EY has released a new set of tools for privately managing transactions on the Ethereum blockchain. The project, known as Nightfall 3, combines zero-knowledge proofs (ZK or ZKP) with a new model for handling transaction verification to increase efficiency and reduce transaction costs known as an optimistic rollup. The combined protocol is known as a ZK-Optimistic Rollup.
Nightfall 3 aggregates ZKP transactions into groups, called rollups. These are known as “optimistic” rollups because the system assumes the transactions to be valid unless proven otherwise and eliminates the process of having all participants verify all transactions. To ensure that only correctly-formed layer 2 blocks are incorporated into the final blockchain record, users are economically incentivized to challenge incorrect blocks. When a challenge is made, the smart contract arbitrates the accuracy of the challenge, rewarding correct challenges and removing the incorrect layer 2 block.
EY teams have previously contributed ZKP protocols to the public domain, named Nightfall.1 Since the initial contribution in 2019, the rapid growth of decentralized finance (DeFi) services has caused network congestion and raised transaction costs, known as gas fees, on the Ethereum blockchain. This new protocol represents a significant improvement in transaction efficiency and is expected to more than offset recent increases in gas fees.
Paul Brody, EY Global Blockchain Leader, stated, “Based on EY experience, ZK-Optimistic roll-ups are currently among the most effective in balancing of security incentives and mathematical efficiency for running private transactions on the public Ethereum network. As we have in the past, we are again contributing this code into the public domain to speed up enterprise adoption of this technology.”
Using ZK-Optimistic Rollups, Nightfall 3 can achieve a cost of approximately 8,200 gas per transaction, while also maintaining privacy. This is almost one-eighth of the cost needed to make a conventional, public ERC20 token transfer. Nightfall 3 is also designed to reduce the learning curve required by developers to implement privacy by giving developers a standardized application programming interface (API) that appears similar to other token transfer tools.
Dr. Duncan Westland, Associate Director, Head of Global Blockchain Research and Development, Ernst & Young LLP, added,”When developing a new ZKP protocol, developers need to be able to interact directly with low level ZKP constructs. If the user only requires private token transfers, it’s possible to have the application manage the ZKP interactions. In that case, provided the user is careful about how Layer 1 to Layer 2 transfers are made, a ZKP transaction can be considered a conventional token exchange, albeit with added privacy. Having an API that allows users to work that way can speed up development.”
EY teams have made the prototype code for Nightfall 3 available in the public domain, releasing all ownership rights to simplify access by others.