The Rising Star of Layer 2 Solutions for Ethereum

Thank you to Footprint Analytics, for submitting this guest article. 

The blockchain trilemma, or the scalability trilemma, highlights the challenge of balancing security, decentralization, and scalability in blockchain platforms. Typically, blockchain architecture can only prioritize two out of the three pillars effectively. Ethereum, for instance, has prioritized security and decentralization, resulting in scalability challenges. However, the Ethereum community recognizes the importance of scalability and has been actively working on solutions to address this issue. 

When discussing scaling solutions for Ethereum, the focus is primarily on layer 2 solutions that aim to address the limitations of layer 1 blockchains. These layer 2 solutions aim to increase transaction throughput without compromising decentralization or security. There are several existing layer 2 solutions for Ethereum, including rollups, state channels, and nested blockchains. 

Rollups

Rollups are layer 2 solutions that aggregate numerous transactions into a single transaction on layer 1, resulting in cost savings for users by distributing transaction fees across participants within the rollup. There are two main types of rollups: optimistic rollups and zero-knowledge rollups (ZK-rollups). Optimistic rollups utilize fraud proofs to ensure the validity of off-chain transactions, while ZK-rollups employ zero-knowledge proofs to enhance privacy and security. Examples of optimistic rollups include Optimism, Arbitrum, and Boba Network. On the other hand, ZK-rollup implementations include Starknet, zkSync, and Scroll. 

In this article, we will examine Starknet, an innovative layer 2 solution that incorporates ZK-rollup technology. 

Starknet: What & Why?

Eli Ben-Sasson, the co-founder of STARK and ZCash, established StarkWare in January 2018 with the aim of enhancing blockchain scalability and privacy. StarkWare achieves this by leveraging STARK technology, a cryptographic proof system, to deploy and verify zero-knowledge proofs.

One notable product of StarkWare is Starknet, a permissionless ZK-rollup solution that enables general computation. Currently operating as a layer 2 network on top of Ethereum, Starknet ensures eventual layer 1 security through the utilization of STARK technology. Starknet achieves scalability by generating STARK proofs off-chain, which are then validated on-chain, allowing for increased transaction throughput and efficiency. 

Positive Trends

Starknet is gaining popularity within the StarkWare ecosystem and is also attracting attention from the broader community.

Starknet has experienced significant growth in daily active accounts since March 2023. As of August 26, 2023, the number of daily active accounts reached 161,252, indicating a steady increase in user engagement. This upward trend suggests a growing interest in Starknet and its capabilities as a layer 2 solution. It signifies a rising number of users actively participating in transactions, interactions, and dApps built on the Starknet ecosystem.

Notably, the platform witnessed a peak of 384,447 daily active accounts on July 28, 2023. This surge in user activity can be attributed to the launch of a special NFT called SPOK (Starknet Proof-of-Kudos) on Unframed, the NFT marketplace for Starknet. The introduction of this unique NFT through an open and free minting event generated significant interest and engagement within the community. According to Footprint Analytics, an impressive 76.4% of active accounts interacted with the SPOK contract on that particular day, further highlighting the enthusiasm surrounding the event and the appeal of Starknet’s NFT ecosystem.

Starknet has witnessed a substantial increase in daily transactions since March 2023, indicating a growing volume of activity on the platform. On August 26, 2023, the number of daily transactions reached 598.2K, showcasing a significant surge in user interactions and engagement. Notably, the platform experienced a peak in daily transactions on July 28, 2023, with a total of 560.44K transactions. This surge in transactions was primarily driven by the launch of the SPOK NFT. 

Transaction fees on Starknet have also shown fluctuations during this period. On May 9, 2023, the platform experienced a peak in transaction fees, reaching 177.84 ETH. This indicates a higher demand for transaction processing and a willingness to pay higher fees for faster and more secure transactions. However, on August 26, 2023, transaction fees decreased to 73.36 ETH. This reduction in fees could be attributed to various factors, such as optimizations in the protocol, increased competition among validators, or changes in user behavior.

According to Footprint Analytics, as of August 26, 2023, the total transactions were 32,788.39K, while the total transaction fee was 8,963.15 ETH. The growth in daily transactions and the fluctuations in transaction fees on Starknet highlight the platform’s ability to handle increased user activity while maintaining cost-efficiency. As more users and dApps adopt Starknet, it is expected that transaction volumes will continue to rise, and transaction fees may vary based on market dynamics and network optimizations.

Starknet has experienced a significant increase in the daily amount of ETH bridged since March 2023. On August 12, 2023, the daily amount bridged reached its peak at 12,570.13 ETH, coinciding with 7,397 active users. On August 26, 2023, when the number of active users peaked at 15,110, the daily amount bridged reached 6,622.88 ETH. This significant surge in bridged value suggests an increased level of trust and confidence in Starknet as a reliable and secure platform for transferring and storing ETH. 

Key Features

Starknet offers several advantages as a layer 2 solution. 

• Firstly, it ensures faster transaction finality by approving state updates once validity proofs are verified in layer 1. This means that transactions can be confirmed quickly and securely, enhancing the overall user experience. 
• Additionally, Starknet leverages layer 1 data storage, guaranteeing the security, censorship resistance, and decentralization of critical information. By storing the off-chain state recovery data in layer 1, Starknet ensures that users’ data remains protected and accessible. 
• Furthermore, Starknet provides capital efficiency and withdrawal flexibility to users. With the ability to withdraw funds from layer 2 without delays, users have greater control over their assets, which can drive widespread adoption of the platform. 

However, there are a few limitations to consider. 

• Starknet’s native programming language, Cairo, can pose a barrier for dApp developers who are accustomed to languages like Solidity. While efforts are underway to enable compatibility between Solidity and Cairo through the transpiler Warp, the learning curve associated with a new language may slow down development in the ecosystem.
• Additionally, Starknet is not fully EVM-compatible, which means that synchronization with EVM updates will be required, potentially adding complexity to the development process.
• Lastly, the production of validity proofs on Starknet requires specialized hardware, which may lead to centralized control and a limited number of participants capable of advancing the chain. This could increase the risk of malicious operators freezing the rollup’s state and censoring users, highlighting the need for careful consideration of the network’s governance and security mechanisms.

Ecosystem

One of the key advantages of Starknet is its ability to provide high throughput, low transaction costs, and privacy protection. These features make Starknet highly versatile and open up a wide range of application prospects in various areas, including GameFi, NFT, and DeFi. 

Starknet has positioned itself as a prominent supporter of fully on-chain games within the realm of public chains. The platform hosts a variety of highly popular and engaging fully on-chain games, including LootRealms, GOL2, Isaac, Unstoppable Games, and more. These games have garnered significant attention and have become a source of excitement and entertainment for users within the Starknet ecosystem. 

Here are some notable projects within the Starknet ecosystem to keep an eye on. NFT projects include Starknet Quest, Starknet.id, AlmanacNFT, and Comoco, while DeFi projects include JediSwap, Nostra, zkLend, Brine, and StarkEx. They demonstrate the potential for innovation and growth within the Starknet ecosystem.

$STARK & Starknet Airdrop

In November 2022, Starknet introduced its native token, $STARK, on the Ethereum blockchain. These tokens were initially distributed among shareholders, employees, and independent partner software developers. However, these tokens are subject to a lock-up period of four years, with a gradual release scheduled to commence in November 2023.

Starknet has been generating considerable buzz in the crypto community due to its upcoming token airdrop. The highly anticipated airdrop has sparked a surge in user engagement and activity on the platform since July 2023.

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According to Footprint Analytics, The monthly amount bridged in ETH on Starknet has shown significant growth since July 2023. In March, with 139,823 unique users, the monthly amount bridged reached 16,374.83 ETH. By August (up until August 26), the number of unique users on Starknet increased to 156,332. During this period, the monthly amount bridged rose substantially to 148,316.71 ETH. 

Starknet has gained attention for its inclusive approach to allocating tokens to community members. If the airdrop takes place, it is expected to be distributed to individuals who have actively engaged with the Starknet ecosystem. This may include users who have created a Starknet wallet, bridged assets to Starknet, utilized Starknet dApps and participated in Starknet governance.

Conclusion

In conclusion, Starknet is experiencing significant growth and positive trends, which indicate increasing user engagement, adoption, and trust in Starknet as a scalable and efficient layer 2 solution for Ethereum.

Vitalik Buterin projected that ZK-rollups would win the layer 2 scaling warfare against optimistic rollups during ETH Seoul 2022. With its promising features and capabilities, Starknet holds the potential to shape the destiny of Ethereum and solidify its position as a leading ZK-rollup platform. It’s indeed worthwhile to look ahead with anticipation and enthusiasm for the transformative influence that Starknet can bring to the blockchain ecosystem.

What is Footprint Analytics?

Footprint Analytics is a blockchain data solutions provider. It leverages cutting-edge AI technology to help analysts, builders, and investors turn blockchain data and combine Web2 data into insights with accessible visualization tools and a powerful multi-chain API across 20+ chains for NFTs, GameFi, and DeFi.

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