Ethereum is the largest ecosystem in the entire world of crypto. Ethereum is worth (as of this writing) $486billion, also known as its market cap.
Ethereum was never designed nor imagined to be this popular and widely used. As a result, Ethereum’s design makes it slow and expensive to use. Newer projects, like Loopring, have grown increasingly popular as “scaling solutions” – projects that take all the good features of Ethereum, but improve on speed and cost. We’ve talked extensively about MATIC, which is another scaling solution for Ethereum, but Loopring is another project we love in this space.
The Demand for Scaling
Ethereum is a blockchain, but has a powerful programming suite attached to it. This programming suite, known as smart contracts, allows developers to automate and program capabilities into their own projects. This has driven Ethereum to becoming the second largest cryptocurrency in the world. However, the world of crypto has changed drastically from when Ethereum was first created. As a result, many of Ethereum’s features cannot handle the simultaneous traffic.
In recent times, projects like Solana (SOL) and Avalanche (AVAX) have exploded in size because they have been able to directly build in the throughput and scaling needed to keep fees low and speeds high. While SOL and AVAX are growing rapidly, they are still significantly smaller than Ethereum. This has created a huge demand for something to allow all of these existing projects on Ethereum to run faster and cheaper without compromising the security and reliability Ethereum brings.
Due to how expensive and slow Ethereum has become, many modern use-cases in other blockchains can’t occur on Ethereum. NFT Gaming, for example, is one of the hottest growth areas in all of crypto. Users can play games, storing their data on the blockchain and use NFTs for unique features, traits, characters, and even earn crypto while playing. All of the information someone generates playing a game would need to be stored in the Ethereum Blockchain, and speed and cost of Ethereum would make that a really boring and expensive game. Ethereum can handle only 14 transactions per second despite millions of concurrent users. Each transaction (during busy times) can cost hundreds of dollars. But, we are not without hope. Loopring, a scaling solution for Ethereum, aims to fix this.
Loopring is a Level 2 (L2) project. This means that it is built within Ethereum – a separate ecosystem inside of a larger one, similar to how a city resides within a state. Inside of Loopring’s ecosystem, life is great! Speeds are (reportedly) 1000x faster and cheaper than Ethereum currently is. They do this through a protocol known as “ZK Rollups”. In short, Loopring handles and validates data and transaction within its ecosystem, groups many of them together, and then appends that big bundle of data to the Ethereum blockchain in one transaction. Less interacting with Ethereum = less fees = faster speeds. Since Loopring processes the transactions on its own, Ethereum doesn’t know about them until Loopring sends data to it. As a result, Loopring must ensure that everything is safe, correct, and reliable on its own. It’s a cryptocurrency version of “you only know what you need to know”. No additional data other than the transaction, or output itself is provided in this context – and this is important.
This concept is ground breaking because it has significant use cases in social media, banking, security, travel, and many other sectors. In crypto, we are proving that a transaction is real. But, as the world grows and crypto becomes more and more mainstream, these blockchain projects will be rolled into everyday use cases.
If you go to the bank and want to take out a mortgage, for example, you need to provide substantiation that you can afford it – credit information, job information, salaries, debts, etc. – just so that the bank can determine if you can or cannot afford your prospective house. Using a Zero Knowledge (ZK) approach (like Loopring) – the process used to make that determination can be shown to be correct, and can therefore be trusted. As a result, all of the information you need to get a mortgage goes into the process (your data is stored, but not shared), and the bank simply sees that you can afford this house. The bank can test the process with different data in any way it likes to prove that it works, but it doesn’t need all of your information specifically. Less sharing of data means less fraud, less theft, less hacking, and so on. All good things.
While this is terrific background information – we aren’t looking to “invest” in ideas. There are many good ideas that were poorly managed/developed, and they ultimately were bad investments. Where does Loopring fall in all of this? They are not the only ZK project, so why are we buying it?
Loopring is small compared to MATIC, one of its major competitors. As a result, there is significantly more speculation in these projects. Recently, Loopring launched their own wallet, which uniquely supports “direct to Loopring on-ramping” (what?). This means you can get into the Loopring Ecosystem without going through Ethereum. This is important because without this, you’d need to buy Ethereum, send it to Loopring, and convert to the LRC token. This exposes you to the high Ethereum gas fees we don’t want to be paying. Loopring’s wallet cuts this out, and that is a huge feature.
There has been a significant amount of (unconfirmed) speculation around LRC and Gamestop forming a partnership centered around GameStop’s new NFT Marketplace it has been planning. Loopring, if true, would rocket when this announcement occurs. Loopring is also heavily mentioned as a major component of all the metaverse hype we have seen. While a speculative play – the interest in Ethereum scaling solutions alone is likely to propel Loopring up in 2022. If any of the above speculation turns out true, we could see huge gains in the LRC token in short order. Without these, the Loopring tech and competition with MATIC is enough to keep us interested. Given the size and scale of Ethereum, and Loopring’s specialization in data privacy already, we’re betting on future use-cases that are sure to come.