Autor Cointelegraph By Andrew Fenton

The past few weeks have seen a wave of zero-knowledge proof project launches, including Polygon’s zkEVM and Matter Lab’s zkSync Era on mainnet, and the Linea zkEVM from ConsenSys on testnet.

They join StarkWare’s long-running StarkEx solution and its decentralized cousin StarkNet along with a variety of other projects in development from Polygon (Miden, Zero, etc.) and Scroll.

They all promise faster and cheaper transactions to scale Ethereum using zero-knowledge proofs.

But is the brutal competition between ZK-rollups a zero-sum game where there can be only one winner? Or are we looking at a future in which lots of different rollups are able to work in harmony and interoperably?

Anthony Rose, head of engineering for zkSync, thinks the latter future is much more likely and predicts that one day, no one will think about which ZK-rollup they are on because it’ll all just be infrastructure. 

“I think that if we don’t get to that world, then we’ve probably failed,” he says. “It’s the same way as somebody using Snapchat or Facebook doesn’t really have to know about TCP/IP or HTTP — it’s just the plumbing of the way the internet works.”

But how do we move from a bunch of competing sovereign rollups to an ecosystem of ZK solutions that are interoperable and composable? 

People are already starting to think about this question, and all of the ZK projects Magazine spoke to have plans to make their projects interoperable with at least some other rollups — although the extent to which that can happen likely depends on the development of standards and protocols.

Attack of the zkEVMs! Crypto’s 10x moment

Also read: Attack of the zkEVMs! Crypto’s 10x moment

Zero knowledge about ZK-rollups?

If you’re unfamiliar with the term “zero-knowledge proofs” — which StarkWare insists should be called “validity proofs” — they’re a way to scale Ethereum using cryptography. Rollups take the computation for tens of thousands of transactions off the main blockchain and write a tiny cryptographic proof back to Ethereum that proves the computation was carried out correctly.

“Every proof we generate covers roughly 20,000 transactions and fits inside a single block of Ethereum,” explains StarkWare co-founder Eli Ben-Sasson.

Despite this increase in transactions per block, zkSync’s Rose doesn’t think Ethereum can come close to scaling up to become the base layer for everything via a single rollup.

“A ZK-rollup on its own will not scale to the world that we’re talking about,” Rose says. “If we think that applications with some interactions on the blockchain are providing value to hundreds of millions of people, the scalability problem is still there to be solved.”

Scaling is a little like internet bandwidth, in that the more you get, the more you realize you need. Back in 2017, Ethereum planned to scale using “Eth2” sharding. This roadmap was then ripped up after ZK-rollups emerged in 2018 and promised vastly greater scaling, but only if Ethereum upgraded the blockchain with a different form of sharding (proto danksharding and then danksharding) to enable the ZK-rollups to achieve higher throughput.

Even then, Rose says it’s likely rollups will need to work in collaboration. “This is a big active area of research for us,” Rose says of interoperability. “As the systems mature as well… I think, naturally, this is kind of the pattern that these systems suggest.”

Ethereum scaling is some way off

It’s the early days yet for scaling, however. Although various solutions claim they can theoretically hit tens of thousands of transactions per second (or even talk about “unlimited” scaling), in practice, they’re hamstrung by data availability on Ethereum.

At present, between them, the various Ethereum scaling solutions and Ethereum are running at about 25 transactions per second (TPS). Ethereum itself has performed an average of about 12 TPS over the past month, Arbitrum One was at 7.2 TPS, Optimism at 2.65 TPS and zkSync at 1.6 TPS, according to ETHTPS.info. 

These numbers move around a bit and are low mostly due to demand rather than capacity. StarkEx is not covered, but StarkWare tells Magazine it averaged 5 TPS over the past month. 

Despite supply outweighing demand so far, interoperability between rollups would already be helpful to ensure that users don’t get stuck in walled gardens. Optimistic Rollup users, for example, have to wait a week to withdraw funds, which rather limits interoperability.

ZK-rollups don’t have that limitation and can allow instant withdrawals (but don’t).

ZK-rollups are ‘the endgame’ for scaling blockchains: Polygon Miden founder

Also read: ZK-rollups are ‘the endgame’ for scaling blockchains: Polygon Miden founder

Interoperable ZK-rollups are possible, but is it probable?

Bobbin Threadbare, founder of Polygon Miden, says interoperability between ZK-rollups is certainly technically possible, but “whether it will happen in practice is a different question.”

He explains that withdrawals aren’t instant yet because it’s not financially viable to put proofs on Ethereum that frequently, so transactions are fired off roughly every 10 or 20 minutes. As demand and throughput go up, this delay will become quicker and quicker.

“And in that case, you get closer, closer and closer to this instant kind of movement between different places,” he says. 

“The second thing is that different rollups will have to have some kind of incentives to say, ‘Okay, let’s figure out how we can seamlessly move things from this to that.’” 

Threadbare adds, “Very fast interoperability between ZK-rollups is technically possible, but a) People need to agree on standards, and b) They need to actually implement these standards in their systems.”

“And I think that’s a much, much more complicated thing to do.”

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Interoperability is not composability

There’s a difference between “interoperability” and “composability” — although people often use them interchangeably.

Interoperability is easier and basically involves being able to move funds from one layer-2 (L2) solution to another. “By this definition, at least all of the rollups which share an L1 today already are interoperable!” notes Optimism co-founder Ben Jones. 

Arbitrum’s Patrick McCorry also says that for basic interoperability, you can already send an asset from one rollup to another via Ethereum — it’s just slow.

“Or you could have some off-chain solution, maybe like Hop protocol, where there’s someone in the middle who you give them the assets from StarkWare and then you take the assets to Scroll, and they provide some way to synchronize. So, there’s ways to do that,” he says.

Hop Protocol currently allows users to send funds between Ethereum, Polygon, Gnosis, Optimism and Arbitrum, though ZK-rollups aren’t currently supported. Connext offers a similar service, including BNB. A cross-chain DEX and bridge aggregator called Rango already connects StarkNet to other L2s.Also read: Ethereum is eating the world — ‘You only need one internet’

Declan Fox, product lead for the ConsenSys Linea zkEVM, expects support will be added soon. “Many third-party bridge providers will continue to offer interoperability solutions for ZK-rollups,” he says, adding that bridges have drawbacks around trust and fees.

“At Linea, we value open systems and interoperability highly. The Linea testnet has already integrated many of the leading bridging solutions for this reason. In the future, Linea will be able to trustlessly interoperate with any of the layer 3 off-chain systems deployed on top of the layer 2 through their validating bridges.”

6/16) The case of two users exchanging value within an L1 is simpleSimply scan the other user’s QR code & press send, as long as they are also using ETHIn the case of L2s, this is not so simple, as the user now needs to know what L2 their friend is on & how to bridge between— Justin Bons (@Justin_Bons) April 10, 2023

MetaMask Snaps might help

Another possibility for interoperability is via the browser wallet MetaMask. ConsenSys is in the midst of developing new crowdsourced wallet extensions called Snaps that projects can develop that extend the capabilities of MetaMask.

MetaMask senior product manager Alex Jupiter says Snaps are still in the testing phase, “but if we imagine a future where you know Snaps is stable, developers can extend it in all manner of ways. Of course, the next step is to get these different Snaps talking to each other. So, one ZK-rollup can talk to another ZK-rollup, right? And that’s part of the vision of Snaps, and yeah, we want to make that world possible.”

One Snap that has been demoed already enables MetaMask users to control Bitcoin via their Ethereum wallet, so getting ZK-rollups talking to each other certainly seems achievable.

“Who knows where bridging is gonna go in the future as well. I’m not an expert on ZK-rollups, but I don’t think there’s a core technical limitation of that being a problem in the future.”

Messari slide highlighting “composable rollup ecosystems with shared infrastructure.”

ZK-rollups and composability

Composability is the ability to initiate a transaction that involves operations on more than one different rollup. Jones calls it “a stronger form” of interoperability “where chains can do more than just communicate asynchronously with each other but actually have transactions, which are aware of the state of each chain in some more ‘real-time’ manner (think cross-chain flash loans).”

This is likely to require the development of new standards and protocols, and Rose says that the sooner this happens the better. 

“It is a strictly better user experience if teams can build through an interface, and we can attempt to have more standardization. I think there is appetite for some of this standardization as well, and I do think we will see more of it as these systems mature.”

Fox says that “to get to a point where we have synchronous composability, there will need to be a globally sequenced and ordered set of transactions across the different off-chain systems. This is theoretically possible with ZK-rollups thanks to SNARKs [a type of ZK proof] where, for example, a common sequencer could offer a UX of unified execution and pooled liquidity,” he says.

“Imagine making a DeFi trade where parts of the trade are executed on different chains for optimal liquidity all within the same transaction.”

Base layer advertisement from Coinbase. (Coinbase)

Optimistic about the Superchain

One potential coordination method might be Optimism’s Superchain concept, which it announced at the same time Coinbase unveiled its base layer-2 fork of Optimism. 

Optimism is an Optimistic Rollup, which is another way to scale Ethereum, though more limited in potential throughput. According to the announcement:

“The Superchain seeks to integrate otherwise siloed L2s into a single interoperable and composable system.”

Jones tells Magazine, “There is no silver bullet,” but there are a couple of requirements for interoperability and composability the Superchain aims to address:

Shared Sequencing: “To have a system where you can do a cross-chain flash loan, at the very least, at the time when that transaction is being processed, it needs to be included in both of the chains reliably. This requires some notion of sequencers being able to communicate, merge or otherwise network together.”

Separation of Proving and Execution: “Different applications have different security requirements, and those security requirements impose different kinds of restrictions on what interoperability properties can be achieved. By de-coupling the computation of chain state from the proving of cross-chain messages, we can maximize the interoperability of applications without fragmenting them to other chains.”

He says the Superchain can connect optimistic and ZK-rollups as well as other chains, providing a shared, modular “standard for all these innovations to happen on.” 

“It is going to be far easier to make these chains interoperate when they are built on the same codebase, compared to interoperating chains, which were written separately from the ground up,” he says. 

However, underscoring Threadbare’s point about political issues being more complicated than technical issues, Arbitrum CEO Steven Goldfeder dismissed the concept out of hand.

“The notion that we’re going to sort of coalesce on one particular technology stack — a technology stack that’s not even built out today, that doesn’t have the core features that make it a layer 2 or make it a rollup — the notion that we do that is, I think, a bit presumptuous,” he told The Defiant.

Why connect ZK-rollups with Optimism?

And Arbitrum is built using Optimistic Rollups. It might be even harder to convince ZK-rollups with their higher potential throughput, to coordinate via Optimism. To some it might seem like connecting fiber optic cables together with copper wire.

All the L2s make this claim though (Coinbase)

However, Optimism is laying the groundwork to incorporate ZK proofs (validity proofs) in its systems with the Bedrock upgrade, and the Superchain will take this idea even further. “Compatibility there is the goal,” says Jones.

Other potential coordination methods are the Inter-Blockchain Communication Protocol from Cosmos or “modular blockchain” Celestia (though the latter seems to be trying to replace Ethereum as the data availability layer).

But ZK-rollups could also connect directly with each other. 

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Polygon ZK-rollups will be interoperable

Polygon has a variety of flavors of ZK-rollup possible in development. They include Polygon Miden (similar to StarkNet), the Polygon zkEVM (compatible with existing EVM projects), Zero (recursive scaling) and Nightfall (Optimistic Rollups meet zero-knowledge cryptography).

Threadbare says that coordinating internally to hook up Polygon’s ZK solutions is easier than coordinating with outside projects, and he believes the technical challenges are doable. The team is working on the LX-LY bridge to enable this interoperability already. 

“Because we are all part of the same company, then the technical integration becomes much easier to solve,” he says. “Moving between these rollups will be super, super simple.”

“The friction, it’s not two separate chains or three separate chains. It doesn’t appear like that. It’s just one Polygon that settles on Ethereum. And moving assets or funds or tokens between these different environments is super, super straightforward and easy. That’s the end game.”

Ethereum is eating the world. Metaphorically that is.

StarkEx and StarkNet

StarkWare’s Ben-Sasson says they are building similar interoperability between StarkEx and StarkNet.

“Yeah, definitely. We’re gonna be porting the StarkEx systems to be layer 3s over at StarkNet, and, at some point, for them to be solutions on top of StarkNet. That’s definitely the plan,” he says.

Back in 2020, StarkWare released a blog laying out its plans for interoperability, but Ben-Sasson says that has been superseded. StarkWare’s Cairo is a Turing-complete language and virtual machine, which makes it similar in capability to a general-purpose computer.

“A good analogy is to think of a layer 2 or a layer 1 as some computer that is just a bit slower than your laptop, but it has a lot of integrity and safety,” he says. “So, you can start just connecting these computer programs in various ways. Just like today, computers talk to each other and inter-operate or compose.”

To get computers to talk to each other over the internet, a set of standards like TCP/IP and HTTP were developed. Ben-Sasson agrees that’s the likely path for connecting validity-proof rollups, too.

Cointelegraph explainer on STARKs v SNARKs

Perhaps ZK-rollups can connect direct

StarkNet isn’t working on standards like that at present, but Ben-Sasson suggests there may be other paths to interoperability. He says smart contracts can be written to interpret the different types of incompatible proofs used by different rollups. StarkNet uses STARKs as the name suggests; zkSync uses SNARKs, for example, while Polygon Zero uses recursive SNARKs called PLONKs.

“Someone already wrote on StarkNet a smart contract that allows you to verify a Groth 16 SNARK,” he says. 

ZKPs might disrupt the design of the blockchain execution layer. Why bother with specialized languages, when you can just submit a proof of any computation in any language?— Jake Brukhman (@jbrukh) April 15, 2023

This means the two rollups can communicate directly.

“As long as you can, in chain one, verify the proofs of chain two, you can start having interoperability. StarkNet is already able to verify STARKs, and now also Groth 16 SNARKs, and I’m pretty sure that very soon, we’ll have things like, you know, PLONKs and Plonky and other kinds of systems.”

“So, at least in StarkNet, it should be relatively straightforward to be able to prove things happened correctly in other chains, and you can start having interoperability.”

Fox tells me separately that Linea’s system “is already using the EVM to verify proofs (Groth16, PlonK, etc.) in a smart contract,” which he says can make it interoperable with L3s.

Ben-Sasson says it seems likely that StarkNet would be able to connect to different rollups directly.

“You can do it directly. You can do it because it’s a general-purpose computer and because of the validity rollup nature, right, that you can just have these systems talking to each other.”

So, it sounds like the future is interoperable and composable.

“Yes, it definitely is interoperable and composable. Yes. Definitely.”

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Andrew Fenton
Based in Melbourne, Andrew Fenton is a journalist and editor covering cryptocurrency and blockchain. He has worked as a national entertainment writer for News Corp Australia, on SA Weekend as a film journalist, and at The Melbourne Weekly.

Follow the author @andrewfenton

ZK-rollups are the hottest thing in Ethereum right now, having seemingly appeared out of nowhere in late 2018 to fundamentally reshape the “Eth2” plan to scale via sharding alone.Zero-knowledge, or validity proof rollups, essentially perform the computations for many thousands of transactions away from Ethereum and then write a tiny cryptographic proof back to the blockchain that verifies those transactions were performed correctly. It’s much faster and cheaper than using the base layer and has the potential for virtually unlimited scaling.

To an outsider, it looked like the technology went from 0 to 100 in a couple of years, but from the perspective of Polygon Miden founder Bobbin Threadbare, it doesn’t seem fast enough.

“Your internal perception is that it’s moving slowly,” he says. “People say, ‘We’re going to be doing this in a year,’ and it takes longer because people overestimate [how quickly it can be done].”

“But if you take a step back out of your own bubble, I do think that the tech is moving at an amazing pace. A lot of the things we’re doing now did not exist 10 years ago — or even maybe like eight years ago — they were just theoretical concepts.”

“So, it’s not often that you see that something goes from pure theory — that is probably not practical or ‘maybe we can do it in the long term future’ — to ‘OK, we’re doing it now, and there are now billions of dollars riding on it.’”

Polygon Miden at StarkWare Sessions

Magazine catches up with Threadbare at the StarkWare Sessions in Israel. Since Polygon Miden is a competing ZK-rollup solution to StarkWare’s tech, this is a little like interviewing the CEO of Pepsi at a Coca-Cola convention. But it turns out zero-knowledge proofs are not as cutthroat as sodas.“On the technical side, there is a lot of collaboration,” Threadbare explains. “If you follow Twitter, you may get an impression that people are at each other’s throats all the time, but you know, it’s Twitter more than anything.”

He points out that all of the projects are building open-source technology (or plan to make it open-source). “We’re not building like Web2 walled gardens here,” he says, adding that various projects “don’t necessarily perceive other rollups as their technical competitors; we learn from each other more.”

Polygon’s crack team of co-founders, including Threadbare back row, second from the right. (Twitter)

Polygon is the 8th-most valuable project

Polygon’s MATIC became the eighth-most valuable cryptocurrency in the world thanks to its current Ethereum scaling solution, but Polygon’s founders knew ZK-rollups could potentially render the network obsolete and spent some of their massive war chest on a ZK tech acquisition and hiring spree.

The Polygon team’s approach is essentially to throw a lot of stuff at the wall and see what sticks. Their zkEVM project has just launched on mainnet in beta, and it enables any Ethereum Virtual Machine-compatible project to scale on its new network.

Other ZK flavors at Polygon include Zero (recursive scaling), Hermez 2.0 (an EVM-compatible solution focused on decentralization and a proof-of-efficiency consensus) and Nightfall (Optimistic Rollups meet zero-knowledge cryptography).

Threadbare, who was working for Facebook at the time, was headhunted to develop his open-source ZK technology into Miden.

“This strategy made sense to me; the space is very early,” he says. “I mean, in all honesty, they didn’t even require that I use STARKs, or SNARKs, or anything.” STARKs (zero-knowledge Scalable Transparent Argument of Knowledge) and SNARKs (Succinct Non-Interactive Argument of Knowledge) are the two different types of ZK proof systems.

“They were very open to whatever technology because nobody had the answer. Hopefully, now we have more of an answer than we did like a year or two years ago.”

What is Polygon Miden?

Polygon Miden is essentially the Polygon version of StarkNet. It enables a bunch of transactions to be processed off the main blockchain, and then “validity proof” demonstrating the transactions are computed correctly, to be written back as a single transaction on Ethereum.

STARKs have some advantages over SNARKs in that less trust is required for the setup, and they’ll be resistant to quantum computer attacks. However, STARKs have much, much larger validity proof sizes, which is more expensive to write back to Ethereum.

In another similarity to StarkNet, which uses the Cairo programming language and virtual machine instead of Solidity and EVM, Miden uses its own virtual machine. For both projects, this is a gamble, as it makes it more difficult for Ethereum projects to port over to the rollup. On the other hand, it means Polygon Miden can scale faster and further by enabling it to escape Ethereum’s constraints.

“Within Polygon, we do think about How do we expand Ethereum?, and there are multiple dimensions,” Threadbare says. “So, scaling is one dimension but also features and other things that are not easy to do on Ethereum, such as privacy and parallel processing, would be another dimension, and this is where Miden comes in.”

Magazine later asks StarkNet co-founder Eli Ben-Sasson for his assessment of his competitor, whom he’s known since the first StarkWare Sessions four years earlier.“I think Miden is amazing,” says Ben-Sasson. “I have a lot of respect for all of those working within the framework of general validity proofs.”

“Having said that, and with all due respect, I do think that, as far as VMs and feature-laden compute frameworks go, I think that Cairo is better. And I’ve said so to Bobbin.” Threadbare isn’t a cryptographer; he’s a hands-on builder and says the instant he learned about ZK-rollups, he knew it would be the answer to blockchain scaling because it removes one of technology’s greatest inefficiencies — requiring everyone on the network to process each transaction.

“Once I learned about ZK tech, it became almost obvious that this is going to be the end game. Because in the blockchain, basically, you have the same computation that everybody has to reexecute. And this is so wasteful. When you see this technology where you only have to execute once and everybody can verify your computation exponentially faster, that’s almost like an obvious thing that needs to be done.”

Threadbare operates under a pseudonym but is not a shadowy anon coder. (Supplied)

Run smart contracts locally with Polygon Miden

With Polygon Miden, anyone will be able to run a smart contract locally and just send the proof to the network, which enables transactions to be run in parallel, rather than sequentially. If Polygon Miden had stuck with the EVM, that would be very difficult, and that limits throughput.

With Ethereum currently processing a dozen or so transactions a second, that’s not a problem, but when TPS ticks over into the thousands, it will be. “You need to be able to process transactions in parallel because, in a single thread, there’s only so much you can do,” he says. “I don’t think you can go much more than a few thousand TPS without parallelizing things.”

“Being able to execute transactions locally means you can run arbitrarily complex computation, and it places almost no burden on the network,” he explains, pointing out that running a 3D physics engine is impossible on Ethereum right now, but will become possible with Polygon Miden. “The design space opens up,” he says. “That enables a bunch of new use cases, but it also helps with privacy if I don’t have to actually reveal the computation.”

Like zkSync Era and StarkNet, the plan is to launch with a centralized prover and then gradually decentralize. Eventually, all of Polygon’s ZK solutions will become interoperable, with MATIC remaining the key token. However, native account abstraction means users could pay with other major tokens, too.

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Who is Polgon Miden founder Bobbin Threadbare?

Threadbare (not his real name) was born in the Republic of Georgia in the dying days of the USSR in the 1980s. He moved to the United States when he was 17 to study computer science in San Diego, later attending business school at the University of Chicago. He was a consultant for five years before he launched a Web2 startup that calculated user trustworthiness and reputation scores for things like P2P transactions. He started exploring blockchain in 2018 as a way to avoid having to store a large database of user information.

“Self-sovereign identity is one of the things that was very interesting to me,” he says. 

“And then I got very deep into the technical aspects and then came across zero-knowledge proofs. Once I understood what they can do, the identity use case wasn’t all that interesting anymore. I thought there are much bigger and more interesting things you can do with them.”

He stumbled across a blog about STARKs by Ethereum co-founder Vitalik Buterin, and that set him off down the rabbit hole. “He actually had a code written that demonstrates a very basic proof-of-concept of how it works — and that was, for me, very, very useful.”

Threadbare took the code and rewrote it in another language so he could understand how it worked from the inside out. A born tinkerer, he started improving aspects to make them more general. Before long, he’d built a basic general-purpose prover for STARKs and posted it on Eth Research.

Threadbare’s post on Eth Research back in June 2019. (Eth Research)

“A lot of people were interested in zero-knowledge proofs at that time, but there were not a lot of tools, especially around STARKs. And I just got lucky in the thing that I picked to learn and build on because it fascinated a bunch of people.”

“Even Vitalik himself basically sent me a message on Eth Research, saying, ‘Hey, who are you? What are you doing?’” It was Buterin who introduced him to StarkWare, and they invited him along to the first StarkWare Sessions four years ago. 

Threadbare started creating ZK tools and libraries. He developed the AirScript and AirAssembly domain-specific languages, which in turn led him to develop the Distaff Virtual Machine in early 2020 so people could code without having to learn those new languages.

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Facebook experimented with ZK-rollups

But as the pandemic started, he took up a job as a core ZK researcher for Facebook, working on the Libra cryptocurrency project. Part of the appeal was working alongside and learning from “real” cryptographers, and he helped build the open-source Winterfell STARK prover and verifier.

Facebook didn’t actually need one or plan to use it. “I don’t want to say that it was just for the hell of it,” he says. “The thought was it was going to be used at some point in time. But it was probably fairly clear this is not going to be used in the next two to three or maybe even five years time frame.”

Ultimately, regulators did not approve of the social media giant launching a private currency, and Libra transformed into Diem and then quietly disappeared. Around the same time in 2021, Polygon co-founder Mihailo Bjelic was assembling his crack team of ZK developers and remembered the shadowy anon who’d posted a bunch of useful ZK tech like Distaff on Eth Research. So, he got in touch, totally unaware Threadbare was working at Facebook.

For his part, Threadbare was totally unaware Polygon even existed but started holding regular calls every couple of weeks with Bjelic to talk about their scaling plans and sketch out a possible collaboration.

Polygon zkEVM? Nope, Polygon Miden is something else

They discussed building a ZK EVM, but Threadbare was keen to use his own virtual machine and combine STARKs with the power of recursion. That’s where you take a bunch of validity proofs, each representing a bundle of transactions, and produce one validity proof that proves all other validity proofs were done correctly. Suddenly, the fact the STARK-proof size is 50–100 times bigger than a SNARK-proof size was a lot less important.

“That’s one of the reasons I went the virtual machine route because if you have the VM, it’s much easier to have this infinite recursion because if you think about it, when you have a virtual machine that is Turing-complete, it basically it can execute any program.”

“You just write a program that verifies itself, and you kind of have infinite recursion at this point in time. And that was appealing to me.”

This talk of infinite recursion recalls Declan Fox, product manager for rollups at ConsenSys, who told Magazine last year that ZK-rollups and recursion meant it was “theoretically possible” for the entire world’s financial system to run on Ethereum.

Infinite scaling is unfortunately still limited by data availability on Ethereum — which refers to how much data needs to be, and can be, written back to the chain. The new rollup-focused roadmap will increase the amount of data each block can carry by 160 times. Even that probably won’t be enough.

“There are still limitations like nothing is infinite,” he says. “Assuming the blockchain and the crypto space succeeds… the demand for TPS will be hundreds of thousands or maybe millions of TPS eventually, so I don’t know if the base layer will always be able to provide this much data availability.”

But he’s very hopeful we’ll see a huge amount of adoption within the next 10 years. 

“Hopefully, if we are successful, Ethereum will be the most secure base layer, and there will be a thriving rollup ecosystem that caters to different things, and hopefully, Polygon will be a big part of that ecosystem.”

Subscribe
The most engaging reads in blockchain. Delivered once a
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Andrew Fenton
Based in Melbourne, Andrew Fenton is a journalist and editor covering cryptocurrency and blockchain. He has worked as a national entertainment writer for News Corp Australia, on SA Weekend as a film journalist, and at The Melbourne Weekly.

Follow the author @andrewfenton

Maybe it’s the language barrier, or the walls authorities have set up to prevent money from leaving the country. But whatever it is, South Korea has built its own unique corner of the cryptoverse that’s unlike anywhere else on the planet.

Doo Wan Nam, a MakerDAO delegate who co-founded the research and advisory firm StableNode, laughs as he describes how crazy the intense speculation and crypto gambling can get in South Korea. He says it’s a country where the price of stablecoins like Dai or USD Coin can sometimes trade sky-high because if the price starts to rise a little above the $1 peg for some reason, speculators will jump in on the momentum trade. 

“They sometimes trade for $20 because they don’t know it’s a stablecoin,” he explains. “They go, ‘You know, it was trading at $10, I bought it because it was pumping… I don’t know, I didn’t read, I just bought.’”

“So, I think that kind of tells you whether people knew what Terra was.”

The spectacular $60-billion implosion of the Terra ecosystem, headed up by the charismatic but ultimately deluded Korean developer Do Kwon, casts a pall over the entire ecosystem.

Evening in downtown Seoul. Source: Pexels

Terra is also instructive about some of the unique characteristics of the crypto culture in Korea, which places less emphasis on decentralization and puts more trust in project leaders like Kwon.

Crypto is huge in this country obsessed with the latest and greatest technology. The capital city Seoul is a futuristic metropolis with massive high-res screens and blistering fast internet everywhere. One in three people in the country owns cryptocurrency, and the government has unveiled an ambitious plan to transform it into the fifth-most metaverse-friendly country in the world.

South Korea technology

While English is taught in schools, few speak the language at a conversational level. This is true of many countries of course but helps explain why many Koreans aren’t plugged into the same information sources as crypto fans in the United States. Forget western social media and tech giants such as Reddit, Google, Twitter and Facebook — Google Maps barely works in the country and good luck getting an Uber.Instead, South Koreans access the internet, chat, search, order food and call for rides using local giants Kakao and Naver.

Sangmin Seo from metaverse blockchain Klatyn. Source: Andrew Fenton

“More than 90% of Koreans are using (social media app) KakaoTalk every day,” explains Sangmin Seo, who prefers to go by Sam. He’s the representative director of the Klatyn Foundation, Kakao’s blockchain and metaverse offshoot. “Naver is the most dominant search engine in South Korea. Google’s share is about 10%–20% and 70%–80% of the market share for search engines is Naver.”

Founded in 2011, Kakao is now the 15th-largest company in a country that’s dominated by around 40 mega-corporations. Samsung, LG, Hyundai and SK together account for half the local stock market’s value, while Samsung produces one-fifth of the country’s exports alone.

Zerocap analyst Nathan Lenga has researched the South Korean ecosystem in detail and explains there’s a whole other crypto world bubbling in the country. He cites blockchain-based video game and Roblox competitor Zepetto.

“People haven’t really heard about it, but it has 20 million users (a month), which is mindblowing,” he says. 

“There’s this whole other side of crypto that we just don’t hear about that’s based on Asian culture. And that’s all originating in South Korea, and that’s why they’re such adopters — because they have their own versions.”

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2017: South Korean crypto news

Seonik Jeon, CEO of Financial News and founder of Factblock, says that prior to 2017, the only time South Korea made international news was when North Korea was firing missiles.

“However, as the blockchain market began in Korea, around 2017 and 2018, the amount of searching for blockchain and Korea together increased significantly,” he explains.

Seonik Jeon, founder of Korean Blockchain Week and CEO of Factblock. Source: Supplied

Observers were fascinated by the speculative cryptomania that saw South Korea become the world’s third-largest crypto market in 2017. Bitcoin sometimes traded up to 20% higher in the country (also known as the famous “Kimchi premium”) due to capital controls introduced after the 2007–2008 global financial crisis to stop money from leaving the country. 

Many tried and failed to exploit this mouth-watering arbitrage opportunity, including crypto’s current main character Sam Bankman-Fried — but a handful succeeded.

Cryptocurrency and gambling

Korea’s relationship with crypto is tied up in its complicated relationship with gambling, which is mostly outlawed for locals (except lotteries and horse racing). A study from the Korean Center on Gambling Problems suggests the average Korean is two to three times more likely to suffer from gambling addiction than other nationalities, and gambling is seen in a very negative light. 

“Gambling itself is illegal in Korea, so a lot of people with gambling or a speculative [nature] then tend to go into stocks or crypto,” says Nam. “Crypto is very fast, high risk, high reward.”

Seoul at night. Source: Pexels

Nam got into the space during the initial coin offering boom of 2017 after finishing his military service and joining a blockchain company.

“It was quite crazy. In Korea, it was very, very, highly speculative. Like, there were people literally — especially middle-aged or the elderly, who didn’t know much about blockchain — they just had money, and they go to different events and say, ‘I want to invest; how can I invest?’”

South Korean authorities banned ICOs toward the end of 2017, and news reports at the time claiming it was mulling a complete ban on crypto sent Bitcoin’s price plunging in January 2018 from a record high in December 2017.

Crypto bull run

The complete ban never happened, though, and there was a huge surge in adoption in 2021 due to skyrocketing prices that put the ICO boom to shame. According to Korea’s Financial Services Commision (FSC), at the beginning of 2021, just 1.9 million citizens owned cryptocurrency. By the end of the year, that number had grown to 15.25 million citizens.

That means one in three citizens now owns crypto, and the FSC put the country’s digital asset market cap at 55 trillion won (currently $40,719,445,990), making it the seventh-largest country in the world for crypto ownership by market capitalization. Lenga attributes the surge in adoption to the 2021 bull run and the successful presidential campaign of Yoon Suk-yeol, which was strongly pro-crypto and even released a nonfungible token collection for supporters. Yoon took office in May this year.

Jeon, however, believes that tech-loving millennials are behind the surge. 

“I believe the popularity of crypto in Korea is largely due to the younger generation’s curiosity and willingness to try new technologies,” he explains.

“The millennial generation here is often called the mobile native generation due to their familiarity and acceptance of technology. They are enthusiastic and passionate and ready to quickly accept and adapt to changes and development in areas such as blockchain, Web3, NFTs and GameFi.”

Growth slowed the following financial year (to June 2022), adding just 13.2% more transactions.

South Korean crypto exchanges

The surge in adoption in 2021 was accompanied by new licensing laws brought in around September that effectively banned the vast majority of crypto exchanges in the country. Each provider was required to get approval from both the Korea Internet and Security Agency and the FSC, and the 63 exchanges operating in the country were cut down to just a handful, including Upbit, Bithumb, Coinone and Korbit.

“They have almost complete domination over the crypto industry,” says Lenga. “Once the new president starts to introduce more positive regulations and legislation in South Korea, I think that more diverse exchanges will come back. But most of them are just gone forever because they weren’t allowed to survive.”

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Although viewed as overreach by many in the crypto community outside of Korea, inside, there was more acceptance of the need to clean up the industry, which Jeon said was fiercely competitive. 

“In this small market, there was a competition for listing coins between exchanges, and all these scam coins were listed, which sometimes caused damage to investors,” he says. 

“Many insolvent coins that did not have proper business feasibility were sorted out. And it was an opportunity for investors to invest in a safer environment.”

Doo Wan Nam from Stablenode. Source: Supplied

Nam puts the blame more on the banks than the government and points out that while 40 different exchanges were approved on the government’s side, “the ones that passed the bank’s side was only five,” he says. Exchanges needed a banking partner to get fiat in and out, and few banks were willing to do business.

Another much-discussed regulatory issue surrounds crypto taxes, with longstanding plans to charge an additional 20% tax on crypto capital gains. Originally due to be implemented in January this year, it’s been delayed to 2025 and may never happen.

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Jeon says the government is feverishly studying the industry to understand it properly and regulate it effectively. “Once they have these regulations ready, I think many companies are ready to jump into crypto,” he says.

With the collapse of FTX following so quickly after the fall of Terra, reports emerged this week that the FSC is looking at bringing in new regulations to keep customer deposits separate from exchange assets and to regulate exchange tokens more strictly.

Korean technology: Decentralization

Probably the biggest difference between the crypto community in South Korea and in the West is the lack of emphasis — and ideology — around the importance of decentralization.

Nam explains that while American conceptions of crypto are built around ideas of self-sovereignty and decentralization, “not your keys, not your coins,” those sorts of ideas are not widely embraced in Korea.

“We’ve done a lot of surveys and research, and most Koreans don’t really access crypto from, let’s say, MetaMask. Most of them just put it in the crypto exchanges, and they never withdraw to [a wallet]. In fact, we have some surveys and realize that a lot of them don’t even know [private cold wallets] exist.”

As a result, decentralized autonomous organizations are an alien concept to many, and decentralized finance (DeFi) adoption is not as widespread. This is common to the East Asian region according to recent data from Chainalysis, which shows that just 28% of transaction data is related to DeFi. That’s lower than any other region apart from Eastern Europe and miles behind North America’s 43.3%.

Nam explains that there’s a level of trust and faith in centralized projects with identifiable leaders that western crypto enthusiasts simply doesn’t share.

“They kind of believe in this having single leadership — we kind of saw with Terra as well. Despite the fact that they were very big, we saw that Do Kwon had a lot of power, and he was able to hold sway within this ecosystem, which, for more decentralized protocols, might be criticized but, at least within Korea, felt like it was very natural,” he says.

“It doesn’t really have this strong ideal of libertarianism; it’s seen more as a company or another form of cooperation. And second, there’s still a lot of faith in traditional institutions. Ironically, that was the reason Ripple became really popular in Korea,” Nam adds.

“From their side, they believe it’s better to trust a centralized entity than themselves.”

1/ Many are visiting Korea for @buidl_asia @eth_seoul_ @kbwofficial, and I frequently got this question: “Who are good Korean teams / leaders in the crypto space to meet?”There are many interesting teams, but here are 24 you should definitely meet or at least learn of ?— Doo | StableNode @Seoul (@DooWanNam) August 2, 2022

Sam, however, says that is starting to change — and he believes it must change to embrace the opportunity fully.

“Kakao and Koreans also care about decentralization, and we believe that our world will be more decentralized in the future, but we need time, and we need to educate people about the power of decentralization and how we lose from decentralization and what we get from decentralization,” he stated.

Keep an eye out for part 2 which will explore South Korea’s fascination with gaming, its blockchain game industry and ambitious plans to dominate the metaverse. 

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Andrew Fenton
Based in Melbourne, Andrew Fenton is a journalist and editor covering cryptocurrency and blockchain. He has worked as a national entertainment writer for News Corp Australia, on SA Weekend as a film journalist, and at The Melbourne Weekly.

Follow the author @andrewfenton