What unique technology does StarkWare have that is worth the hype from major institutions?
The wealth effect of the Arbitrum airdrop has ignited market confidence in L2, leading to investments in L2s that have yet to issue tokens. Naturally, StarkWare, with its $8 billion valuation, is in the spotlight.
So, what unique technology does StarkWare have that is worth the hype from major institutions? What problems does its StarkNet aim to solve? We will discuss this in detail in this article.
01 STARKs, StarkEx, StarkNet
1.1 STARKs
STARKs (Scalable, Transparent ARgument of Knowledge) are a proof system that can prove and verify computations, aimed at improving the scalability of Ethereum.
They allow large computations to be moved off-chain to reduce costs, generating proofs of correctness for the computations, and then performing a minimal amount of computation on-chain to verify the proof. That is, verifiers determine the integrity of off-chain computations by executing very few operations on-chain.
L2s use STARKs technology to bundle multiple transactions together for thousands of computations, then verify their validity on-chain using a single STARK proof.
All transactions within the batch share the cost of on-chain processing, thereby reducing gas costs while inheriting Ethereum's security, improving user experience. This model is similar to how shared taxi users split the fare.
SNARKs (Succinct, Non-Interactive, Argument, Knowledge) are a concise non-interactive proof. Both STARKs and SNARKs are solutions for ZK Rollups.
Comparison of SNARKs and STARKs
In-depth analysis of StarkNet: technical risks, economic models, and commentary
(Source: SUSS NiFT, ChatGPT)
Compared to SNARKs, STARKs have the following three advantages:
- Trustlessness
STARKs replace the trusted setup of SNARKs with publicly verifiable randomness, reducing reliance on participants and enhancing protocol security.
- Greater scalability
STARKs have logarithmic compression characteristics for verification, maintaining low proof and verification times even as the complexity of underlying computations grows exponentially, unlike SNARKs which grow linearly.
- Higher security guarantees
STARKs use collision-resistant hash values for encryption, making them resistant to quantum computing attacks.
However, the proof size of STARKs is larger than that of SNARKs, making it difficult to share proof costs when L2 transaction volumes are low, resulting in significant confirmation delays. But as the scale of proofs increases, the marginal cost of using STARKs decreases, making them suitable for large-scale applications. Additionally, compared to SNARKs, the current adoption rate of STARKs is insufficient, and foundational tools still need improvement.
In addition to ZK Rollups, there are Optimistic Rollups. Below is a comparison of the two solutions.
In-depth analysis of StarkNet: technical risks, economic models, and commentary
(Source: SUSS NiFT, ChatGPT)
StarkWare, valued at $8 billion, completed a $100 million Series D funding round and offers two solutions for scaling Ethereum using STARK: StarkEx and StarkNet.
1.2 StarkEx
StarkEx is a permissioned framework for a customized scaling solution for specific applications. Projects can use StarkEx for low-cost off-chain computations, generating STARK proofs to verify correctness.
Such proofs can contain between 12,000 to 500,000 transactions. The proofs are then sent to the STARK verifier on-chain, and upon verification, state updates are accepted.
StarkEx offers three data storage methods. In ZK-Rollup mode, data is stored on-chain, decentralizing the data and making it easier for users to track and supervise.
However, the cost of publishing data on-chain is high. In Validium mode, data is stored off-chain, which is low-cost and does not expose the data publicly.
But a data availability committee is needed to oversee whether the data is being handled properly. Volition is a hybrid data availability model where users can choose to store data on-chain or off-chain.
Applications deployed on StarkEx include perpetual options dYdX, NFT L2 Immutable, sports digital card trading market Sorare, and multi-chain DeFi aggregator rhino.fi.
StarkEx is suitable for protocols that operate independently and are compatible with the StarkEx API.
1.3 StarkNet
StarkNet is a permissionless L2 where anyone can deploy smart contracts developed in the Cairo language. Contracts deployed on StarkNet can interact with each other to build new composable protocols.
Unlike StarkEx, where applications are responsible for submitting transactions, StarkNet's sequencer batches transactions and sends them for processing and proof.
StarkNet is more suitable for protocols that require synchronized interaction with other protocols or exceed the application scope of StarkEx. As StarkNet develops, applications based on StarkEx will be able to migrate to StarkNet and enjoy composability.
1.4 Cairo
Cairo is a programming language designed for customizing general computation for STARK proofs, making it easier and faster to develop, review, and maintain code, free from EVM constraints, allowing for more complex computations like account abstraction, and offering greater flexibility in game development, supporting fully on-chain games.
StarkNet itself does not support EVM, but the translator Warp from Solidity to Cairo will help Ethereum-native projects migrate to StarkNet, becoming the infrastructure for large-scale applications.
1.5 SHARP (shared prover)
The SHARP technology allows different applications from StarkEx and transactions occurring on StarkNet to be merged into a single proof, filling the capacity of STARK proofs faster, improving transaction processing speed and sharing the gas costs of verifying L1 proofs.
02 StarkNet Economic Model
StarkWare has minted 10 billion StarkNet tokens off-chain. However, these tokens do not represent equity in StarkWare, nor do they provide any rights to participate in StarkWare or grant any rights to make claims against StarkWare.
StarkNet tokens can be used as native tokens to pay gas fees. Compared to other L2s that use ETH for gas fees, StarkNet tokens capture more ecological value and reduce the impact of the external ETH token.
Tokens allocated to core contributors and investors have a one-year waiting period and a four-year lock-up period, released linearly.
In-depth analysis of StarkNet: technical risks, economic models, and commentary
(Source: StarkWare. https://medium.com/starkware/part-3-starknet-token-design-5cc17af066c6)
StarkNet clearly rewards developers and past StarkEx users, but it is unclear whether StarkNet users will receive airdrops. In the initial token distribution, 8.1% of the tokens have not yet had their use determined, with the specifics to be decided by the community.
Therefore, the author speculates that this portion of tokens may be used to reward StarkNet users. Additionally, project parties that deploy contracts may allocate airdrops to users of the application after receiving airdrop rewards, giving back to early supporters. Thus, users can normally use valuable applications on StarkNet as needed.
03 StarkWare Financing Situation
According to Crunchbase data, StarkWare has raised a total of $282.5 million over seven funding rounds.
In-depth analysis of StarkNet: technical risks, economic models, and commentary
(Source: Crunchbase, SUSS NiFT)
In July 2022, Alameda Research added a $9.5 million investment. However, Alameda Research filed for bankruptcy in November 2022, raising doubts about whether this investment was received.
Grants from the Ethereum Foundation established StarkWare's legitimacy.
In-depth analysis of StarkNet: technical risks, economic models, and commentary
(Source: https://starkware.co/about-us/)
04 Founders
Eli Ben-Sasson
Eli is the co-founder and president of StarkWare, as well as the chairman of its board.
Since obtaining his Ph.D. in theoretical computer science from the Hebrew University in 2001, he has been researching cryptography and zero-knowledge proofs of computational integrity.
Eli is a co-inventor of the STARK, FRI, and Zerocash protocols and has been a founding scientist at Zcash Company. Over the years, he has held research positions at the Institute for Advanced Study in Princeton, Harvard University, and the Massachusetts Institute of Technology.
Recently, he served as a computer science professor at the Technion in Israel, and after leaving that position, he co-founded StarkWare with partners.
Uri Kolodny
Uri is the co-founder and CEO of StarkWare and a member of its board.
He holds a bachelor's degree in computer science (with honors) from the Hebrew University and an MBA from the Sloan School of Management at MIT. Uri is a serial entrepreneur who has co-founded several tech companies, including Mondria (which develops tools for big data visualization).
Previously, Uri helped incubate projects at two Israeli venture capital firms and worked as an analyst at McKinsey & Company.
05 Competitors
StarkNet, along with zkSync, Optimism, and Arbitrum, is referred to as the "Four Kings of L2" due to the attention it receives.
In-depth analysis of StarkNet: technical risks, economic models, and commentary
(Source: SUSS NiFT)
Data sources: (2023.4.21)
Optimism and Arbitrum use optimistic rollups, which have lower development difficulty and already possess a relatively complete ecosystem, attracting significant funding and users, even producing excellent L2 native protocols like GMX and Gains Protocol.
Vitalik stated during ETHSeoul that while Optimistic Rollups are more developed, the foundational technology of ZK Rollups will eventually allow them to replace Optimistic Rollups. Although ZK Rollups are faster, they lack the Ethereum Virtual Machine (EVM), making it difficult to run dApps, as the EVM is the main processing unit for dApps. Therefore, ZK-based Rollups are developing EVM-compatible solutions. If the development progresses slowly, ZK Rollups may lose their first-mover advantage, allowing Optimistic Rollups to maintain their dominance. This is similar to the competition between Ethereum and other L1s; although Ethereum's performance is not the best, it firmly attracts the most funding and the best developers due to its first-mover advantage.
StarkNet faces competition not only from L2s adopting Optimistic Rollups but also from those using ZK Rollups. According to Eshita Nandini's summary, multiple L2s are currently building ZK EVMs.
In-depth analysis of StarkNet: technical risks, economic models, and commentary
(Source: Messari, SUSS NiFT)
Type-1 is EVM equivalent, allowing 100% seamless use of EVM infrastructure, but the proof process is slow. Taiko mitigates this drawback by quickly confirming finality before generating zero-knowledge proofs.
Specifically, it only needs to prove that the past state X is valid and that there are no transactions from account A after X, allowing users to withdraw their tokens in state X. Currently, decentralized proof and protocol economics have been tested in alpha-2, with 126 independent provers proving 93,146 blocks, with proof times between 130 and 160 seconds.
Taiko has now deprecated alpha-2 and will launch alpha-3 in the second quarter. Since Type-1 zkEVM does not compromise on achieving equivalence, it is highly complex and may not have a mainnet this year.
Type-2 is EVM equivalent, with improved proof speed compared to Type-1 but still slow. Type 2 is the goal of Scroll and Linea, and Polygon zkEVM has already been implemented.
The Polygon zkEVM mainnet Beta version was launched on March 27 as scheduled. In the first phase of the mainnet Beta, a dedicated security committee will be able to quickly upgrade Polygon zkEVM. In the second phase, a series of measures will be taken to ensure user protection in case of any issues, but with a higher degree of decentralization and no privileged access security committee.
Gas fees are paid in ETH, and it is expected that staking and governance in the future Polygon zkEVM will use MATIC tokens. Additionally, Polygon zkEVM supports account abstraction through ERC-4337, allowing users to pay fees with any token.
Scroll is developing zkEVM in an open-source manner with the Ethereum Foundation, aiming to shorten proof times through parallel computing and outsourcing proofs to miners. Scroll is currently in the alpha testnet stage, allowing cross-chain transfers and has been running smoothly for two months, with a mainnet launch expected in the second quarter.
On March 28, ConsenSys announced that it would reshape ConsenSys zkEVM into Linea, which is currently open for testing to all developers, users, or protocols. Linea combines zero-knowledge proofs with EVM equivalence through native integrations like MetaMask and Truffle, providing developers with flexibility and scalability without requiring expertise in ZK technology.
Linea employs a multi-prover system, where multi-signatures can enforce specific outcomes when vulnerabilities exist in the code. Through this system, a rollup will utilize several proof mechanisms with different security levels to eliminate the single point of failure risk present in single-prover rollups.
Type-3 is nearly EVM equivalent, with faster proofs, but some apps need to be redeveloped. Type 3 is the transitional stage that Scroll is currently in. Kakarot is a zkEVM written in Cairo, serving as an interpreter for EVM bytecode, and may eventually become L3 on StarkNet, currently classified as Type-3.
Type-4 will compile smart contract source code written in high-level languages like Solidity into ZK-SNARK-friendly languages. Proof speeds are fast but less compatible.
zkSync Era has launched and is open to regular users. Currently, there are not many users sharing zkSync gas fees, resulting in high interaction costs, and some project parties have subsidized gas fees. Due to the wealth effect of the Arbitrum airdrop, community user interaction enthusiasm is high, but currently, there are many low-quality projects on zkSync, leading to several rug pull incidents.
StarkNet uses Warp as the compiler from Solidity to Cairo. StarkNet is currently the only zkEVM that has decentralized its sequencer and prover. However, StarkNet has not yet released a production-level version, making it suitable only for small user interactions, with tasks often failing.
Vitalik has also proposed a hybrid model of Optimistic and ZK. Before zkEVM matures, blocks are published after a 24-hour wait; if there are no fraud challenges, zero-knowledge proofs are published to finalize the block. If there are challenges, governance is introduced to adjudicate through a 2 of 3 model.
If the time for zero-knowledge proofs can be significantly shortened, another hybrid model would prioritize publishing zero-knowledge proofs, only using Optimistic Rollup if the zero-knowledge proof fails to publish. This could be an optional development path for StarkNet and may influence competitive dynamics.
06 Conclusion
StarkNet adopts a STARK-based Rollup approach. Although this solution has clear advantages in decentralization, trustlessness, and censorship resistance compared to other solutions, the development tools for this solution are still immature, the research and development difficulty is high, and performance needs improvement.
Additionally, although StarkNet has received support from institutional investors, it is still in a trial phase and not fully mature. The next focus for StarkNet is to upgrade the sequencer currently developed in Python to one developed in Rust to enhance blockchain performance.
Furthermore, it aims to increase the richness and maturity of projects within the ecosystem. Crypto-native users can experience projects within the ecosystem, but they should be aware of project risks and conduct thorough risk assessments before participating.
While StarkNet has features that resist quantum attacks, whether it will become the ultimate solution for scalability remains to be seen. Therefore, we need to continuously monitor and evaluate StarkNet's future development.
The security of the blockchain is paramount for the entire ecosystem; the security of the underlying foundational layer must not be overlooked, compromised, or negotiated, or the entire ecosystem and ledger will lose user trust.
Thus, in the design of the foundational layer, the most secure consensus algorithm must be chosen, even if its energy consumption may be high. This issue can be addressed by adopting renewable energy mining, similar to what Irish Energy Limited advocates for companies listed on Nasdaq.
In contrast, the second layer can be more centralized to achieve higher efficiency and flexibility. Whether at the foundational or upper layer, reasonable design principles must be followed to ensure the security and reliability of the entire ecosystem.
Any second layer or application that relies on the security of the Ethereum foundational layer must have full confidence in the consensus algorithm of the foundational layer to ensure its security is not compromised. This may be the biggest systemic risk facing the community.