Validium is a protocol that was introduced to improve scalability issues on the Ethereum network. In this guide, we look at what Validium is, how it works, and its benefits and challenges.
What Is Validium?
Validium is a Layer 2 (L2) scaling solution that leverages zero-knowledge proofs (zk-proofs) to verify off-chain transactions. Its primary goal is to enhance the scalability, privacy, and security of the Ethereum network.
At the solution’s core are sidechains or L2 solutions linked to but handling transactions separately from the Ethereum main chain. In this way, they move transactions off-chain and help ease transactional pressure on the Ethereum network.
Consequently, users can enjoy faster confirmation times while moving more volumes. Furthermore, Validium significantly reduces gas fees due to the reduced computational overhead, as it doesn’t need to verify every transaction individually.
How Does Validium Work?
Validium bundles sidechain transactions into batches and generates zk-proofs for each batch. Zk-proofs ensure the validity of the transactions and that the off-chain chain has been updated correctly.
Every sidechain has a validator responsible for aggregating transactions and generating zk-proofs, which are then submitted to the Ethereum mainnet for verification.
If the proof is valid, the verifiers update the mainnet record to reflect the changes that occurred in the sidechain.
Use Cases and Applications of Validium in Ethereum
Validium has several potential use cases and applications within the Ethereum ecosystem.
Decentralized Finance (DeFi)
DeFi protocols can use Validium to improve their efficiency and usability. For example, they can adopt the technology to create faster DeFi investment platforms with lower gas fees. This efficiency broadens the platform’s accessibility and enhances the user experience.
Gaming and NFTs
Validium solutions can facilitate seamless in-game transactions and interactions with NFT marketplaces due to their low fees and faster confirmation times. This provides gamers and collectors with more enjoyable experiences.
Supply Chain Management
Through Validium, manufacturers can set up more efficient and transparent supply chain management systems. They can track their consignments off-chain easily and cost-efficiently without overloading the blockchain with data.
Key Benefits of Validium in Ethereum
Let’s take a look at some of the key benefits Validium brings to Ethereum.
Validium can process thousands of transactions per second (tps), compared to the Ethereum mainnet’s 15-25 tps. This feature makes it ideal for high-throughput applications like decentralized exchanges and gaming platforms. Increased throughputs are crucial to Ethereum adoption as they guarantee timely transactions.
Privacy and Security
Validium uses zk-proofs to verify transactions by allowing one party to prove to another party that they know something without revealing what the thing they know is. As such, zk-proofs provide an elevated level of security for transactions, ensuring that validators cannot cheat or steal user funds. Additionally, Validium improves privacy by excluding sensitive user data from the public Ethereum blockchain.
Lower Transaction Fees
Reduced computational overhead makes Validium settlements significantly cheaper than mainnet ones. This is a major benefit for users, making Ethereum more affordable.
Faster Transaction Speeds
Due to its off-chain processing, Validium operations are much faster than those on the mainnet. This is important for applications that require fast and reliable transactions, such as decentralized exchanges and gaming platforms.
Challenges and Limitations of Validium
Despite its benefits, Validium also has some challenges and limitations.
Centralization of the Network
Users must trust the validator to process transactions correctly. This could lead to centralization concerns, as few validators could control a sizable portion of the network. Introducing a trusted third party contradicts the decentralization philosophy of cryptocurrencies.
Interoperability and Compatibility
Integrating Validium with existing Ethereum smart contracts and protocols can be challenging due to potential data structure incompatibilities. Ethereum developers are working on ways to ensure seamless interaction between the mainnet and its sidechains.
Dependence on Data Providers
The technology relies on data providers to make off-chain data available. This dependence on them introduces an element of trust that runs counter to decentralization, a central tenet of cryptocurrencies.
Having external data providers also puts the data processed on the network at risk of hacking or unauthorized access by malicious parties.
Validium is important in Ethereum’s journey toward scalability. Its ability to significantly improve transaction speeds, lower costs, and streamline operations is poised to redefine the network’s experience, with many developers seeking to integrate it into their products.