Analyzing the Encryption Economy and Looking Ahead to the Prospects of Ethereum Scalability

The encryption economy is not just a simple technological transformation. For many practitioners and enthusiasts, the challenge of adapting to this field lies in its significant cyclicality and extreme volatility. In a bull market, ordinary investors have the opportunity to achieve tenfold or even hundredfold returns, but a bear market can lead to severe losses. Regardless of who it is, once entering the encryption field, investment knowledge becomes a compulsory course.

The main reason for the current bear market is the Federal Reserve's interest rate hikes and capital tightening. The yields on mainstream lending protocols have fallen below 2%, while the yields on U.S. Treasury bonds in the real world exceed 3%. This has prompted institutional investors and stablecoin projects to move funds to traditional financial markets to purchase government 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 increases. Slow rate hikes often yield poor results and make it difficult to control inflation. For example, the sixth rate hike cycle from 2015 to 2018 was relatively slow, leading to a continuous rise in commodity prices, primarily driven by crude oil. The recent strength of crude oil prices may prompt the Federal Reserve to continue its aggressive interest rate hike policy. Therefore, in 2023, global stock markets and the encryption market may continue to face pressure from institutional fund withdrawals, and the bottom of the bear market has not yet arrived, making it unwise to easily attempt to catch the bottom.

The future of Ethereum zkRollup solutions is bright

Despite the challenges brought by market cycles, from the perspective of technological innovation and the trend of Web3.0, Ethereum and its zkRollup scaling solutions, especially those based on the next-generation zkEVM solutions, still deserve optimism.

Ethereum founder Vitalik Buterin emphasized that after the merger, scalability has become the next focus for Ethereum. zkRollups effectively address the scaling issue by bundling and verifying a large number of transactions. Compared to Optimistic Rollup, zkRollup employs zero-knowledge proof technology, offering more technical advantages.

However, the traditional EVM was not designed to support zero-knowledge proofs, which poses challenges for building a virtual machine compatible with Solidity and supporting zero-knowledge proofs. To this end, some projects are developing zkEVMs that support zero-knowledge proof computation and are compatible with Solidity. This new type of virtual machine can not only execute smart contracts but also prove the correctness of the execution.

Innovative Design of zkEVM

The existing zkEVM solutions each have their own characteristics. Some projects compile bytecode into micro-operation code, using different zero-knowledge proof techniques to generate and verify the validity proof of state transitions. There are also projects that compile Solidity contracts into intermediate languages, which are then converted into specially designed circuit-compatible bytecode.

Despite the progress made by these systems, they still face efficiency issues in practical applications. Test networks show that processing a small number of transactions can take several minutes. To address this, some teams are optimizing the zkEVM structure by improving the layered design, compressing redundant space, and optimizing polynomial submissions to increase proof generation speed.

Pursuing Faster Zero-Knowledge Proofs

The efficiency of zero-knowledge proof technology is crucial. Although SNARK is concise, its efficiency is not as good as that of STARK, while the emerging FOAKS technology theoretically achieves linear proof time and sublinear verification time, approaching theoretical limits. FOAKS does not require a trusted setup, maintains high security, and significantly reduces proof size, which is expected to substantially lower the cost for users using layer two networks.

The Necessity of Independent Data Availability Layers

Currently, zkRollup primarily focuses on reducing the computational burden of validating transactions, but the storage of original transaction data remains a challenge. Ethereum is better suited as a consensus layer rather than a storage layer, so an independent data availability layer is needed to preserve this data. This not only helps prevent smart contract freezes due to server or node failures, but also further reduces the transaction costs of zkRollup based on zkEVM.

With the development of these technologies, the Ethereum ecosystem is moving towards a more efficient, secure, and scalable direction, providing a solid foundation for future Web3 applications.