The encryption economy is not just a technological revolution

The encryption economy is not just a simple technological revolution. Many practitioners and enthusiasts find it difficult to adapt to this field, largely due to its evident cycles and extreme volatility. During bull markets, ordinary people do indeed have the opportunity to gain tenfold or even hundredfold returns, but in bear markets, the losses can also be severe. No matter who it is, once entering the encryption field, investment knowledge is a compulsory course.

The main reason for the current bear market is the capital tightening caused by the Federal Reserve's interest rate hikes. Decentralized Finance ( DeFi ) no longer offers high yields of 20%, with mainstream lending protocols generally yielding below 2%. In contrast, the yield on U.S. Treasury bonds in the real world has exceeded 3%, prompting institutional investors and stablecoin projects to shift funds from the crypto market to the traditional financial market to purchase Treasury bonds.

Since the 1980s, the Federal Reserve has experienced six interest rate hike cycles, each lasting 1-3 years, with an average of 10 rate hikes. Rate hikes that are too slow often have poor effects and are difficult to curb inflation. For example, the sixth rate hike from 2015 to 2018 was relatively slow, leading to the prices of raw materials, mainly oil, rising instead of falling. Recently, oil prices have remained strong, which may prompt the Federal Reserve to continue implementing aggressive interest rate hike policies. It is foreseeable that in 2023, the global stock market and the encryption market will continue to face pressure from institutional capital withdrawals, and the bottom of the bear market has not yet arrived, making it unwise to easily bottom fish.

The future of Ethereum zkRollup solutions is promising

Although the overall encryption market is in a bear market, from the perspective of technological changes and the potential wave of Web3.0 in the future, Ethereum and its zkRollup scaling solutions, especially the zkRollup solutions based on the next-generation zkEVM, are still worth looking forward to.

Ethereum co-founder Vitalik Buterin has stated that after the merger, Ethereum's next focus is scalability. Scaling is a core issue that hinders many cryptocurrencies and blockchain applications from becoming mainstream. zkRollups achieve scalability by bundling hundreds of transactions and validating all transactions in a single task.

With Vitalik's strong support, Rollup has become the mainstream solution for Ethereum scalability. Rollup solutions can be divided into Optimistic Rollup and zkRollup, with the main difference being in the way transaction validity is ensured. Optimistic Rollup uses fraud proofs, while zkRollup employs zero-knowledge proofs.

Compared to Optimistic Rollup, zkRollup's zero-knowledge proof method has more technical advantages. However, since the EVM is not designed to support zero-knowledge proofs, it is very difficult to build a virtual machine that is compatible with Solidity and supports zero-knowledge proofs. To address this issue, multiple teams are developing zkEVMs that support zero-knowledge proof computations and are compatible with Solidity.

Redesign of zkEVM

Despite the existence of multiple zkEVM solutions, they still face efficiency issues in practical applications. For example, processing a few transactions on certain testnets may take tens of minutes. To address this, a team has optimized the zkEVM structure and redesigned a more efficient zkEVM. The main improvements include adopting a hierarchical structure, compressing the redundant space in circuits, and reducing the size of the polynomials submitted, thereby shortening the time required to generate proofs.

Faster Zero-Knowledge Proofs

With the emergence of new zero-knowledge proof schemes, SNARKs and STARKs have become outdated in some respects. The new schemes have made significant improvements in both proof time and verification time, reaching theoretical extremes. These new schemes are not only faster but also maintain a high level of security without the need for a trusted setup.

The Necessity of Independent Data Availability Layers

Currently, zkRollup mainly focuses on reducing the computational burden of validating transactions, but Ethereum nodes still need to store the original transaction data. This is not ideal, as Ethereum is better suited as a consensus layer rather than a storage layer. Therefore, Ethereum needs a separate data availability layer to store this original transaction data, preventing smart contracts from freezing due to failures of zkRollup servers or Ethereum nodes. More importantly, this can decouple the costs of the second layer from the first layer, further reducing the transaction costs of zkRollup based on zkEVM.