The encryption economy is not only a technological revolution but also requires investment wisdom.

For many people engaged in the cryptocurrency industry or interested in it, adapting to this field is not easy. The main reason is the significant market cycles and extreme volatility. Ordinary investors may achieve tenfold or even hundredfold returns in a bull market, but they can also suffer heavy losses in a bear market. Regardless of who it is, as long as one enters the cryptocurrency field, investment knowledge is a compulsory course.

The main reason for the current bear market is the tightening of funds caused by the Federal Reserve's interest rate hikes. The yields on mainstream lending protocols have fallen below 2%, while the real-world yield on U.S. Treasury bonds has exceeded 3%. This has prompted institutional investors and stablecoin projects to shift their funds towards purchasing 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 hikes. The slower the pace of rate hikes, the worse the effects, making it harder to control inflation. For example, the sixth rate hike process from 2015 to 2018 was slow, and the prices of raw materials rose rather than fell. After October of this year, the price of crude oil has remained strong, which may prompt the Federal Reserve to continue implementing strong rate hike policies. In 2023, global stock markets and the encryption market will continue to face pressure from institutional capital withdrawal, the bottom of the bear market has not yet arrived, and it is not advisable to speak lightly of bottom fishing.

Looking forward to Ethereum zkRollup solutions

Putting aside the large cycles of the capital market, just from the perspective of the changes in encryption technology and the possible emergence of the Web3.0 wave, Ethereum and its zkRollup scaling solutions, especially the zkRollup solutions based on the new generation zkEVM, are worth paying attention to.

Ethereum co-founder Vitalik Buterin stated that the next step for Ethereum after the merge is to improve scalability. Scalability 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 the support of Vitalik, Rollup has become the mainstream solution for Ethereum scalability. Rollup is divided into Optimistic Rollup and zkRollup. The main difference lies in the way transaction validity is guaranteed. Optimistic Rollup uses fraud proofs, while zkRollup uses zero-knowledge proofs.

Compared to Optimistic Rollup, zkRollup uses zero-knowledge proofs for mathematical verification, offering more technical advantages. Some projects have been exploring this field for many years.

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, some teams are developing a virtual machine that supports zero-knowledge proof computation and is compatible with Solidity, called zkEVM. Unlike ordinary virtual machines, zkEVM can prove the correctness of execution, including the validity of the inputs and outputs used during execution.

The Necessity of Redesigning zkEVM

Some projects implement zkEVM using different methods. Some compile the bytecode into micro-operation code, use STARK to generate validity proofs for state transitions, and submit them to Ethereum after using SNARK to verify the correctness of the proofs. Other solutions compile Solidity contract code into an intermediate language Yul and then recompile it into a specially designed circuit-compatible bytecode set.

Are these systems good enough to be put into production? Do we need to redesign a better zkEVM? In principle, Layer 1 chains can verify short "proofs" covering thousands of complex transactions, with no possibility of cheating. However, after the release of certain zkEVM testnets, it was found that the actual situation was not ideal—processing a few transactions takes dozens of minutes.

A team has optimized the zkEVM structure and redesigned a more efficient zkEVM. The main reason is the adoption of a well-designed layered structure, which compresses the redundant space in the circuit and reduces the size of the commitment polynomial, shortening the time required to generate proofs. At the same time, its Sequencer runs an Ethereum node, receives user transactions, and generates new states and special zkEVM-friendly Traces. The proof generator obtains these Traces from the Sequencer and uses a large number of small tables in the zkEVM to process, significantly reducing redundancy and increasing the speed of proof generation.

The Importance of Faster Zero-Knowledge Proofs

SNARK is concise, but its efficiency is inferior to STARK. However, with the emergence of new technologies, STARK also seems outdated. Since speed is the bottleneck of zkEVM, comparing computational efficiency becomes crucial. STARK achieves quasi-linear proof time and verification time, which is faster than SNARK but significantly slower than certain new technologies. New zero-knowledge proof schemes have realized linear proof time and sub-linear verification time, reaching theoretical extremes. These schemes are transparent, require no trusted setup, and maintain the highest level of security.

Based on linearly time-encodable codes, certain new zero-knowledge proof schemes are the fastest among all existing ZKP schemes. Additionally, due to the use of recursive techniques, their proof size is reduced to 1/7 of existing schemes, allowing end users to access Ethereum Layer 2 services with minimal cost.

The Necessity of Independent Data Availability Layers

Currently, zkRollup mainly focuses on reducing the computational burden of validating transactions. This is particularly important for Ethereum, as the execution cost of validating complex smart contracts is high. However, Ethereum nodes still need to store the original transaction data at the same time. This is not wise, as Ethereum is better suited to serve as a consensus layer rather than a storage layer, which means the scalability bottleneck still exists — when node bandwidth and storage are insufficient, they will be impacted.

This is why Ethereum needs an independent data availability layer to store raw transaction data, preventing the entire smart contract from freezing due to zkRollup server or Ethereum node failures. More importantly, it decouples the second-layer costs from the first layer, further reducing the zkRollup transaction costs based on zkEVM by more than half.