over a year's worth of block space to onboard everybody that has a PayPal account to the Lightning Network — like several hundreds of millions of people. They're not going to be all onboarded at once. The Bitcoin block space simply cannot handle that. The fees would skyrocket,” he said.

While custodial solutions, which involve transferring funds to a third party for management, can offer scalability, self-custodial solutions can still face challenges in terms of transaction volume.

That's why solutions like validity rollups are so important for self-custodial Bitcoin users. These solutions enable individuals to maintain control over their funds and support the network's decentralization while also addressing scalability challenges that can arise when onboarding a large number of users.

By allowing multiple transactions to be bundled and verified with a single cryptographic proof, validity rollups can reduce the amount of block space required and streamline the onboarding process, making it easier for self-custodial individuals to join and use the Lightning Network. In this way, validity rollups not only help to preserve the core principles of personal sovereignty and decentralization but also make it more practical and accessible for individuals to exercise their personal sovereignty.

"You could potentially go from a few thousand transactions per Bitcoin block to several hundreds of thousands of transactions per Bitcoin block. And so already that's almost two orders of magnitude more transaction capacity," he said.

Privacy Matters

As concerns about online privacy continue to rise, validity rollups have emerged as a viable approach to potentially preserving the privacy of users involved in Bitcoin transactions. However, simply conducting a transaction in a validity rollup is not enough to guarantee improved privacy — there are validity rollup designs that are just as transparent as Bitcoin transactions are today. In order to truly improve the privacy of transactions, a privacy-protecting protocol such as Zerocash needs to be implemented in the rollup.

When this is done, transactions in the validity rollup can be made more private than Bitcoin transactions are today. By processing transactions through a protocol like Zerocash, most of the details such as the individual transaction as well as the sender, recipient, and amount are encrypted, so onlookers who don't have the decryption key only see ciphertext, making it harder for them to pinpoint a particular one.

Validity rollups can do this outside of Lightning and other second-layer solutions. One example of how validity rollups can be used with Bitcoin outside of the Lightning Network is in the context of a decentralized exchange (DEX). In a DEX, users can trade Bitcoin and other cryptocurrencies directly with each other without the need for a central authority. However, this can result in many transactions that need to be processed on-chain, slowing down the Bitcoin network and increasing fees.

Using validity rollups, the DEX can process many of these transactions off-chain and then include them in a single on-chain transaction on the Bitcoin blockchain. This can help improve the scalability and efficiency of the DEX, allowing for faster and cheaper trades.

"I think the more these types of applications we can enable, the more value Bitcoin will provide to people. And that's just going to make the network grow and get bigger," Light said.

Fee Markets Are a Delicate Balance

The implementation of validity rollups has sparked some concerns regarding its potential effects on the fee market for the Bitcoin blockchain. As rollups allow multiple transactions to be bundled into a single on-chain transaction, the overall number of on-chain transactions may decrease, reducing the demand for fees and ultimately leading to lower fees for miners.

This could have negative implications for the network's security, as transaction fees are the primary funding source for miners and are therefore essential for maintaining the network's security. As a result, and significantly as the block subsidy dwindles to zero and transaction fees become the only source of revenue for miners, this could become an even more pressing issue.

Light doesn't see this as a significant concern, though. He said that as things currently stand, the Bitcoin network can't accommodate a massive influx of users without increasing fees. Light said we can't use the base layer at scale, adding that Bitcoin won't succeed in the long term without rollups or other layer twos.

Validity rollups will increase in capacity, which will increase utility, laying the groundwork for more widespread adoption. So while the transaction fees for individual transactions will go down — because they'll be bundled into a single transaction — the total transaction fees generated by the network could potentially increase as more people use it.

"What validity rollups can give us is the ability to keep fees low but offset the low fees with higher capacity. So instead of 100 or 1000 transactions costing $100, you could have 100,000 transactions paying $1 or $10," he said.

Looking to the Future

Light said he's excited about the potential of validity rollups to help bring more people into the Bitcoin ecosystem. In addition, he believes that validity rollups can be a powerful tool for scaling Bitcoin and creating new use cases when combined with other layer-two solutions like the Lightning Network. What validity rollups can do, Light said, is open the door to new types of applications and more creative use cases for Bitcoin, many of which we can't even imagine yet.

However, Light said that more work still needs to be done before rollups can become mainstream. For example, developers need to continue ensuring that the technology is secure, stable, and user-friendly; otherwise, users won't be able to trust it.

"I would just encourage folks to check out the report. If you like what you hear, share it with your friends. And if you're a developer, start playing around with these ideas and reach out if you want to connect with other developers who are working on this," he said.

Light believes that validity rollups could be a significant game-changer for Bitcoin and the crypto space. And while there are many challenges ahead, he is optimistic about their potential to revolutionize the industry.

"There's a lot to be excited about here," he said.

Please be aware that: Cryptocurrencies are unregulated in the UK; Cryptocurrencies are not protected under Financial Ombudsman Service or Financial Services Compensation Scheme (FSCS); Profits may be subject to capital gains tax; The value of investments can go down as well as up.

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