A famous crypto founder explained why pioneering altcoin Ethereum layer-2 scaling solutions will be important in 2022. He also shares why developers are sticking with Ethereum despite the rise of other tier-1 platforms this year. Zachary Williamson is the co-founder of Aztec Network, the first private ZK roll-up on Ethereum. It explains why Ethereum layer-2 solutions will become a bigger issue in the next year. He shares why developers are stuck with Ethereum despite the rise of other layer one protocols. Detail cryptocoin.com‘in.
Notable altcoin projects
Layer one protocols like popular altcoin Solana (SOL) and AVAX dominated the headlines this year. Now, many crypto experts expect Ethereum (ETH) layer-2 scaling solutions to shine in the next year. The narrative about the growth of second-layer platforms on the Ethereum blockchain, aimed at making transactions faster and gas fees cheaper, is already emerging. Layer one protocols refer to underlying blockchains like Bitcoin and Ethereum, while layer two networks are often third-party integrations that can be combined with layer one blockchains to increase their scalability and efficiency. Examples of Layer-1 coins are Solana (SOL), Cardano (ADA), Polkadot (DOT), Terra (LUNA), Avalanche (AVAX), Algorand (ALGO), Tron (TRX), Phantom (FTM), Elrond ( Cryptocurrencies such as EGLD) and Kadena (KDA) can be issued.
Aztec Network, a privacy-focused scaling solution on Ethereum, announced on Thursday that it has raised $17 million in a Series A funding round led by Paradigm and involving investors including Ethereum co-founder Vitalik Buterin. ConsenSys, the world’s largest blockchain software company, said that same day it collaborated with payments giant Mastercard to launch a scaling solution on Ethereum. There are two main types of Tier-2 scaling solutions: (1) optimistic rollups such as Arbitrum and Optimism, and (2) zero-knowledge (ZK) rollups such as zkSync and Aztec Network. Total value locked in optimistic rollups and ZK roll ups rose to $3.3 billion and $1.9 billion, respectively, according to The Block Research’s Digital Asset Outlook 2022 report. “Combined with Ethereum 2.0 shard chains planned for 2022 and the possibility of token distribution to decentralize L2 sequencer nodes, aggregations are poised for even greater adoption in 2022,” the report said.
Advantages of privacy-focused scaling solutions
According to Aztec Network co-founders Zachary Williamson and Joe Andrews, ZK roll-ups not only allow for cheaper and faster transactions, but also help protect users’ privacy. Andrews said in an interview, “Zero knowledge proofs are succinct and also proof of knowledge. “You can use this not only to compress the information sent to the chain, but also to hide certain parts of it,” he said. While the benefit of cheaper and faster transactions is easy to understand, the need for privacy to run financial activities on blockchains doesn’t come intuitively. After all, blockchain needs to make data and information transparent. However, Williamson thinks it is precisely the lack of privacy that is preventing the mass adoption of blockchain technologies by the mainstream. Williamson says:
People won’t be using a blockchain like Ethereum to pay US dollar payments instead of Visa, MasterCard network if everything is public. If people’s Amazon payments, salaries, and mortgage payments are all fixed and transferred through a public ledger, it’s not really going to be effective.
With a privacy-preserving scaling solution, users could one day pay 1 pence to transact on a decentralized blockchain instead of 2% to transact with a centralized network. According to CoinGecko pricing, most Ethereum layer two networks do not have token distributions, except for the popular altcoin Polygon (MATIC) and Loopring (LRC), which have yielded 10,883% and 1,152% yields respectively over the past year.
DeFi: Peer-to-peer financial system primarily based on Ethereum
Despite the rise of rival smart contract platforms this year, Ethereum is still the most mature and liquid platform for founders like Williamson and Andrews. According to DeFi Llama, as of Thursday afternoon, the total value locked in decentralized applications on the Ethereum blockchain was $163 billion, while there was a total value of $250 billion locked in DeFi applications across all blockchains, according to DeFi Llama. Andrews says:
On Ethereum, you now have a large amount of financial activity, margin loans, large trading and matching. Confidentiality is becoming a prerequisite for actually doing business on the chain. If another chain reaches the same level of maturity and mature financial products are built there, we can easily implement it.
Ethereum also provides users with a kind of liquidity that makes privacy essential. Williamson says:
Privacy is meaningless without liquidity. Before your anonymity starts to matter, you need some meaningful value to stick around. Ethereum is currently this crucible of innovation. It is the nexus of all this financial creativity happening in the blockchain ecosystem, which means all users are there. Where all the money is.
As a result, traders can enjoy the privacy of protecting their portfolios or trading strategies from the public eye, while users living under authoritarian regimes can hide their finances from abusive forces, he added.
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