The world of cryptocurrencies has grown at a breakneck pace. Ethereum, the second largest crypto by market cap, for example, has already started work on an upgrade to lower transaction fees and increase processing speed. But with the upgrade in a while, investors became concerned about the costs and speed of transactions. This is where the Loopring project comes in handy.
Founded by Daniel Wang, a former software engineer at Google, the Loopring project aims to overhaul the Ethereum blockchain by multiplying the speed at which the existing smart contract system operates. It facilitates anonymous and trustless transactions using Zero-Knowledge (ZK) Proofs, a way to authenticate information without exchanging exact details.
The developers claimed that the Loopring protocol can help Layer 1 blockchains scale up 1,000 times and achieve remarkable speeds of 2,025 transactions per second (TPS). Even the fees charged by the Ethereum network are outrageous, which the Loopring cuts to less than one percent. Currently, transaction fees on the Ethereum blockchain can reach $ 200 and the blockchain has a limit of around 14 transactions per second, according to a Coindesk report.

What exactly is the Loopring project doing?

The Loopring project adds a layer 2 upgrade. Simply put, it decongests the backbone by moving all processing to another layer. It unlocks blazing speeds using ZK Rollups which allow transactions to be verified without accessing attached personal data.

The Loopring protocol also incorporates an “almost instantaneous finality”, making transactions unalterable, tamper-proof and irreversible once validation is complete. This improves the throughput of the entire blockchain.

The protocol is also an open “blockchain-agnostic” protocol (as the developers call it in their whitepaper). This means that it is not limited to Ethereum and can be deployed on any blockchain at no cost for enhanced functionality.

How does the Loopring protocol work?

All of the above functionality is enhanced by architectural design redesigns that make blockchain processing a seamless operation.

ZK proofs: The most common example involving ZK Proofs is that of age verification by government agencies. One can indicate their age without revealing the exact date of birth and only mentioning their year of birth (which is also encrypted on a blockchain). Such zero-knowledge proofs on Loopring are known as SNARK (Short Non-Interactive Knowledge Argument).

SNARK is maintained as proof of validation on the main chain (layer 1). Smart contracts can update the status of all Layer 2 transactions only after receiving proof of validation, making ZK rollups very critical for maintaining user privacy.

Advantages of using ZK stacks: The implementation of ZK proofs means that less data has to be accessed, thus reducing the size of transaction data. ZK rollups are therefore able to consolidate more transfer data into a single set, resulting in cheaper transactions. This greatly improves the processing speed of the network.

Ring mining: According to Loopring’s white paper, “A significant improvement over current decentralized trading protocols is the ability for orders to be mixed and matched with other dissimilar orders, thereby avoiding the constraints of two-token trading pairs. and dramatically improving liquidity. ” Let’s take a look at how this happens.

The Loopring protocol relies on “ring miners” to perform all of these tasks necessary to keep operating without interruption. Ring Miners are network enablers who fill orders before they’re placed or completed. What does it mean? Let us understand with an example.

Let’s say A wants to sell 100 AAVE (a decentralized application programmed on ethereum) and buy 5 ETH (the native currency ether of ethereum), B wants to sell 10 ETH and buy 80 BNB (Binance Coin), C wants to sell 100 BNB and buy 350 SOL (Solana), and D wants to sell 450 SOL and buy 2 BTC (Bitcoin). In this case, the “command ring” of four commands will be set as follows:

  • A will get ETH from B
  • B will get the BNB from C
  • C will get SOL from D
  • D’s command was not executed
  • Not all order rings will always be complete and few orders will be left out. These pending orders will be matched to other order rings by selected “ring miners” so that they can still be executed. These unrivaled orders can even be consolidated into a new ring of orders that balances every transaction involved.

    Ring Miners receive a service fee for dedicating their computing power to Loopring to match unmatched transactions with other command rings on the network. These mining fees are paid in the form of LRC, the Loopring token. These charges can also come from a margin earned on unbalanced orders. The miner is free to choose whether the fees should be paid in the form of LRC or margins in other cryptocurrencies.

    Such a structure eliminates the need to transact in pairs, i.e. one buyer and one seller. There can be a plethora of orders with one order balancing the other and so on until all trades are matched against one another and settled.

    Advantages: This mix and match feature means that the Loopring project allows the use of multiple cryptocurrencies on a decentralized exchange that runs the protocol.

    This order processing is done “off-chain” outside of the core network (Layer 1 blockchain), freeing it up for record retention and robust security.

    What is the value of the LRC?

    LRC was launched in August 2017 and integrated into Ethereum’s mainnet in December 2019. LRC is currently trading at $ 2.2 and has a market cap of $ 2.9 billion, according to CoinMarketCap data. In 2021 alone, the price of LRC increased by almost 120%, from $ 0.17 to $ 2.2.

    However, 10 percent of LRC fees are burned, creating a system of supply reduction. This is by design and is intended to pressure the price into an uptrend over time.

    Loopring combines the best of both worlds – centralized and decentralized exchanges, creating a hybrid product that can be integrated into any blockchain network. Being a unique yet easily deployable solution that improves speed as well as scalability, the Loopring protocol has opened up many possibilities in the decentralized financial space.

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