The encryption economy is not just a technological revolution

The cyclical nature and volatility of the encryption field are the main reasons that many practitioners and enthusiasts find it difficult to adapt. In a bull market, ordinary people may achieve tenfold or even hundredfold returns, but in a bear market, losses can also be severe. Regardless of who it is, once entering 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 on mainstream lending protocols have fallen below 2%, while the yield on U.S. Treasury bonds exceeds 3%, prompting institutional investors and stablecoin projects to shift funds to traditional financial markets to purchase Treasury bonds.

Since the 1980s, the Federal Reserve has experienced 6 interest rate hike cycles, each lasting 1-3 years, with an average of 10 rate hikes. The slower the rate hikes, the worse the effect, making inflation harder to control. The 6th rate hike from 2015 to 2018 was relatively slow, with raw material prices rising rather than falling. Recently, the stable oil prices may prompt the Federal Reserve to continue its tough interest rate hike policy. In 2023, global stock markets and the encryption market may continue to face pressure from institutional fund withdrawals, and the bear market bottom has not yet arrived, so it is not advisable to easily bottom fish.

Optimistic about Ethereum zkRollup solutions

Putting aside market cycles, from the perspective of technological transformation and the potential wave of Web3.0, Ethereum and its zkRollup scaling solutions, especially the zkRollup solutions based on the next generation zkEVM, are worth paying attention to.

The founder of Ethereum stated that the next step after the merge is to improve scalability. zkRollups achieve scalability by bundling hundreds of transactions and validating all transactions in a single task.

Rollup has become the mainstream solution for Ethereum scalability, divided into optimistic Rollup and zkRollup. The two differ in terms of transaction validity assurance: the former uses fraud proofs, while the latter employs zero-knowledge proofs.

Compared to optimistic Rollup, zkRollup has more technical advantages. However, the EVM was not designed to support zero-knowledge proofs, making it difficult to build a virtual machine that is compatible with Solidity and supports zero-knowledge proofs.

To address this issue, multiple teams are developing a zkEVM that supports zero-knowledge proof computation and is compatible with Solidity. Unlike regular virtual machines, zkEVM can prove the correctness of execution, including the validity of the inputs and outputs used during the execution process.

The Necessity of Redesigning zkEVM

The existing zkEVM system has efficiency issues in practical applications, where processing a small number of transactions may take tens of minutes. By optimizing the zkEVM structure, efficiency can be significantly improved. The main optimization directions include adopting a layered 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

STARK is more efficient than SNARK, but there is still room for improvement. FOAKS, as a new type of zero-knowledge proof scheme, achieves linear proof time and sub-linear verification time, reaching theoretical extremes. It does not require a trusted setup and maintains high security. FOAKS is based on linearly encodable code, making it the fastest, and it significantly reduces proof size using recursive techniques.

The Importance 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 an independent data availability layer to store the raw transaction data, to prevent smart contracts from freezing due to failures of zkRollup servers or Ethereum nodes. More importantly, this will decouple the costs of Layer 2 and Layer 1, further reducing the transaction costs of zkRollup based on zkEVM.