The crypto ecosystem has achieved a series of major technological milestones over the past year.
Despite a series of unfortunate events in 2022 – with the collapse of the Terra ecosystem and later the bankruptcy of Sam Bankman-Fried’s FTX – blockchain technology proved resilient in 2023.
In particular, we have seen developments in the infrastructure and technology sectors with new innovations designed to make blockchains faster, more secure and private.
Major advances in zero-knowledge technology
This year marked the launch of a series of zero-knowledge (zk) rollups.
First we saw the launch of zkSync Era, followed closely by Polygon’s zkEVM, later Linea, and more recently the =nil; Foundation – just to name a few.
Rollups have the same goal: to make blockchains run more efficiently by reducing the amount of block space required to execute a transaction by performing more transactions off-chain. As a result, this will also reduce gas rates and fixed costs.
Zero-knowledge rollups in this particular case are not only able to perform off-chain executions, but they can also determine whether the information is being executed accurately without exposing the information on the mainnet.
This differs from optimistic rollups, which automatically assume information is accurate and rely on fraud evidence to challenge suspicious transactions.
It’s important to note that more work needs to be done to ensure zkRollups are fully decentralized and permissionless. Existing zero-knowledge technology is subject to upgrade risks.
These risks relate to whether or not a blockchain is upgradeable or subject to change – with blockchains being more secure if they are not upgradeable.
More interconnected blockchains
Blockchain interoperability has also seen some impressive improvements this year.
From the introduction of Chainlink’s CCIP to LayerZero’s recent partnership with Google Cloud and JPMorgan, cross-chain interoperability protocol teams are actively working to connect various private and public blockchains.
Blockchain interoperability protocols allow smart contracts between different blockchain networks to communicate with each other and facilitate the transfer of liquidity.
This is typically achieved by burning tokens in a source chain’s smart contract and then creating new corresponding tokens in a destination chain.
Another way to transfer tokens is through bridging, where tokens are locked on a source chain and then minted natively on the destination chain.
Such tools allow users of different blockchains to seamlessly exchange, lend and stake their tokens across ecosystems for a small gas fee.
Bringing more real-world assets into the chain through tokenizations
To bring more liquidity to the chain, developers in real-world asset (RWA) protocols are also looking at ways in which these assets can serve as collateral through tokenization.
For example, RWAs in this space can include assets such as cash, gold, real estate, and U.S. Treasury bonds. One of the most well-known RWAs today are stablecoins, such as Circle’s USDC and Tether’s USDT, which are widely used in DeFi protocols.
Some of the protocols behind on-chain financing include Centrifuge, Maple Finance, and Goldfinch.