ZK-Rollups: Unravelling Ethereum’s Scalability Issues


ZK-Rollups: Unravelling Ethereum’s Scalability Issues

Zk-rollups have long been touted as the ultimate solution to Ethereum’s woes. As blockchain and crypto adoption enjoy exponential growth worldwide, scaling solutions are needed to ensure the world’s leading smart contract platform can handle millions of users.

Zero-knowledge proofs and rollup technology aim to boost transaction throughput in the Ethereum ecosystem, but there are still a lot of questions about how zk-rollups work.

In this quick guide, we’ll be simplifying the complex jargon around zk-rollup solutions and making sure that you don’t have zero knowledge about zero-knowledge.

What’s Wrong with the Ethereum Blockchain?

Since the earliest days of Ethereum, every blockchain network has struggled to overcome a single concept: How to solve the Blockchain Trilemma. Coined by Vitalik Buterin, the Blockchain trilemma dictates that the perfect blockchain successfully balances decentralization, security and scalability.

The blockchain trilemma, balancing scalability, security and decentralization
  • Decentralization – In the true spirit of blockchain, the perfect network is fully distributed. The network is self-sufficient and governed by its users, with miners and validators owned and operated independently worldwide. Bitcoin is a perfect example of decentralization in action.
  • Scalability – The perfect blockchain is fast and affordable, making it effective and efficient for all users, regardless of the size of their wallet. Low gas fees and fast transactions are the norm, rather than a unique feature.
  • Security – The perfect blockchain is safe. No one can break into your wallet by force, transactions are protected by complex cryptography, and the correct distribution of tokens prevents hackers from taking control of the network with a 51% attack.

Even with dozens of Layer-1 blockchains competing daily, the blockchain trilemma remains unsolved. The irony of the trilemma is that balancing all three options is impossible because engineers always need to sacrifice one option to achieve the others.

Take Solana, for example. Solana is often considered the fastest and most affordable blockchain available. The network boasts over 4,000 transactions per second (TPS), costing a single transaction less than a penny. Solana is also secure and just as safe as any other leading chain.

On the other hand, Solana suffers from the final point of the trilemma, decentralization. The network is often criticized for constant outages due to centralized points of failure. Solana’s strength and resources came from venture capitalists, who hold a somewhat heavy allocation of SOL tokens.

Despite being the leading Layer-1 blockchain and smart contract platform in the crypto industry, Ethereum has difficulties overcoming the blockchain trilemma.

Ethereum Scalability

If you’ve ever used the Ethereum mainnet at peak traffic, you’ll know that scalability is not Ethereum’s strength. Throughout 2021 and 2022, Ethereum transaction costs were completely out of control. While basic send-and-receive transactions were around $20-30 each, more complex DeFi token swaps or NFT mints often cost over $100 each.

graph of ETH gas fees in 2021/22

Source: BitInfoCharts.

Transaction fees and throughput are undoubtedly the biggest issues facing Ethereum scaling. During high congestion periods, dApps on the Ethereum network become almost unusable. In many cases, the transaction fee for buying an NFT costs more ETH than the NFT itself. These scalability issues make blockchain technology and decentralized finance (DeFi) inaccessible.

Until these problems are solved, cryptocurrency and blockchain adoption will struggle to onboard the masses. Thankfully, there are plenty of different ways for Ethereum to become the global powerhouse we know it has the potential to be.

Some of the most revolutionary Ethereum scaling solutions are zero-knowledge and optimistic rollups.

What are Rollups?

Rollups help reduce network congestion on the Ethereum main chain. They take computation and state-storage off-chain process transaction data on other blockchains and then send it back to the main chain. Essentially, rollups allow the network to ‘roll up’ a batch of transactions into one cost-effect transaction. This means users can enjoy the security of the Ethereum layer while benefitting from the cheaper gas fees and faster throughput of Layer-2 networks, like Polygon or Arbitrum.

Rollups aren’t the only Ethereum scaling solutions out there. Alternative methods include sharding, sidechains, and state channels. While these are all viable solutions, Buterin himself is most bullish on rolllups and believes that they’ll be an integral part of Ethereum’s future.

Rollups are typically divided into two groups, optimistic rollups, and zk-rollups. The main difference between the two is how they verify transactions. Optimistic rollups rely on fraud proofs to validate transaction data, while zk-rollups use zero-knowledge proofs (ZKPs).

Optimistic Rollups

As the name suggests, optimistic rollups are, well, optimistic. Adopting an ‘innocent-until-proven-guilty’ approach, optimistic rollups assume that each transaction in a rollup is valid. The network all users a set period, usually around a week, to resolve disputes around fraudulent transactions.

By optimistically assuming that every transaction is valid, the network doesn’t have to devote excess time and computation to confirming transactions are accurate. Some of the most popular Layer-2 solutions, like Arbitrum and Optimism, use this technology to settle off-chain transactions before sending them back to the Ethereum main chain.


Zk-rollups use complex cryptography called a zkproof to ensure that all rollup transactions are valid without sharing sensitive information about the transactions themselves. They rely on cryptographic proof and submit validity proofs to smart contracts on Ethereum instead of assuming that all transactions are valid.

This means that all zk-rollup transactions can be processed off-chain, while also reducing the amount of transaction data shared, making them focused on privacy. Moreover, because they don’t need to wait a week for fraudulent transactions to be contested, zk-rollups are considered a much faster and superior technology to Optimistic rollups.

The most common zk-proofs we see in cryptography are zk-snarks and zk-starks. Simply put, these systems allow users to prove that they know vital or sensitive information, such as transaction data, without publicly revealing the data.

Examples of a few zk-rollup projects include Starknet and Immutable X.

Pros and Cons of Zero-Knowledge Rollups

Zk-rollups have made significant progress in addressing Ethereum’s scalability issues. They’ve introduced faster and more affordable transactions secured on the main chain and made DeFi more accessible than ever. That being said, they’re far from a perfect solution.

Advantages of Zk-rollups

  • Validity proofs ensure that off-chain transactions are correct before being secured on the main chain.
  • Increased transaction throughput and low gas fees.
  • Trustless cryptographic proofing ensures security is enforced by code instead of relying on validators, as we see with optimistic rollups.
  • Users can withdraw funds from zk-rollups without experiencing the week-long delays common on optimistic rollups.

Disadvantages of Zk-rollups

  • Zero-knowledge rollups and proof systems are complicated to build and deploy.
  • You need specialized hardware to produce validity proofs, making them a centralization risk.
  • Zk-snark proof systems rely on an established, trusted setup for ongoing use. If misused, this setup is a security risk.

The Ethereum Virtual Machine (EVM)

If you’ve ever hopped between the most popular blockchain networks like Ethereum, Binance Smart Chain or Avalanche, you’ve probably noticed that many dApps and wallets have a similar interface and user experience. This is thanks to a convenient technology called the Ethereum Virtual Machine, or EVM.

In its purest form, the Ethereum Virtual Machine is a database and machine state for interacting with Ethereum accounts and contracts. Developers use the EVM to build and deploy dApps on the Ethereum network, as well as by users who interact with these applications using their crypto wallets.

What’s special about EVMs is that they’re not Ethereum-exclusive. Many other blockchains run their own EVM, which makes it possible for Ethereum-based dApps and tools to be easily ported over and deployed on other networks.

For example, many decentralized exchanges like PancakeSwap on the Binance Smart Chain or Quickswap on Polygon were created using Ethereum smart contracts. See the similarities between UniSwap and PancakeSwap’s UI?

Swap wallet tokens.

Each respective network’s EVM makes it possible to write Ethereum-based code and applications and replicate them on other networks. This makes blockchain development between EVM-compatible chains far more interoperable and gives developers and users greater flexibility.


As the name would suggest, a zkEVM uses zero-knowledge technology and proofing within an Ethereum Virtual Machine. Most importantly, they support smart contract development on zk-rollups, giving these powerful scaling solutions greater utility. Without a zkEVM, zk-rollups would be limited to simple transactions like basic send and receive functions.

Essentially, a fully functional zkEVM will bring the complete Ethereum experience, including DeFi and NFTs, to the scalable and secure environment of a zk-rollup network.

An effective zkEVM can securely process thousands of transactions per second. This is a significant improvement from the Ethereum main chain, which struggles to clear more than 20 TPS.

The zkEVM Race

Competition within the zkEVM field is tense, with some of the biggest names in the crypto space, like Polygon, hustling to be among the first to deploy a functional zkEVM. The Polygon team has had their eyes set on a zkEVM for some time after purchasing the Hermez Network for $250M back in 2021.

Polygon has since launched a zk-rollup solution named Polygon Hermez in mid-2022. While this represented a key milestone in the zk-rollup sector, Polygon Hermez is limited to simple token transactions, such as sending and receiving payments.

The Polygon zkEVM is expected to launch in 2023 and will bring greater utility and smart contract support to their zk-rollup scaling solution.

Other projects like Matter Lab’s zkSync are leading contenders to release the world’s first zkEVM, alongside notable competitors like Starknet and Scroll.

On the Flipside

While zk-rollups are arguably more scalable and secure, Optimistic rollups like Arbitrum attract more users and process more transactions than other Layer-2 scaling solutions. However, this could change with the launch of the first zkEVM, which will bring greater utility to zk-rollups.

Why You Should Care

The Ethereum network is ill-prepared to accommodate growing adoption and an influx of new users. Zk-rollup scaling solutions and zkEVMs will make blockchain technology and cryptocurrency far more accessible than before and drive mass adoption worldwide.


What are the top zk-rollups?

The world of zk-rollups is competitive, with plenty of top teams working on zero-knowledge scaling solutions, including Polygon, Starknet, and zkSync.

Why are zk-rollups better than optimistic rollups?

Zk-Rollups are arguably better than optimistic rollups because they use zk-proofs to validate transactions, making the network faster and more secure.

What is the biggest L2 crypto?

Polygon (MATIC) is the most well-known Layer-2 (L2) crypto and Ethereum scaling solution. That said, rival L2s like Arbitrum and Optimism are gaining traction to compete with Polygon for the top spot.

Is Arbitrum a zk-rollup?

While being a powerful Layer-2 scaling solution, the Arbitrum network is not a zk-rollup. Arbitrum uses the Optimistic rollup framework, which assumes that all transactions are valid, instead of verifying transactions using a zk-proof system.

Does Matic use zk-rollups?

The Polygon network is home to various products and services, including zk-rollups like Polygon Zero and Polygon Hermez.

Brad Garlinghouse: The Ripple CEO Fighting for XRP’s Future


Brad Garlinghouse: The Ripple CEO Fighting for XRP’s Future

When Ripple CEO Brad Garlinghouse first joined Ripple Labs in 2015, he probably didn’t expect to become a central figure in one of cryptocurrency’s biggest legal battles. Aside from sparring with regulators, Garlinghouse brings a wealth of corporate experience.

Garlinghouse credits his strong work ethic and commitment to transparency and accountability to his upbringing in the Midwest of the United States. With previous tenures at some of the internet’s biggest’s companies, does the CEO of Ripple have what it takes to fight for the future of blockchain?

Alongside Chris Larsen, who is the man leading Ripple Labs against the U.S. Securities and Exchange Commission?

Brad Garlinghouse Before Ripple

To better understand Garlinghouse’s motivations and goals in the crypto market, we must dig back into the past. In the blockchain industry, thought-leaders like Charles Hoskinson and Gavin Wood come from computer science backgrounds.

But the XRP frontman comes from a business and economics environment, far from the glamourous skylines of New York and San Francisco.


Brad Garlinghouse was born and raised in Hutchinson, Kansas. A small town in the Midwest of the United States, Garlinghouse attributes his strong family values and commitment to one’s local community to his upbringing.

He attended Wichita SouthEast High School and graduated from the University of Kansas in 1994 with a Bachelor of Arts, majoring in Economics. With his sights set on larger horizons, Garlinghouse continued his studies, completing his MBA at Harvard Business School in 1999.

Hungry for experience, Garlinghouse scored internships with several notable businesses in his undergraduate years, including Allen & Company, an investment banking firm.

Early Career

Following his MBA from Harvard Business School, Garlinghouse launched his financial career in style, working as an analyst at JP Morgan for six years. One of the most well-recognized names in the industry, these years provided Garlinghouse with formative exposure to Wall Street and the World Economic Forum.


Brad Garlinghouse went on to join Yahoo, one of the internet’s biggest names in its early days. In his role as Senior Vice President of Communications and Communities, Garlinghouse oversaw the development of Yahoo Mail. It might sound simple now, almost 20 years later, but these platforms are the building blocks of our modern internet.

After everything he brought to Yahoo, Garlinghouse is best remembered for authoring ‘The Peanut Butter Manifesto.’ This iconic memo internally criticized Yahoo’s operations and demanded a more streamlined and efficient work environment. The memo was widely shared across the fintech industry.


Moving from one internet giant to another, Garlinghouse joined AOL in 2009 as President of Consumer Applications. In this role, he was responsible for developing front-line AOL products like AOL Mail and AOL Instant Messaging.

During his time at AOL, Garlinghouse also became the Head of AOL Ventures. This position brought new challenges, like the acquisition of Bebo, another popular social media network. Ultimately, this move was considered a flop after AOL Ventures resold Bebo two years later at a fraction of their purchase price.

Silver Lake Partners & Hightail

Brad Garlinghouse’s final position before stepping into the world of blockchain and digital assets was as the Silver Lake Partners investment firm. As Managing Director, Garlinghouse scouted potential investment opportunities for the firm, including Dell EMC, AirBnb, and Alibaba Group.

Garlinghouse also doubled as a Senior Exec at Hightail during this period. During the company’s rebranding from YouSendIt to Hightail, Garlinghouse ensured the business continued to provide creative productivity tools for its worldwide client base.

The next Bitcoin? Garlinghouse Joins Ripple Labs

In 2015, Garlinghouse left behind the traditional corporate world and joined Chris Larsen at Ripple Labs. Since then, the Ripple CEO has spearheaded the growth and development of the crypto startup and its native token XRP.

Ripple logo

Today, the Ripple network is used by hundreds of financial institutions worldwide to send and receive cross-border transactions instantly. During this time, XRP has grown into one of the largest cryptocurrencies in the blockchain industry, rivaling other altcoins like Ethereum and Cardano.

Beyond the XRP ecosystem, the Ripple Chief Executive Officer strongly advocates blockchain technology and decentralized services. Brad Garlinghouse is a firm supporter of digital assets like BTC and believes they will play an integral in the future of global financial infrastructure.

Garlinghouse has often spoken out on current financial regulations and cybersecurity issues, viewing blockchain as a potential solution. These vocal positions have made him a target of the SEC’s ongoing war against cryptocurrency.

Ripple Labs and the SEC

The Ripple CEO’s time leading the blockchain firm has undoubtedly been marred by a lawsuit initiated against Ripple Labs by the SEC. The case aims to bring regulatory clarity to how the XRP cryptocurrency is treated by the U.S. Securities and Exchange Commission. The SEC claims that the XRP token is a security, while Brad Garlinghouse and Ripple Labs consider it a currency.

The lawsuit has devastated Ripple Labs and XRP, with the token being removed from crypto exchanges like Coinbase. Reduced trading liquidity has made it difficult for XRP to enjoy maximum price appreciation in recent bull markets, with fear, uncertainty, and doubt clouding XRP’s future. The case is expected to reach a final resolution within the first half of 2023.

This is not the only crackdown the SEC is enforcing on the crypto and blockchain industry. In February 2023, the SEC fined Kraken $30M over concerns around its staking offering.

On The Flipside

While Brad Garlinghouse boasts a wealth of business and management experience in fintech and investment companies, he has no previous work history as a blockchain developer. Arguably, this makes him a questionable choice to lead one of the largest cryptocurrency companies in the world.

Why Should You Care

The result of the lawsuit against Ripple Labs by the SEC will have far-reaching consequences throughout the blockchain industry. It’s important to have a clear understanding of who is fighting for the future of cryptocurrency against the SEC and leading one of crypto’s largest networks.


Why is XRP so important?

XRP is the native cryptocurrency of the Ripple Labs ecosystem, one of the industry’s largest blockchain networks. XRP is important because it’s the subject of a high-profile lawsuit initiated by the SEC. The results of this lawsuit are expected to impact how crypto is regulated in the United States.

Is XRP better than Bitcoin?

XRP transactions on the Ripple network are faster and more affordable than BTC transactions on the bitcoin network. From a practical perspective, XRP could be considered better than Bitcoin. That being said, Bitcoin is a much larger and more decentralized blockchain and has shown greater resilience to market volatility than XRP.

What banks have signed up with XRP?

According to Amazon Web Services, many banks and financial institutions have joined Ripplenet, including Santander (US), Canadian Imperial Bank of Commerce (Canada), and Siam Commercial Bank (Thailand).

Does XRP have a future?

As long as the Ripple blockchain continues to operate and facilitate crypto transactions internationally, XRP will always have a use case and a future.

Is it risky to buy XRP?

As with any digital asset, buying XRP carries an element of risk. Cryptocurrency is deemed a high-risk asset class prone to unexpected price movements. We recommend you always conduct thorough research before buying any crypto and never invest more than you can afford to lose.

Crypto Tax: Basics You Need to Know Before Buying Your First Cryptocurrency


Crypto Tax: Basics You Need to Know Before Buying Your First Cryptocurrency

Despite its best intentions, Bitcoin and other cryptocurrencies are no longer the discrete and anonymous digital assets they used to be. Paying your crypto tax, while complicated, is a necessary process that protects you from difficult situations with regulators like the IRS down the line.

It’s no secret that virtual currencies like Bitcoin and Ethereum are witnessing exponential adoption worldwide. The number of crypto holders continues to grow yearly, increasing by 39% in 2022 alone.

Unfortunately, cryptocurrency tax reporting is still a labyrinthine mystery for taxpayers. Are all profits made from crypto trading counted as capital gains or ordinary income? Do all my cryptocurrency transactions count as taxable events?

This crypto tax guide will answer all your basic questions and hopefully prepare you for the next tax year.

Why is Cryptocurrency Tax So Complex?

If most of your crypto activity happens on Binance or Coinbase, you shouldn’t have too much trouble. These large crypto exchanges provide plenty of comprehensive tax forms, documents and tools that simplify your tax preparation.

However, the world of blockchain and crypto assets is a deep and dark rabbit hole. The deeper you go, the more complicated your tax return becomes. If you’re actively involved in DeFi, you’re probably earning extra taxable income through staking or airdrops. Some traders also have multiple wallets.

What’s more, not every trade is as simple as swapping fiat currency for crypto. If you’re flipping NFTs or trading crypto-to-crypto, you must always keep records of your purchase prices. Calculating your holding period is also crucial because that can influence whether your profits will be considered short-term or long-term capital gains.

Finally, every country is different. There is no global crypto tax software or income tax rates. What is true for the IRS in the United States is very different from what you can expect in Dubai or Singapore.

What Does the IRS Say – Capital Gains Tax or Income Tax?

Given that the United States has some of the highest adoption rates of cryptocurrency in the world, the rulings of the IRS are often followed by local taxation entities in other countries. According to the IRS, cryptocurrency is considered a capital asset, like property.

What this means is that any crypto gains or losses need to be treated as a taxable event. In crypto trading, this is deemed a capital loss or a capital gain, based on whether or not you profited from the event. On the other hand, any cryptocurrency earned from staking, mining, or airdrops is treated as income and is subject to income tax. This includes any crypto acquired from network hard forks, as we saw during the Ethereum Merge.

Not All Cryptocurrency Transactions Are Taxable

If you’re looking at your wallet history and starting to panic, don’t worry! Some crypto transactions don’t need to be registered on your tax filing. These common activities are not treated as taxable events by the IRS:

  • Purchasing virtual currency like Bitcoin or ETH using fiat currency.
  • Moving crypto between your own wallets.
  • Donating cryptocurrency for charitable reasons.
  • Offering crypto to others as a gift.

Any crypto gifting under the value of $15,000 typically has no tax implications for the gifter. However if the receiver chooses to sell the gift, that will be considered a taxable event. It’s essential to keep records of the asset’s fair market value and the gifter’s purchase price. This is also called a cost basis.

Donating crypto to a charity is a great way to spread goodwill and makes the donor eligible for a tax deduction. This deduction is typically equal to the fair market value of the capital asset at the time of the donation.

Crypto Tax Brackets

Apart from the few exceptions listed above, most transactions, whether on a cryptocurrency exchange or in DeFi and NFTs, are taxable events. These include, but are not limited to :

  • Selling crypto for fiat currency or trading one virtual currency for another.
  • Paying for goods and services using cryptocurrency.
  • Earning crypto through mining, staking or airdrops.
  • Getting your income paid for in cryptocurrency.

Like in traditional taxation and finance, the amount of crypto tax you’re required to pay depends on how much you’ve gained through income or capital gains. For assets that you’ve held for less than one year, short term capital gains or losses will apply. If you’ve HODLed for over one year, your assets will be treated as long-term capital gains.

Your tax bracket is determined by your overall income, with different rates applied depending on whether each taxable event is considered a long-term or short-term holding period. To give you an idea of what you can expect, TurboTax provides a helpful chart outlining the different brackets.

Short Term Crypto Tax Brackets
Long Term Crypto Tax Brackets

TurboTax also offers a convenient crypto tax calculator, which can help save you time filling out your IRS forms and ensure you complete your tax filing correctly.

When calculating your crypto taxes, it’s essential to keep track of your cost basis, this refers to the fair market value of your assets when you acquire them. If you’ve bought the same crypto multiple times, you’ll need to apply the FIFO (First In, First Out) method to calculate your cost basis. This means the first assets you buy are the first assets you sell when preparing your tax filing.

Crypto Tax Losses

What a wonderful world it would be if we only experienced crypto gains and avoided losses entirely. Unfortunately, no one has a 100% hit rate when crypto trading, and suffering a few red candles is inevitable.

The good news is that you can declare your losses to reduce your tax liability. This is called tax-loss harvesting and is a standard method for traders and investors to offset their capital gains tax payments.

To get a better understanding of how tax-loss harvesting works in crypto, take this imaginary example:

  • You buy one BTC at $20,000 and one ETH at $1,000.
  • While you hold both assets, ETH pumps to $2,000, while BTC falls to $19,500.
  • You sell your ETH for $2000, earning $1,000 in profit.
  • You sell your BTC for $19,500, realizing a $500 loss.

If you don’t sell your BTC and realize capital losses, you will need to pay capital gains tax on the $1,000 you earnt trading ETH. However, because you’ve registered a $500 loss on BTC, you can offset that loss against your gains. As a result, you only need to pay tax on $500 earned in your ETH trade instead of $1,000.

On The Flip Side

Crypto taxation and regulations are under constant scrutiny and revision worldwide. Every country has difficult crypto tax laws that are prone to frequent change. You should always stay up to date on your local crypto regulation standards and consult a tax professional or certified public account (CPA) when managing your taxes.

Why Should You Care

Avoiding your crypto tax reporting responsibilities could land you in hot water with your local jurisdiction. Staying informed on how to pay your crypto tax correctly will save you a lot of headaches at the end of every tax year.


Do I Have to Report Crypto on Taxes?

Yes, you should always report any crypto gains or income earned from cryptocurrency transactions in your tax preparation. Failure to do so could result in tax evasion charges from your local governing body.

Do I Pay Taxes on Crypto If I Don’t Sell?

No, in most circumstances, you only need to pay tax on cryptocurrency when you realize capital gains or earn income from crypto transactions.

Can I Write Off Crypto Losses?

Yes, you can write off crypto losses and reduce your tax bill by offsetting your profits against capital losses. This is called tax-loss harvesting and can be a complicated procedure. We recommend consulting a tax professional when filing your tax reports.

Which Countries are Crypto Tax-Free?

Countries like the United Arab Emirates (Dubai), Singapore, and Portugal have some of the most lenient crypto tax laws. This makes these locations a popular country of residence for crypto investors and traders.

Is Buying Bitcoin a Taxable Event?

No, buying Bitcoin or any other cryptocurrency is not considered a taxable event. However, the moment you choose to sell or dispose of the asset is a taxable event and must be correctly registered.