Ethereum Layer 2s See Surge in Popularity in Q1 2023

Ethereum layer 2 networks, including Optimism, Arbitrum, and Polygon, saw a surge in popularity in Q1 2023, according to a report from Web3 development platform Alchemy. The report, titled “Web3 Development Report,” cites data from Dune Analytics and shows that Ethereum users bridged over $635,000 worth of crypto assets to these networks from January to March, a significant increase of 44% over the fourth quarter of 2022 and 518% over the first quarter of 2022.

The growth in bridged assets may have been driven by successful airdrops from Optimism and Arbitrum in Q1 2023, as suggested by the Alchemy report. Additionally, layer 2s saw greater activity from developers, with the deployment of smart contracts related to layer 2s increasing by 160% compared to Q1 2022, despite a 30% decrease from Q4 2022.

Layer 2s have been offered as a solution to Ethereum’s scalability problem, which has been causing high gas fees since as early as 2020. By enabling more transactions to be processed off the main Ethereum network, layer 2s can significantly reduce the fees required to interact with the blockchain. As a result, users are increasingly turning to these new scalability solutions.

This trend is reflected in the broader Ethereum ecosystem, with increased developer interest observed in Q1 2023. According to the Alchemy report, Ethereum software development kits (SDKs) such as Ethers.js, Web3.js, Hardhat, and were downloaded 1.9 million times in the first quarter of 2023, an 8% increase from Q1 2022. Downloads of the MetaMask SDK, a tool used to develop apps that can interact with Ethereum wallet MetaMask, also increased in each month of the first quarter.

The crypto industry is coming off the back of a steep downturn in trading volume and crypto prices during 2022, with scandals like the UST depegging and FTX collapse causing many investors to shy away. However, despite this negative sentiment, users still flocked to these new scalability solutions.

While layer 2s have proven to be a useful tool for improving Ethereum’s scalability, some experts have argued that sharding the Ethereum network will also help to cut down on gas fees. Sharding involves breaking up the Ethereum network into smaller, more manageable pieces, allowing for more parallel processing of transactions. Ultimately, a combination of solutions will likely be necessary to address Ethereum’s scalability challenges and keep up with growing demand.


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EOS EVM Mainnet Launch Improves Interoperability Between EOS and Ethereum

The EOS Network Foundation (ENF) has announced the beta launch of the EOS EVM mainnet, a significant milestone towards bridging the gap between two major blockchain ecosystems, Ethereum and EOS. The EOS EVM mainnet emulates Ethereum’s Virtual Machine (EVM) and enables developers to deploy decentralized applications (DApps) written in Solidity, the programming language used by the vast majority of web3 developers.

The ENF team has identified Ethereum’s scalability issues as a challenge for mass-scale DApp deployment, which is why they have launched the EOS EVM mainnet. The team aims to leverage the performance of the EOS Network to address this challenge, while also combining the resources of the Ethereum community. According to Yves La Rose, founder and CEO of the EOS Network Foundation, the launch of EOS EVM paves the way for an interoperable future. He emphasizes that EOS EVM is a significant milestone that represents the network’s commitment to a multi-chain future.

La Rose adds that the EOS EVM mainnet offers developers access to lower fees and faster transactions of the EOS network. This is an important development as the Ethereum network is expecting more adoption after the most recent Shapella upgrade. To keep up with this adoption, projects have been prioritizing the implementation of EVM compatibility within their networks. For example, Astar Network recently launched smart contracts that support two virtual machines, including EVM and the WebAssembly Virtual Machine. This allows for the creation of new multichain applications within their network.

In addition, Polygon’s zkEVM, a zero-knowledge rollup scaling solution, released its beta version on March 27. This technology mimics the transaction execution environment of the Ethereum mainnet, allowing DApps to scale with higher performance. With more and more blockchain projects prioritizing EVM compatibility, it’s clear that the future of interoperability between different blockchains will rely heavily on this technology.

In conclusion, the launch of EOS EVM mainnet is a significant step towards improving interoperability between EOS and Ethereum. By combining the resources of the Ethereum community with the performance of the EOS Network, developers can deploy Solidity-based DApps on a high-performance platform with lower fees and faster transactions. As other projects like Astar Network and Polygon also prioritize EVM compatibility, it’s clear that this technology is becoming an important part of the blockchain ecosystem.


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ZeroSync to Bring ZK-Proofs to Expedite Bitcoin Validation

ZeroSync Association, a Swiss-based nonprofit organization, is pioneering the use of zero-knowledge proofs (ZK-proofs) for the validation of the Bitcoin network. ZeroSync’s open-source tooling allows users to validate the state of the Bitcoin network without having to download the entire blockchain or trust a third party for verification.

The organization is developing and maintaining software that enables succinct ZK-proofs on the Bitcoin blockchain. The group uses StarkWare’s proprietary Zero-Knowledge Scalable Transparent Argument of Knowledge (zk-STARK) validity proofs to generate succinct ZK-proofs for the Bitcoin network.

The use of ZK-proofs by ZeroSync promises to overhaul the process of verifying the Bitcoin blockchain. Node operators currently have to download a large amount of data to synchronize the correct state of the Bitcoin network. However, with ZK-proofs, ZeroSync aims to generate valid proof and verify the latest state of the blockchain almost instantaneously.

While ZK-proofs have been a revelation for the Ethereum ecosystem, powering several layer-2 scaling platforms, ZeroSync’s announcement highlights the promise of ZK-proofs for blockchain scalability and privacy by providing “almost-fixed-size” proofs verifying large computations.

ZeroSync is pioneering the application of ZK-proofs for the Bitcoin network, with the organization describing Bitcoin’s relative simplicity and the Unspent Transaction Output (UTXO) model as a unique value proposition for applying recursive proofs. ZeroSync notes that the ZK-Proof tools do not require consensus changes or additional trust assumptions for the Bitcoin network and its users.

The organization is building a software development kit that will allow developers to generate custom validity proof for specific use cases without requiring in-depth domain expertise. The kit will enable users to implement ZK-proofs for specific use cases while also ensuring compatibility with Bitcoin’s rules and regulations.

ZeroSync’s tool is currently in the prototype state but has the ability to prove the validity of individual assumed valid blocks, which verify all Bitcoin rules except for scripts. The team also has a working in-browser demo verifier for STARK proofs of Bitcoin blocks.

ZeroSync is using the Cairo programming language, pioneered by StarkWare, to create STARK-provable programs for computations. The organization is building a client for fast initial block download and implementing the first complete proof of Bitcoin consensus. The client will allow users to sync a full node without making code changes to Bitcoin core.

Geometry and StarkWare initially funded the ZeroSync Association, but the organization is establishing a nonprofit entity to enable ongoing development and maintenance from stakeholders within the Bitcoin community.

Overall, ZeroSync’s tooling will revolutionize the validation process of the Bitcoin blockchain, bringing ZK-proofs to the forefront of the Bitcoin ecosystem. The use of ZK-proofs will enable Bitcoin users to validate the state of the network more efficiently and securely, without having to trust third-party verifiers.


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Coinbase Layer 2 Network

The Ethereum community appears to have a bullish view of Coinbase’s newly announced layer-2 network, Base, which has been described as a “massive confidence vote” and a “watershed moment” for the blockchain network. This has been described as a “massive confidence vote” and a “watershed moment” for the blockchain network.

Protected by Ethereum and driven by Optimism’s layer-2 network, Base’s long-term objective is to evolve into a network that facilitates the development of decentralized applications (DApps) for use on blockchains. According to the chief executive officer of Coinbase, Brian Armstrong, the layer-2 network is now in the testnet phase.

Members of the cryptocurrency community such as Ryan Sean Adams, host of the Bankless Show, are of the opinion that the move “is a massive vote of confidence for Ethereum.” If this is proven to be the case, it could set a precedent for cryptocurrency companies and financial institutions to use Ethereum as their preferred settlement layer.

Since its founding in 2012, Coinbase has amassed roughly 110 million verified users and has worked with 245,000 businesses across more than 100 countries. According to CoinGecko, its cryptocurrency exchange is the second biggest in the world in terms of trading volume. The first place goes to Binance.

“This alone will 10x the overall number of crypto native users,” Adams said, adding that “if Coinbase converts 20% of its 110 million verified users to Layer 2 users in the future years,” this alone will 10x the entire number of verified users.

Adam also praised Coinbase for its decision to open-source Base, and he is of the opinion that the newly introduced layer-2 network would result in an increased demand for block space on Ethereum.

In the meantime, Sebastien Guillemot, co-founder of blockchain infrastructure company dcSpark, suggested that Coinbase made a wise decision to go with a layer 2 as opposed to an independent sidechain, noting that “almost all” cryptocurrency transactions and value locked on Ethereum resides on layer 2s these days. Guillemot was referring to the fact that “almost all” cryptocurrency transactions and value locked on Ethereum resides on layer 2s.

In a tweet dated February 23, Ryan Watkins, co-founder of the cryptocurrency-focused hedge fund Syncracy Capital, referred to the announcement as a “watershed moment” in the ecosystem of Ethereum rollups. He went on to say that there was “probably no one better” positioned than Coinbase to get Ethereum’s next 10 million consumers and institutions on board.

However, there were some bears among the bulls.

Gabriel Shapiro, general counsel of investment firm Delphi Labs, explained in a Twitter post dated February 23 that launching a centralized layer-2 network “opens the door” to unwarranted scrutiny from the SEC. He was referring to the fact that the SEC has the authority to investigate investment firms.

“A centralized L2 that trades lots of tokens any number of which could be alleged securities, or does lots of DeFi transactions that arguably might alleged to be regulated (security swaps etc), opens the door to the SEC making new kinds of secondary market claims,” wrote Shapiro, adding that “imo, this will accelerate the SEC’s “secondary market” agenda re: blockchain securities issues, because they can’t let an SEC registrant “get away with” potential violations and

Concerns raised by Shapiro come at a time when the SEC has lately ramped up its enforcement operations against a number of stablecoin issuers and service providers of staking services.


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Polygon Announces Beta Launch of Zero-Knowledge Ethereum Virtual Machine

Polygon (MATIC), an Ethereum layer-2 solution provider, has finally revealed the much-anticipated scaling update that has been in the works for quite some time. The beta launch of its zero-knowledge Ethereum Virtual Machine (zkEVM) mainnet is scheduled for March 27.

Polygon said in a blog post that was published on February 14 that after three and a half months of “battle testing,” the platform would be ready for the launch of the mainnet the following month.

It was first released as a testnet in December of the previous year and has since been marketed as “seamless scalability for Ethereum.”

Since the beginning of this decade, work on the scaling technique known as zk-rollup has been continuously progressing. In that span of time, the Polygon zkEVM system has accomplished a number of noteworthy goals, as mentioned by the team.

Among them are the implementation of more than 5,000 smart contracts, the production of more than 75,000 zk-proofs, the creation of more than 84,000 wallets, and the completion of two public third-party audits.

The group said that maintaining a secure environment is their first concern, which is “why Polygon zkEVM has been subjected to a battery of testing and audits,” as they put it.

This technique makes use of zero-knowledge proofs, which are cryptographic confirmations that, in the context of scaling, allow platforms to verify huge volumes of transaction data before bundling them up and confirming them on Ethereum.

There are other teams than Polygon that are toiling away at a zkEVM solution. Scaling provider zkSync is creating a solution that is comparable to EVM with its zkPorter product. This product moves key transaction data off-chain.

Scroll, another company that specializes in scaling solutions, is also developing a zkEVM solution in conjunction with the Ethereum Foundation’s Privacy and Scaling Explorations group.

Additionally, the Ethereum Foundation is providing financing for a project known as Applied ZKP. This project’s objective is to create a zk-rollup that is compatible with the EVM.

The group elaborated on the relevance of the technology by claiming that real EVM-equivalence indicates that Ethereum may be scaled “without having to settle for half-measures.”

The easiest approach to grow Ethereum is to maintain the present Ethereum ecosystem, which means that the code, tools, and infrastructure all need to function seamlessly together. And that is precisely what the Polygon zkEVM project hopes to do.”

The scaling technology offers large reductions in the costs of individual transactions. According to the researchers, the expenses of providing proof for a huge batch of hundreds of transactions have been reduced to around $0.06, while the costs for providing proof for a straightforward transfer are less than $0.001.

In November 2021, the company that is responsible for Polygon, Matter Labs, completed a Series B funding round that was lead by Andreessen Horowitz and received $50 million. The funds will be used to develop zk-Rollups that are interoperable with EVMs.


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Ethereum to Undergo 4 Phases to Tackle the Scalability Issue after Merge

The much-anticipated Merge saw the light of day yesterday, September 15, setting the ball rolling for a proof-of-stake (PoS) consensus mechanism in the Ethereum (ETH) network.

Since the Merge is the first step towards solving the scalability trilemma, the second-largest cryptocurrency will have to undergo four more steps to solve this issue, as reported by Bloomberg. 

The four phases include the surge, the verge, the purge, and the splurge. Per the announcement:

“The Surge: Implementation of sharding, a scaling solution which will lower the cost of bundled transactions on Ethereum.”

The report added:

“The Purge: Elimination of historical data and technical debt. The Splurge: Miscellaneous updates after the first four stages to ensure smooth functioning of the network.”

The time frame for these stages is not well defined, but Sameep Singhania believes it might take two to three years. The co-founder of QuickSwap pointed out:

“It’s hard to talk about the timelines of the following four stages because all of them are still under active research and development. But, in my opinion, it will easily take 2-3 years before all phases are complete.” 

Aditya Khanduri, the head of marketing at Biconomy, also opined that the purpose of the four upgrades was to make Ethereum cheaper, faster, and more scalable.

Upon the completion of the remaining four phases, Ethereum co-founder Vitalik Buterin pointed out that the network would be in a position to process 100,000 transactions per second.

Therefore, the merge is seen as a stepping stone toward future improvements. Developers involved in the Merge noted that switching from a proof-of-work (PoW) to PoS would make ETH easier and friendlier to design future updates that lower gas fees.

Image source: Shutterstock


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2 key Bitcoin price metrics suggest BTC is primed to reclaim $40,000

Cryptocurrencies had a volatile week after Bitcoin’s (BTC) sudden crash to $33,000 on Jan. 24. However, the sharp 9% drop fully recovered within 8 hours after BTC price regained the $36,000 support.

On Jan. 26, Bitcoin rallied to $38,960 but it could not sustain the level and corrected by 8.8% in the following 8 hours. When factoring in the recent ups and downs, Bitcoin managed to only gain a meager 1.6% over the past seven days.

Even with the considerable price swings, the aggregate futures contracts liquidations were relatively low. Longs (buyers) had $570 million futures terminated, while shorts (sellers) faced $690 million. Data shows that Bitcoin futures represented 41% of the total $1.25 billion liquidations.

Regulatory winds could be limiting BTC’s price recovery

The total crypto market capitalization presented a modest 1.6% weekly increase, in line with Bitcoin’s performance.

Total crypto market capitalization, USD billion. Source: TradingView

Notice how the Jan. 24 price is forming higher lows and currently shows support at $1.75 trillion. Even with the price being 22% down in 2022, the total crypto market capitalization showed a healthy 12.5% bounce since the Jan. 24 low.

Investors seem to be digesting this week’s regulatory news where United States Congressman Ted Budd submitted an amendment to scrub a bill provision allowing the U.S. Treasury to unilaterally prohibit certain financial transactions without public input.

If passed in its current form, the America COMPETES Act of 2022 would result in a significant blow to the cryptocurrency industry, as Coin Center’s executive director Jerry Brito stated.

Investors were negatively impacted by news that the U.S. White House is reportedly preparing an executive order on crypto to make government agencies conduct risk analysis on cryptocurrency as a national security threat.

Metaverse tokens decoupled after last week’s Apple news

Steady bearish newsflow might have been the cause for cryptocurrencies’ recent price action but there were some stellar performances from Metaverse tokens.

Top weekly winners and losers on Jan. 31. Source: Nomics

Apple (AAPL) CEO, Tim Cook, said in an investors’ call on Jan. 27 that metaverse applications have a lot of potential and that his company is investing in augmented reality developments on its devices.

The news was enough to catapult metaverse-related tokens by up to 36%, including Flow, The Sandbox (SAND), Decentraland (MANA), Enjin Coin (ENJ), and Arweare (AR).

On the other hand, Terra (LUNA) was impacted after the Avalanche-based reserve currency Wonderland Money (TIME) announced that a pending proposal would determine whether the project closes up shop or not. As a result, the MIM stablecoin dipped below 1.00 and some speculate that this may have had a knock-on effect on Terra’s LUNA and UST token.

Scalability and interoperability blockchain solutions Cosmos (ATOM), Fantom (FTM), and Harmony (ONE) presented negative performances after the Ethereum hash rate surpassed 1.11 PH/s, its highest level ever registered. A higher hash rate indicates that more miners are joining the network, which helps to cement blockchain security.

Tether premium and CME futures showed improvement

The OKEx Tether (USDT) premium measures the difference between China-based peer-to-peer (P2P) trades and the official U.S. dollar. Figures above 100% indicate excessive demand for cryptocurrency investing. On the other hand, a 5% discount usually indicates heavy selling activity.

OKEx USDT peer-to-peer premium vs. USD. Source: OKX

The Tether indicator continued to display strength as it stood above 99% over the past seven days. That is in stark contrast to three weeks ago when panic selling from China-based traders drove the indicator to a 4% discount.

To confirm that the crypto market structure has improved, traders should analyze the CME’s Bitcoin futures contracts premium. This metric analyzes the difference between longer-term futures contracts to the current spot price in regular markets.

Whenever this indicator fades or turns negative (backwardation), it suggests that there is bearish sentiment.

BTC CME 2-month forward contract premium vs. Bitcoin/USD. Source: TradingView

These fixed-month contracts usually trade at a slight premium, indicating that sellers request more money to withhold settlements for longer. As a result, futures should trade at a 0.5% to 2% premium in healthy markets, a situation known as contango.

Notice how the indicator flirted with the backwardation from Jan. 18 to 24 as Bitcoin dipped below $42,000. However, as BTC showed signals that $33,000 could have been a local bottom, the futures markets recovered a healthy 0.5% premium.

Considering that the aggregate cryptocurrency market capitalization is down 22% in 2022, the market structure looks primed for a recovery.

Barring a significant change in these fundamentals, Bitcoin bulls are probably beginning to feel comfortable adding positions below $40,000.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.