The encryption economy is not just a technological revolution

The encryption economy cannot simply be seen as a technological revolution. Many practitioners and enthusiasts find it difficult to adapt to this field, mainly due to its obvious cyclicality and severe volatility. Ordinary investors may achieve tenfold or even hundredfold returns during a bull market, but they can also suffer heavy losses in a bear market. Regardless of who they are, once they enter this field, investment knowledge is a required course.

The main reason for the current bear market is the capital tightening caused by the Federal Reserve's interest rate hikes. The yields of mainstream lending protocols have fallen below 2%, while the yield on U.S. Treasury bonds in the real world has exceeded 3%. This has prompted institutional investors and stablecoin projects to move funds from the encryption market to purchase government bonds.

Since the 1980s, the Federal Reserve has gone through six interest rate hike cycles, each lasting 1-3 years, with an average of 10 rate hikes. The slower the rate hike, the worse the effect, making it more difficult to control inflation. For example, the sixth rate hike from 2015 to 2018 was too slow, leading to a continuous rise in raw material prices dominated by crude oil. After October of this year, crude oil prices continue to remain firm, which may prompt the Federal Reserve to maintain a high-pressure rate hike policy. In 2023, global stock markets and the encryption market may continue to face pressure from institutional capital withdrawal, and the bottom of the bear market has not yet arrived, so it is not advisable to easily bottom fish.

The Prospects of Ethereum zkRollup Solutions

Although the overall encryption market is in a bear market, from the perspective of technological transformation and the potential wave of Web 3.0 in the future, Ethereum and its zkRollup scaling solutions, especially the zkRollup solution based on the next-generation zkEVM, are still worth looking forward to.

Ethereum founder Vitalik Buterin emphasized that the next focus of Ethereum after the merge is scalability. zkRollups achieve scalability by bundling a large number of transactions and validating all of them in a single task.

Rollups have become the mainstream solution for Ethereum scalability, divided into Optimistic Rollups and zkRollups. The two differ in transaction validity assurance: Optimistic Rollups use fraud proofs, while zkRollups use zero-knowledge proofs.

Compared to optimistic Rollup, zkRollup has more technical advantages. However, the EVM was not designed to support zero-knowledge proofs, which makes it difficult to build a virtual machine that is compatible with Solidity and supports zero-knowledge proofs. To address this issue, some projects are developing zkEVMs that support zero-knowledge proof computations and are compatible with Solidity.

Redesign of zkEVM

The existing zkEVM solutions face efficiency issues in practical applications, requiring tens of minutes to execute a small number of transactions. To address this, some teams have optimized the zkEVM structure and redesigned a more efficient zkEVM. Key improvements include adopting a layered structure, compressing redundant space in the circuit, and reducing the size of the submitted polynomials, thereby shortening the time required to generate proofs.

Faster Zero-Knowledge Proofs

SNARK is concise, but its efficiency is not as good as STARK. However, with the emergence of new technologies, STARK also faces the possibility of being surpassed. Since speed is the bottleneck of zkEVM, comparing computational efficiency becomes particularly important. Some new zero-knowledge proof schemes have made groundbreaking progress in proving time and verification time, reaching theoretical extremes.

The Necessity of Independent Data Availability Layers

Currently, zkRollup mainly focuses on reducing the computational burden of validating transactions. However, Ethereum nodes still need to store the original transaction data simultaneously, which may become a bottleneck for scalability. Therefore, Ethereum needs an independent data availability layer to store this original transaction data to prevent smart contract freezing due to server or node failures. More importantly, this can decouple the costs of layer two from layer one, further reducing the transaction costs based on zkEVM's zkRollup.