Rethinking the Nature of the Encryption Economy

The encryption economy is not just a technological revolution; it also involves a complex investment cycle. Many practitioners and enthusiasts find it difficult to adapt to this field, mainly because its cyclicality is too obvious and the volatility is too severe. In a bull market, ordinary people indeed have the chance to achieve tenfold or even hundredfold returns, but in a bear market, they can also suffer heavy losses. Therefore, regardless of who it is, once entering this 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. The yields of mainstream lending protocols have now dropped to below 2%, far lower than the previous high-yield levels. Meanwhile, the yield on U.S. Treasuries in the real world has exceeded 3%, prompting institutional investors and stablecoin projects to shift funds to purchase government bonds.

Throughout history, the Federal Reserve has experienced 6 interest rate hike cycles since the 1980s, each lasting 1-3 years, with an average of 10 rate hikes. The slower the pace of rate hikes, the worse the effect, and the harder it is to control inflation. For example, the 6th rate hike from 2015 to 2018 was relatively slow, resulting in a rise in commodity prices led by crude oil rather than a decrease. The recent continued strength of crude oil prices may prompt the Federal Reserve to continue implementing aggressive rate hike policies. In 2023, global stock markets and the encryption market are likely to continue facing pressure from institutional fund withdrawals, with the market bottom yet to be evident, making it unwise to easily buy the dip.

The Prospects of Ethereum zkRollup Solutions

Leaving aside the macroeconomic cycle, from the perspective of the transformation brought about by encryption technology and the potential wave of Web3.0 it may trigger, Ethereum and its zkRollup scaling solutions, especially those based on the new generation zkEVM, are still worth keeping an eye on.

The co-founder of Ethereum emphasized at a recent conference that the next focus for Ethereum after the merge is scalability. Scaling is a core issue that hinders many cryptocurrencies and blockchain applications from becoming mainstream. zkRollups achieve scaling by bundling hundreds of transactions and verifying all transactions in a single task.

In the Ethereum ecosystem, Rollup has become the mainstream scalability solution, divided into two categories: Optimistic Rollup and zkRollup. The main difference between the two lies in the method of ensuring transaction validity. Optimistic Rollup uses fraud proofs, while zkRollup employs zero-knowledge proofs.

In comparison, zkRollup has more technical advantages. However, since the EVM was not designed to support zero-knowledge proofs, building a virtual machine that is compatible with Solidity and supports zero-knowledge proofs is quite challenging. To address this issue, several teams are developing zkEVMs that support zero-knowledge proof computation and are compatible with Solidity.

Redesign of zkEVM

The existing zkEVM solutions exhibit inefficiency in practical applications, taking dozens of minutes to process a small number of transactions. To address this, teams have optimized the zkEVM structure and redesigned a more efficient solution. Key improvements include adopting a hierarchical structure, compressing redundant space in circuits, and reducing the size of submitted polynomials, thereby shortening the time required to generate proofs.

Faster Zero-Knowledge Proofs

The efficiency of zero-knowledge proofs directly affects the performance of zkEVM. Although STARK is faster than SNARK, the emerging FOAKS scheme is superior in efficiency. FOAKS is the first zero-knowledge proof to achieve linear proof time and sub-linear verification time, reaching theoretical limits. It does not require a trusted setup and maintains the highest level of security.

FOAKS is a linear time encodable code-based zero-knowledge proof scheme, currently the fastest of its kind. Through recursive techniques, FOAKS reduces the proof size to 1/7 of existing schemes, meaning users can enjoy layer two network services at a very low cost.

The Necessity of Independent Data Availability Layers

Currently, zkRollup mainly focuses on reducing the computational burden of verifying transactions, but Ethereum nodes still need to store the original transaction data. This is not ideal, as Ethereum is more suitable as a consensus layer rather than a storage layer. When nodes are lacking in bandwidth and storage, the scalability bottleneck still exists.

Therefore, Ethereum needs an independent data availability layer to store these raw transaction data to prevent smart contracts from freezing due to server or node failures. More importantly, this can decouple the costs of the second-layer network from the first-layer network, further reducing the transaction costs of zkRollup based on zkEVM.