Coinbase CEO Brian Armstrong has hinted that the cryptocurrency exchange may integrate Lightning, a layer 2 scaling solution for Bitcoin. In a tweet, Armstrong responded to criticism for not integrating the Lightning network by saying, “Lightning is great and something we’ll integrate.” However, he did not provide any further details on what the integration would involve or when it could be expected.
The Lightning network enables faster and cheaper BTC transactions than the Bitcoin base network, but Coinbase, along with other exchanges such as Binance and FTX, has been criticized for not integrating the technology. If Armstrong follows through on his statement, Coinbase would join Bitfinex, Kraken, and OKX as the largest trading platforms to integrate Lightning.
David Coen, a Lightning enthusiast, had previously suggested that many trading platforms may be reluctant to integrate Lightning because it goes against their business plan of integrating as many altcoins as possible. However, Coinbase has lately been more active in the Ethereum ecosystem, launching “Base” in February 2021, an Ethereum layer 2 application-focused network powered by fellow layer 2 Optimism.
In addition to the potential Lightning integration, Armstrong recently offered a $100 prize for the “best” examples of how people are using crypto in Africa. However, the winner reported that he has not received the payment, prompting a Bitcoiner to suggest that Armstrong “needs a lesson on Lightning.”
It is interesting to note that Armstrong wrote an article in January 2016 expressing support for Bitcoin scaling solutions, saying, “We also did it to show our support for scaling Bitcoin, and encourage things to move forward, since we’d like to see a solution sooner rather than later.” Lightning was launched about two years later in March 2018, with last month marking the fifth anniversary of the network.
If Coinbase were to integrate Lightning, it would be a significant step towards making Bitcoin more accessible and practical for everyday transactions. With the rising popularity of altcoins and increasing demand for fast, low-cost transactions, integrating scaling solutions like Lightning is becoming increasingly important for cryptocurrency exchanges. However, it remains to be seen when and how Coinbase will integrate Lightning, and whether other major exchanges will follow suit.
After four years in development, the Ethereum layer 2 scaling network, zkSync Era, has opened to users in alpha, enabling faster and cheaper transactions. Between 32 to 50 projects, including some of the biggest names in decentralized finance such as Uniswap, Sushi, Maker, and Curve, are set to go live on March 24 or over the weekend.
ZkSync Era is the first Ethereum Virtual Machine compatible zk-Rollup to launch on mainnet, allowing most Ethereum DApps to simply port over with very few changes. The network can provide scaling “orders of magnitude” greater than Ethereum’s current 10 to 12 transactions per second (TPS), offering “tens of TPS” initially and scaling up as demand requires.
The project launched its “fair onboarding alpha” on Feb. 17, allowing projects to port over and test out security and optimizations. Matter Labs, the team behind zkSync Era, said it spent $3.8 million on security testing, seven independent security audits, and a bug bounty program to reduce the risk of any incidents.
Zk-Rollups, which include zkSync, Scroll, and solutions from Polygon, StarkWare, and Consensys, compute transactions away from the Ethereum blockchain while providing a tiny cryptographic proof that is written as a single transaction back on Ethereum showing that a bundle of other transactions has been carried out correctly. ZkSync also employs recursion, which generates a proof showing a batch of other proofs (each representing many transactions) have been carried out.
Zk-Rollups can enable virtually instant withdrawals, giving them an advantage over optimistic-rollup layer 2s such as Optimism, where withdrawals take a week. However, zkSync Era will impose a 24-hour waiting period initially as a security precaution.
ZkSync Era has also enabled native account abstraction, meaning every account in the network is a “smart account” that can utilize two-factor authentication (2FA), social recovery, autopay transactions, and more via smart contract wallet providers like Argent.
The network will not be fully decentralized on launch, so the team can implement fast fixes for any security or technical issues. However, a time lock will later be implemented so that the Security Council and community can sign off on decisions. Like competitor StarkWare, zkSync relies on a centralized sequencer and prover, which are faster, but provide a centralized point of failure.
Running a prover requires the purchase of expensive hardware or renting cloud capacity at $10,000 a month, which makes decentralizing that aspect of the network tricker. A new proof system is already being developed that substantially reduces hardware requirements and should be available on mainnet this year.
Overall, zkSync Era represents an important step forward for Ethereum, which has been grappling with scaling issues for years. The network’s launch on mainnet has the potential to significantly reduce gas fees and enable faster and more efficient transactions, benefiting not only DeFi projects but also other Ethereum-based applications.
StarkWare uses Zero-Knowledge Rollups to develop scaling solutions for Ethereum.
StarkWare’s STARKs allow scaling to be completely trustless and can be deployed in either Rollup mode or Validium depending on the use case.
Layer 2 projects like StarkWare could help Ethereum achieve 100,000 transactions per second with significantly reduced gas costs.
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StarkWare co-founders Eli Ben-Sasson and Uri Kolodny sit down with Crypto Briefing to discuss how their project’s STARK-based technology will bring down the cost of using the Ethereum network.
What Is StarkWare?
StarkWare is one of several crypto projects that leverages Zero-Knowledge Rollups to help scale Ethereum. Unlike other Layer 2 scaling solutions, it uses ZK-STARK proofs, otherwise known as zero-knowledge, scalable, transparent arguments of knowledge. StarkWare’s President Eli Ben-Sasson and Chief Architect Michael Riabzev co-invented STARKs.
StarkWare’s has an application-specific scaling solution called StarkEx that uses STARKs to achieve scalability. StarkEx powers several major platforms including the decentralized exchanges dYdX and DeversiFi. Over the past six months, it has settled over $250 billion worth of transactions and with significant gas fee savings for users.
Starkware is currently developing a multi-app Ethereum Layer 2 solution called StarkNet. The product will let users hold their funds in a single wallet and interact with multiple applications on Layer 2. Additionally, StarkWare intends to launch the current StarkEx platforms as so-called “Layer 3s” on top of StarkNet, making it easier and cheaper for users to interact with these applications.
STARK-based technology offers several key innovations over existing Ethereum scaling solutions. STARKs offer a way to use Ethereum permissionlessly at a high speed and low cost. STARKs are also the first cryptographic technology that allow proofs to be verified without any form of trusted setup.
Crypto Briefing caught up with StarkWare co-founders Eli Ben-Sasson and Uri Kolodny to hear about their plans to scale Ethereum on Layer 2, and they discussed how the technology offers security for users because it is completely trustless. “The math that we developed prevents anyone from stealing funds—it’s impossible,” Ben-Sasson said. “We can’t steal funds from our customers even if we wanted to, or even if we were hacked.”
“We can give Darth Vader or the Bogeyman access to our servers, and there’s still no harm that they could inflict on users’ ownership and custody of their assets,” Kolodny added.
StarkWare’s goal is to unlock blockchain technology’s true potential. While cryptocurrencies have attracted more mainstream than ever in recent months, blockchains like Ethereum are constrained by high costs and limited data availability. As a result, most newer users are currently priced out of the network. Other Layer 1 chains increase transaction throughput by running fewer yet more powerful validators. However, this method increases centralization as users need to trust a small set of validators for all transactions on the network. StarkWare is aiming to stay true to Ethereum’s founding principles of decentralization and accessibility through its scaling solutions.
Ethereum mainnet currently handles about 15 transactions per second, and more complex smart contract interactions can cost hundreds of dollars at peak congestion. StarkWare says that StarkNet will reduce gas fees by a factor of 100 to 200, while Ethereum co-founder Vitalik Buterin has previously stated that rollups like StarkNet will help the network achieve 100,000 transactions per second.
Staying True to Ethereum
StarkWare is currently responsible for proving and sequencing all transactions on StarkEx and StarkNet that are sent to Ethereum for confirmation. While this has some benefits, such as limiting the potential for MEV, it doesn’t fulfill the company’s vision of decentralization.
By the end of 2022, StarkWare plans to make the sequencing and proving software open to the public, allowing anybody to participate and secure transactions made on StarkNet. Ben-Sasson shared his optimism about the shift to community validation, stating:
“I think it will likely look very much like mining on Ethereum in the early days. You’ll have to get off your couch, learn a little bit, install some things, and run a server. But hopefully, you won’t need to build a facility in Iceland next to some geothermal plant or something. It’s going to be within reach.”
Like many other successful crypto projects, StarkWare will need to have an incentive structure in place to get people engaged with proving and sequencing on StarkNet. Similar to how miners receive block rewards and transaction fees for validating transactions, StarkNet will also incorporate similar monetary incentives. “There will be fees that will go to, among others, the operators, provers, and sequencers, and then beyond that, we’re deliberating on other approaches,” says Ben-Sasson. “It will be a fully decentralized network that will require coordination and governance mechanisms,” added Kolodny.
Crypto projects often issue tokens to achieve decentralization and add governance mechanisms. In 2021, several popular Ethereum projects such as dYdX, Ethereum Name Service, and ParaSwap launched their own tokens with airdrops for early users. Many Ethereum users have speculated that Layer 2 projects such as StarkWare will also issue tokens to encourage adoption, but Ben-Sasson and Kolodny did not shed any light on whether StarkWare was planning to launch one.
One of the key reasons for Ethereum’s success has been its commitment to decentralization and accessibility. Anyone with a few graphics cards can start mining blocks and validating transactions, and even running a node requires simple hardware. By emulating Ethereum’s accessibility, StarkWare is also refusing to compromise on decentralization as it works toward its vision of a secure and public scaling solution.
Security and Cost
StarkWare’s STARKs can be deployed in one of two data availability modes: Rollup or Validium. The differences between these two modes highlight the compromise between security and cost in Ethereum scaling.
In Rollup mode, every transaction or change of state on Layer 2 is “rolled up” together and sent to Ethereum mainnet in a validity proof, meaning that they all benefit from Ethereum’s security. As this method uses more data and thus more block space than Validium, it costs more gas.
On the other hand, Validium does not report every change in the Layer 2 data to Ethereum. Instead, it relies on a data availability committee to confirm they all have the same state, before signing off the transactions along with the Merkle root of the new state. The small compromise in security results in substantial gas savings compared to Rollup mode.
Currently, applications such as dYdX run STARKs in Rollup mode to take advantage of its enhanced security. As the dYdX exchange handles billions of dollars in trading volume, it makes sense to pay for extra security. While Rollup mode currently reduces transaction costs by a factor of 100 to 200, savings that will increase as more people use the network due to gas cost amortization, there is still a linear limit to how much they can scale. It’s with Validium, though, that the true potential of Ethereum scaling can be unleashed.
Validium uses validity proofs, meaning the network only needs to send a proof confirming the difference between two states back to Ethereum mainnet. For example, a proof could capture every transaction in a one hour period and demonstrate that all of the changes within that period are valid. As such, there is no limit to the number of transactions that can technically be included in the proof.As such, there is technically no limit to the number of transactions that can be included in each proof. “We do not know of an upper bound,” Kolodny remarked, explaining how the concept of Validium scaling blew his mind when he first learned of the details.
Additionally, when more transactions take place between the proof updates to mainnet, the gas cost gets split between more users. In other words, the more users Validium attracts, the cheaper the transaction fees become.
The NFT-based soccer game Sorare already runs STARKs in Validium mode to finalize transactions. As games are likely to be some of the most gas-intensive protocols on blockchains over the next few years, Validium’s limitless scaling offer huge promise for blockchain gaming. Kolodny said that some game developers have already started to see the potential of the technology. He explained:
“Gamers are telling us, in a very explicit fashion, ‘for the first time as a developer on the blockchain, I can actually focus on the game I want to build, as opposed to the computational resources I’m constrained by, or by the “gas ceiling” that’s hanging over my head. The question of ‘what was that game we wanted to build on Ethereum’ is not the relevant question; the real question is ‘what was that game that we actually dreamed of.””
StarkWare and Ethereum’s Scalable Future
StarkWare’s application-specific scaling solutions are already proving that STARK-based Layer 2 solutions could be a game-changer for Ethereum and the crypto space at large. StarkEx applications are already settling over six million transactions weekly, while the total value of transactions settled has surpassed $300 billion—orders of magnitude higher than other Ethereum Layer 2s such as the Optimistic Rollup solutions Optimism and Arbitrum.
Ethereum’s roadmap is geared toward building out Layer 2 to help the network scale (on the completion of Ethereum 2.0, it will also add 64 new chains called shards). Vitalik Buterin has long discussed how Ethereum of the future will leverage ZK-Rollups. Kolodny summed up StarkWare’s ambition to help the blockchain achieve scalability, commenting:
“What we’re doing with validity proofs is making the most succinct use of this public utility—the blockchain—that we are aware of, allowing others to use this resource in a far more effective fashion.”
The next step for StarkWare is to bring StarkEx’s scaling power to its multi-application network, StarkNet. Once launched, StarkNet will unlock more possibilities for scaling, including cross-Layer 2 bridges that immediately make funds available to end users. This should help pave the way for shared liquidity across multiple Ethereum Layer 2 instances, improving efficiency and the cost of capital further than any other Layer 2 scaling solution.
As the crypto space has grown over the last few years, Ethereum has soared in popularity. However, it’s also faced many well-documented scalability challenges. Thanks to StarkWare, the leading smart contract network may finally have a shot at becoming a truly scalable base layer for Web3.
Disclosure: At the time of writing this feature, the author owned ETH, IMX, and several other cryptocurrencies.
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Coinbase Chief Product Officer Surojit Chatterjee is the latest to publish his predictions for the crypto industry in 2022 and he foresees major advances in the scaling of Ethereum.
Industry leaders, analysts, and investors are sharing their 2022 predictions for the crypto ecosystem, and Coinbase’s Surojit Chatterjee is confident that Ethereum will be at the forefront of Web3 and the crypto-economy as it scales.
The CPO shared his predictions in a company blog post on Jan. 4 in which he stated that Ethereum scalability will improve but alternative layer 1 networks will also see traction.
“I am optimistic about improvements in Eth scalability with the emergence of Eth2 and many L2 rollups.”
He added that newer layer 1 networks focused on gaming and social media will also emerge. Chatterjee predicts that scalability will be vastly improved by advances in layer 1 to layer 2 bridges, adding that the industry will “desperately seek improvements in speed and usability of cross-L1 and L1-L2 bridges.”
These bridges enable tokens to be moved from a layer 1 network such as Ethereum to a layer 2 network such as Arbitrum and vice versa.
Referring to scaling technologies, the CPO specifically mentioned ZK-rollups stating that they will “attract both investor and user attention.” Zero-Knowledge scaling “rolls up” transactions data in batches for more efficient processing on Ethereum’s layer 1.
Firms such as Matter Labs have advanced in leaps and bounds in 2021 with the development and deployment of their rollup-based zkSync layer 2 platform.
The layer 2 ecosystem has undergone massive expansion in 2021 with a surge in adoption for all major platforms. According to L2beat, which tracks the L2 ecosystem, the total value locked surged by nearly 11,000% over the past year from around $50 million in January 2021 to $5.5 billion by the end of the year.
Related:Even with Ethereum 2.0 underway, L2 scaling is still key to DeFi’s future
Chatterjee predicted that there will be more privacy-focused applications emerging but this could attract more regulatory attention as more KYC/AML (know your customer/anti-money laundering) restrictions are enforced.
“We’ll see new privacy-centric use cases emerge, including privacy-safe applications, and gaming models that have privacy built into the core.”
Other predictions he made include more regulation industry-wide, larger institutional participation in DeFi, the emergence of more DeFi insurance, greater brand involvement in Metaverse and NFTs, and Web2 companies scrambling to get into Web3.
On Wednesday, Opera, an internet browser with Web 3.0 application support and a built-in crypto wallet, announced an upcoming integration with Polygon (MATIC). The integration, which is scheduled to go live in the first quarter of 2022, will first open Polygon’s ecosystem to Opera’s over 80 million users on the Android mobile, then to the rest on other devices and platforms. Polygon is a layer two Ethereum (ETH) scaling solution designed for lower gas fees and faster transaction times.
Through the integration, Opera users will be able to access Polygon decentralized applications, or dApps, such as Sushiswap, Curve, and Aave, as well as blockchain games and nonfungible tokens platforms such as Decentraland, Opensea, and Sandbox.
Jorgen Arnese, executive vice president of Opera Mobile, said the new integration will help “remove the biggest challenge that crypto enthusiasts” face — namely, high gas fees and slow transaction speeds.
Arjun Kalsy, vice president of growth at Polygon, added: “With this integration, Opera’s hundreds of millions monthly active users will be able to experience Polygon’s thriving dApp ecosystem and best in class Web 3.0 technology.”
Related: Brave to integrate with Solana blockchain on its privacy-enabled browser
Ethereum scaling solutions such as Polygon have become vital in recent years as the network can only handle about 15 transactions per second. In times of peak network activity, like when celebrities try to drop over 10,000 NFTs all at once, gas prices can soar to absurd amounts. Fees are even higher in decentralized finance protocols such as peer-to-peer borrowing and lending, where multiple smart contract confirmations are required for loan origination.
On Friday, Assembly, a decentralized layer one smart contract network built within the IOTA ecosystem, announced it had raised $100 million from private investors, including LD Capital, HyperChain Capital assembly, and Huobi Ventures.
The project stated that the funds will be used to accelerate the development of decentralized finance protocols, nonfungible tokens, and play-to-earn crypto games.
IOTA is a blockchain designed for facilitating internet-of-things transactions. Its proprietary technology consists of a system of decentralized acyclic graphs that can connect to one another in multiple vectors as opposed to in-series as with a regular blockchain. As a result, one new block can validate two other blocks, leading to self-sustainable transaction verification. This allegedly leads to the complete elimination of transaction fees and minimal energy cost.
The Assembly mainnet is currently scheduled to launch in early 2022 with a large community focus. 70% of its native ASMB tokens are reserved for developer incentives, community-governed decentralized autonomous organizations, and grant programs.
Meet $ASMB, a token to fuel innovation and growth. The vast majority of tokens are designated to ignite #Assembly’s ecosystem growth and to reward the @iota community.
In a statement to Cointelegraph, Dominik Schiener, co-founder and chairman of the IOTA Foundation, claimed that there are too many Ethereum Virtual Machine, or EVM, blockchains stating:
“Ultimately, all of them will face the same problems with fees, scalability, and interoperability. Most of them will fail in the long term as they offer nothing unique.”
When asked about the uniqueness of the Assembly blockchain, Scheiner feels that it all comes down to flexibility:
“Each smart contract chain can be fully customized to the project’s needs. In addition, Assembly is already fully EVM-compatible, and has support for WASM [WebAssembly], plus Go, Rust and TypeScript as optional smart contract languages.”
Billionaire investor Stelian Balta, founder of HyperChain Capital, said:
We always needed a feeless, highly scalable network for developers to build highly scalable apps in the crypto ecosystem. Assembly does that. They have been pioneers in the crypto ecosystem since 2015, and we are confident in their experience and their vision for the next decade.
Matter Labs has announced a major new funding round to further develop the second version of its Ethereum-based rollups, zkSync.
On Nov. 9, Matter Labs announced it had secured $50 million in a Series B round led by Andreessen Horowitz and included participation from existing investors Placeholder and Dragonfly Capital. The new round follows Matter Labs’ $6 million Series A in February, and saw participation from many new investors including Crypto.com, ConsenSys, and OKEx.
The new cash injection will be channeled into further developing zkSync v2, the firm’s second-layer rollups solution for Ethereum that is currently focussed on facilitating low-cost payments.
Rollups are a second-layer scaling solution that “rolls up” transactions data in batches for more efficient processing on Ethereum’s layer-one. Matter’s zkSync solution uses zero-knowledge proofs to minimize the data held in these bundled transactions and thus reduce the computing and storage resources required to validate blocks
zkSync v2 will build on the current iteration by supporting Ethereum Virtual Machine (EVM) composable smart contracts. Dan Boneh, Professor of Computer Science at Stanford, explained:
“zkSync will enable Ethereum transactions at a much higher rate and lower gas fees than mainnet. The math used by Matter Labs is really quite beautiful, and it is remarkable to see this coming to fruition at a massive scale so soon.”
The first version of zkSync v2 is currently live on testnet with a port of Uniswap v2 dubbed “UniSync” that users can experiment with. The platform has processed more than 2 million transactions since launching in June.
Related:Ethereum layer-twos reportedly processing more transactions than Bitcoin
Matter Labs was an early proponent of rollups, having launched the first-ever public zk-rollup prototype in early 2019.
Ethereum co-founder, Vitalik Buterin, is confident that layer two solutions such as zkSync will solve the network’s scaling issues until sharding is rolled out sometime in late 2022.
In a blog post in January, Buterin predicted that zk-rollups will emerge as Ethereum’s dominant scaling solution over “the medium to long term in all use cases.”
We’re going to go over the Lightning Network: how it works, how it makes Bitcoin scalable and how it fits in with the larger Bitcoin network.
But before we talk about the Lightning Network, we need to talk about Layer 1: Bitcoin’s blockchain.
The blockchain is a public ledger that keeps a record of all of the transactions that people make with their bitcoin. So, if you send bitcoin to someone, that transaction is going to appear on the blockchain.
Now, there are a few tradeoffs that are made when using Bitcoin’s base layer. First off, it can only process about seven transactions per second, and it takes about 10 minutes on average for those transactions to confirm in the next block. There is also a transaction fee that must be paid out to the miners for processing that transaction.
So, it’s pretty obvious that Bitcoin needs to have faster transaction throughput and lower transaction fees if it wants to be scalable to a global audience.
This is where a Layer 2 protocol, the Lightning Network, comes in.
How Does The Lightning Network Work?
The Lightning Network is a second layer that operates on top of the Bitcoin blockchain, and anchors directly into it. And it can handle millions of transactions per second cheaply and efficiently.
We’re going to illustrate the Lightning Networking by comparing it to opening a tab at your local bar.
Instead of swiping your card and settling the balance each time you order a beer…
Settling for each transaction
… it makes sense to save time, energy and fees by tallying all of your drinks together at the end of the night and making the final settlement in one payment.
Running a tab
This is similar to how the Lightning Network operates.
Now, let’s say that your bar was operating on the Lightning Network.
When you want to start a transaction, you would open a payment channel with the bar. This payment channel is similar to a running tab. So, when you start buying drinks, those transactions would get recorded on the payment channel, the same way that they would get tallied on a bar tab. Now, it’s important to remember that it’s not just IOUs that are being transferred on the payment channel as they would be on a bar tab. Bitcoin is being transferred, so you are paying the bar in real time for your drinks. Those transactions are just not being recorded on the blockchain. Rather, Bitcoin is just bouncing between you and your bar via the payment channel.
A Lightning Network payment channel
And when you close the payment channel, the final settlement of bitcoin each party has is broadcast to the blockchain, which finalizes all of your transactions.
Closing and settling a Lightning Network payment channel
Now that you know how the Lightning Network works, how does the Lightning Network fit in with the blockchain?
How Does The Lightning Network Fit With The Bitcoin Blockchain?
Well, as we’ve already discussed before, the Lightning Network operates separately from the blockchain, but it is still anchored to it. Lightning Network is where transactions happen, and the blockchain is where those transactions are finalized.
So, during your month-long adventure at the bar, you only made two actual transfers on the blockchain. The first transaction is when you funded the payment channel with bitcoin to open it, and the second is when you closed the payment channel. But between those two transactions, you could have made an infinite amount of transfers within your channel on the Lightning Network.
But by conducting those potentially infinite transactions on the Lightning Network rather than on the blockchain, we lessen the burden on the blockchain, improve transaction rates for everyday purchases and keep transaction fees low.
Now, you may be thinking that setting up a payment channel with the hundreds of businesses that you patronize could be tedious. But this is where the Lightning Network really shines. You don’t need a direct payment channel with someone in order to pay them. You can pay people and businesses through intermediary channels on the network.
Lightning Network payment. channel routing
Let’s go back to our Lightning Network bar example to illustrate this further.
Say you bring your friend, Bob, with you to the bar. Bob doesn’t have a payment channel open with the bar, but he does have one with you. Bob can still pay the bar through your payment channel. This would be like Bob buying beers on your tab and paying his bill to your Venmo.
Lightning Network routing intermediary
This is what makes the Lightning Network so scalable. It finds the fastest path between two parties to record everyone’s transactions and makes sure everyone gets paid accordingly. So, instead of having hundreds of payment channels for every business you patronize, you only need a few, and the network will take care of everything else automatically.
So, that’s Bitcoin’s Lightning Network. It combines speed and security with minimal fees to make Bitcoin scalable to a global audience and the most efficient payment system in the world.
