NFT Marketing Strategy: Increasing Customer Engagement and Brand Value

Despite criticism that the cryptocurrency market has gone bust, global companies have been accelerating their entry into web3 (digital assets) since 2021. In this article, we will analyze how global companies such as Starbucks have utilized digital assets and discuss marketing strategies using NFTs.

Understanding NFT Marketing Easily

 

What are Digital Assets and NFTs?

Digital assets, commonly referred to as cryptocurrencies, are digital assets traded online. They are created and traded using blockchain technology without the interference of central institutions such as banks or governments. Cryptocurrencies have high value due to their advantages of low or no transaction costs, high security, and popularity as an investment.

The representative digital assets are coins (FT) and NFT. Coins are referred to as Fungible Tokens as they strongly resemble currency and are replaceable with each other. On the other hand, NFT stands for Non-Fungible Token, which refers to tokens (unique assets) that cannot be replaced with each other. Digital creations, art pieces, and the like fall under this category. NFT allows anything that can be recognized as an asset using blockchain technology to be uniquely identified.

Lambda256

What is the difference between “fungible things” and “non-fungible things”? Fungible assets refer to assets that have identical value and exchangeability with each other. This means that one asset can be replaced by another and they can be mutually exchanged at the same value. Examples of fungible assets include currencies such as the US dollar and the Korean won, and among virtual assets, Bitcoin and Ethereum can be cited as examples.

On the other hand, non-fungible assets refer to assets that have unique characteristics and are not replaceable. Each asset cannot be equated with each other, and they cannot be replaced by other assets. Although people are used as an example in the picture to help with intuitive understanding, some typical examples include artwork, game items, and digital content. Applying blockchain technology to these examples can prove ownership, and this is where NFT (non-fungible token) comes in.

Exploring the Advantages of NFT

NFTs have created various use cases as they can be easily created and distributed through platforms such as BaaS.

What were some of the reasons that enabled the NFT market to become active?

First, authentication of digital ownership

As the information on NFTs is recorded on the blockchain, ownership, transfer, and holding records are clearly tracked. Moreover, transparency is difficult to tamper with and duplicate, making it a helpful tool for authenticating and trading digital ownership. It is also becoming increasingly recognized as the most suitable technology for the transparency that is more important in today’s society.

Second, value creation from uniqueness and distinctiveness

Everything created through NFTs has unique attributes and is irreplaceable, which increases its value as a possession. Naturally, NFT technology is creating even more value by seamlessly connecting physical and digital objects, such as art and digital art, without distinguishing between the two.

Gucci Grail NFT, source: Gucci Hompage

Third, Activation of the Digital Art Market

With the further development and activation of NFT technology, a wave of innovation has blown into the digital art and collection market. This has led to the emergence of new platforms where digital artists can create and sell their works, resulting in increased demand and supply, thus activating the market. This has also created a new revenue model for digital artists and a way to promote their name. It has become a starting point for digital content publishers and consumers to clearly confirm ownership and copyright.

Fourth, Royalties and Income Generation

Along with the art market, many platforms have emerged for trading NFTs. With the emergence of NFT-exclusive marketplaces, the concept of royalties has also emerged. Royalties allow artists to receive ongoing royalties each time their NFT artwork is traded. This is made possible by blockchain technology, which automatically adds royalties every time a transaction is made.

Fifth, Wide and Diverse Applications

NFTs are items that can be applied to any domain. They are used in various fields, such as game items, music, information, sculpture investment items, videos, and photos. This has led to the steady activation of new business models and markets, and many strategies are being poured out to secure loyal customers.

Thanks to these advantages, NFTs have received steady attention from people even amid economic crises, and the trend is to quickly introduce them into various businesses, led by global companies.

What is NFT marketing?

Nike NFTs sold on Opensea, a global NFT exchange

NFT Marketing and NFT Branding: Global Corporations are Already on Board

Because of the characteristics of NFT explained earlier, many places with intellectual property (IP) or attractive items are creating NFTs using blockchain technology. Global corporations such as Nike and Starbucks have already started moving.

Nike’s NFT marketing is one of the representative success stories of existing corporations. Nike created various sneaker NFTs using its own products and the swoosh logo. Having already secured a strong base of enthusiasts through various sneakers, Nike collaborated with virtual fashion company RTFKT to create digital sneakers as NFTs. Like resell prices on existing shoes and clothing, NFTs also formed high prices ranging from 2 million to 5 million won, and over 10,000 Nike NFTs registered on the global NFT marketplace, OpenSea, were sold within two weeks of their release.

Why NFT marketing?

NFT Marketing: Loyalty Customers

From music to characters, comics, art, and everything that can be called content, the keyword “worldview” has started to appear, and MZ generations, who have become the center of consumption, are enthusiastic about this keyword. Today’s consumers, including MZ generations, do not simply buy a product because it has good features or because it is from a traditional company. They have started to value storytelling, such as the background, production process, and philosophy, if the company and product have a certain level of functionality and design. This change has allowed brands with intellectual property to increase their brand value through attractive worldviews and storytelling and to produce loyal customers, along with other revenue models such as NFT.

What does NFT mean that companies are taking on challenges, and consumers are enthusiastic about it?

Targeting the New Generation & Rebranding

MZ generation cannot be excluded from the main target customers in the NFT market. They are relatively open to new technology such as blockchain and the digital world and are full of passion and ideals. From the perspective of brands, when they issue NFT and conduct events or promotions, customers think of the following keywords because they have used the emerging blockchain technology:

  • Young and trendy
  • Trendy
  • Security
  • Transparency
  • Front-runner

This makes consumers feel that the products or services they use are innovative and trendy. Similarly, conservative and outdated companies can transform into a new image through NFT, which allows them to break away from their existing image.

Providing a New and Unique Experience

Existing companies have made a lot of effort to provide customers with new experiences. To give customers a new experience, we need to consider all the novelty, creativity, and trends that catch the eye and can actually collect active users. When the MBTI test became popular, perfume companies and flower delivery companies created and promoted test apps like “Finding the scent that suits me” and “What flower would I be if I were born a flower?” Electronics companies also make efforts to provide visually pleasing experiences through offline stores and outdoor displays. Similarly, if you create NFT and web3 culture and approach customers, they will have a new experience with the brand, and the number of loyal customers will increase.

Activate Community

Online communities and social media platforms play a role as a bridge for users to share their interests and experiences. With the emergence and activation of NFT projects, users can contribute directly to the project through discussions and voting within the community, which will contribute to the growth of the brand and the NFT ecosystem. As the community becomes more active, the value of NFTs and brands will grow, and as NFTs and brands grow, community users will become more active, creating a mutually beneficial cycle.

NFT Marketing: A New Revenue Generation Model

Cryptopunk PFP, Source: larvalabs homepage

PFP

PFP stands for Profile Picture and refers to the practice of using an NFT (image) owned by an NFT holder on social media, community, or other online platforms as their profile picture. PFPs have gained significant popularity among digital natives and the so-called Gen Z users who value personalization and seek to express, share, and be recognized for something unique that they own. PFPs can serve as a good item, a new identity, and an investment for users who want to showcase and share their individuality and seek acknowledgment.

From a business perspective, understanding the concept of NFT and the consumption patterns of PFP collections can create many opportunities. Incorporating a company’s brand identity or product into a PFP can add value to the image and attract attention as a profile picture. Moreover, creating a dedicated platform or community and using

PFPs can help activate users and turn them into loyal customers.

Companies can encourage users to customize their PFP by offering items such as backgrounds, characters, clothing, and accessories for purchase or acquisition. They can also create events or benefits that are only available to users who own specific PFPs, such as a fan signing event for Justin Bieber fans holding his NFT or offering wireless earphones or watches to users who purchased Samsung Galaxy community NFTs when they buy new products. This is similar to the membership marketing model used by many companies.

If the model is well-established, the benefits offered can increase the price of NFTs, and users can naturally engage in a series of activities such as community participat

ion, activity, and promotion to obtain NFTs. The most crucial factors for success will be designing a well-thought-out business model and creating NFT designs that can attract users’ attention.

Digital Collectibles

Gamification Elements

In mobile games, users react not only to elements such as leveling up, winning, and boss raids, but also to various factors such as character customization, character clothing, character abilities and specs, and socialization within the game. Especially, famous RPG games made in Korea or China sometimes create their own communities to share information and their own characters for nurturing. In Korea, when users began to share information through a platform called Naver Cafe, game companies even started to build their own communities to collect users and gather feedback from them from the outset of game development.

With the emergence of the MZ generation as icons of personal expression and the trend of Web3, a community can be built to showcase and prove ownership of one’s own characters or items as NFTs, creating added value. This can also be used as a gamification element for general companies, measuring the data necessary to maintain customer attraction and retention and providing a new brand experience.

Lambda256’s CyphrlyStudio supports the operation of a daily ticket and pass system, implementing grade-based benefits and linking them to the community to increase user activity. Utilizing the technology of Fusion and creative implementation, users can maximize their desire for ownership by combining different NFTs to create evolving digital items. (Refer to the video above)

How to win the NFT brand marketing

To succeed in H2 NFT brand marketing, simply owning an IP and creating an NFT is not enough to market or secure loyal customers. What should companies planning NFT marketing prepare for?

Sustainable Contents

Companies can generate continuous revenue, enhance brand influence, and generate revenue by regularly releasing new NFTs or content and promoting user community participation. To achieve this, companies can update new series centered around collectible NFTs and release collaborative NFTs through partnerships with various influencers and companies. If various events and promotions are backed up and customers have more privileges and rights through NFTs, it would be even better.

Community operation

In general, there is a community involved in web3 projects such as NFTs. Representative examples include Twitter, Medium, and Discord. Especially in terms of community features, Discord is widely used, and users also develop their own platforms for communication. A community that allows users to create content, discuss with users and management, and make project decisions through voting is essential in NFT businesses, so it can be considered an important professional area in terms of operating methods and concepts. It is recommended to collaborate with talented individuals or partners who have a lot of know-how, as well-operated communities can lead to marketing, branding, and revenue generation.

Understanding of NFT and technology

To issue NFTs, it is necessary for planners to have an understanding of NFT business and blockchain technology, and developers are also needed to develop them. However, if you try to delve deep into things like ERC-721, Tokenomy, Smart Contract, etc., and hire a lot of staff to proceed with the project in a short period of time, it can lead to resource shortages and risk issues. Therefore, if only rough ideas or business directions are being discussed, it is common to collaborate with professional company partners who have expertise in blockchain technology and NFT business.

First, Utilize BaaS

If the NFT utilization scenarios and business models have already been clearly defined and tightly designed, and if there is a shortage of NFT design and community management personnel or development resources, it is advisable to utilize Blockchain as a Service (BaaS). BaaS is a platform where pre-created images, videos, information, and more can be entered through a console, allowing for the minting (issuing) of NFTs with just a few clicks. From a corporate perspective, it has the advantage of allowing developers to comfortably develop on the web console without the need for additional hiring, enabling them to easily and quickly allocate these resources elsewhere. Quick decision-making, design, and business model planning take a significant amount of time, so any delays in development can result in substantial losses. One notable platform is Luniverse by Lambda256, which utilizes side chains to create NFTs without gas fees, making it an efficient platform in terms of both cost and time.

Learn more about Luniverse NFT

Second, Utilize NFT Total Solution

If you want to enhance your brand’s lifetime value or have IP and are considering the direction and technical aspects of NFT, finding a solution partner who can solve all of these processes together is the most efficient way. Ultimately, to create a sustainable business environment by combining brand influence and customers through NFTs, all processes from reliability and originality through NFTs, trendy technology and creative design and concept, community building to increase customer contribution, blockchain technology, and business model establishment should be designed in detail. Lambda256’s Branded NFT Solution is a total solution that provides all of these processes in One Stop. It can be considered an attractive solution as it helps brands and customers successfully operate NFT projects with unique designs and concepts that do not compromise IP and brand colors.

 

NFTs are primarily used as blockchain tokens that represent ownership of profile pictures (PFPs), avatars in games or metaverses, collectibles, digital art, and assets. This is possible because NFTs are stored through blockchain technology, making it impossible to tamper with. If you already have attractive IP or are considering marketing and branding for brand influence and customer acquisition, why not think about using NFTs?

Are you interested in discovering how NFTs can benefit your brand??

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Luniverse NOVA X Polygon – 2. Polygon products

In the previous article, we briefly discussed what Layer 2 blockchain is and the background and history of Polygon, a prominent Layer 2 solution. You should have understood that Polygon is an Ethereum scaling solution that partially distributes Ethereum transactions as a Layer 2 chain.

In this post, we will explore the detailed information on the technologies that provide scalability to Polygon and various solutions it offers. To understand Polygon solutions, it is necessary to have a basic understanding of typical Layer 2 solutions.

Before diving into specific explanations of each solution, let me define and explain some basic concepts that are necessary to understand the content.

PoW(Proof of Work) vs PoS(Proof of Stake)

ZKP(Zero-Knowledge Proof)

Modular vs Monolithic Blockchain

Glossary for Layer 2 Solutions

PoW : Proof of Work

PoW (Proof of Work) is a consensus algorithm that gathers validated transactions when a transaction occurs and proposes them to a block. From this, it grants the right to obtain fees based on the computer computing power of each validator.

PoW is a consensus algorithm used by the current Bitcoin and past Ethereum 1.0.

The advantage of this type of consensus algorithm is that it can easily prevent network abuse from some nodes based on high decentralization. However, it has scalability issues due to the increasing computational power consumption inefficiency and block creation speed limitations with the gradually increasing mining difficulty.

To overcome these drawbacks, the alternative chosen when updating to Ethereum 2.0 was the PoS (Proof of Stake) consensus algorithm.

PoS : Proof of Stake

PoS(Proof of Stake) is a consensus algorithm in which the ‘stake’, or the amount of a network’s native token held by a validator, etermines their chance to propose blocks and earn rewards, rather than their computer computational power.

Although it is relatively more centralized compared to fully decentralized solutions, PoS guarantees network security by assuming that the more one has to lose in the network, the less likely they are to harm the network’s security or protocol. Additionally, because the cost of owning 51% of the network’s hash power is approximately 100 times higher in PoS than in PoW, centralized control by a specific entity is still considered unlikely. This approach is relatively more efficient than PoW because it does not rely on computer computational power for verification.

ZKP : Zero-Knowledge Proof

Zero-knowledge proof refers to a technique in cryptography where a prover who knows a specific piece of information can prove the truth of that information to a verifier without directly revealing the information itself.

The theoretical foundation of ZKP is the ‘Interactive Proof System’, which involves two parties: the ‘prover’ and the ‘verifier’. The prover tries to convince the verifier of the truth of a statement without revealing any additional information.

Interactive proof systems have the following properties:

  1. Completeness: If a statement is true, a sincere prover can convince a verifier with a high probability.
  2. Soundness: If the statement is false, a malicious prover cannot pass the verification.

ZKP is a special kind of interactive proof system in cryptography, where the prover can prove the truthfulness of a statement without revealing any additional information other than the statement being true. In other words, the verifier cannot learn any information about the actual proof or the intermediate values used by the prover.

Zero-knowledge proof requires the following additional properties:

  1. Zero-knowledge: If the statement is true, the verifier learns nothing beyond the fact that the statement is true.
  2. Simulator: Even if the verifier does not know the secret information that the prover has, there exists a simulator that can generate a transcript that is indistinguishable from the one generated by the prover and verifier.
  3. Witness-Indistinguishability: When multiple valid witnesses exist for a given statement, the verifier cannot distinguish which witness was used to generate the proof.

Interactive proof systems and zero-knowledge proofs are fundamental elements of cryptographic protocols that prioritize security and privacy protection.

Monolithic blockchain

Monolithic blockchain means a blockchain structure with a unified architecture where each node is responsible for consensus, data availability, and execution. In Monolithic chains, all transactions are verified on-chain, and the node protocol plays the role of the payment layer. All operations are processed on a single layer or the same layer, and they operate in tightly coupled chain groups. Blockchains that handle all roles, such as Polkadot’s parachains or Avalanche’s subnets, do not correspond to modular architecture.

Examples of these monolithic blockchains include Bitcoin, Ethereum (1.0), and Solana.

Modular blockchain

Modular blockchain refers to a blockchain structure in which one layer focuses on processing a single function among the four common components (duties) of a blockchain, including consensus, execution, data availability, and payments, while outsourcing the rest of the functions to a separate layer.

To understand how modular chains work, you first need to understand the “4 components” and “4 layers” of such blockchains.

1. Execution
The Execution layer is responsible for executing smart contracts in modular blockchains. Before a smart contract is executed, it validates the input data and performs the calculations, which are then reflected in the network state. This improves the security of smart contracts and can enhance the performance of the blockchain.

This layer supports transaction execution and enables the deployment and interaction of smart contracts.

2. Settlement
Settlement layer is responsible for reflecting the transformed state results of the Execution layer on the blockchain and providing finality to transactions.

It is responsible for finalizing and verifying transactions and permanently recording and storing them on-chain.

3. Consensus
The consensus layer verifies and confirms the validity of new transactions to be added to the blockchain. This is typically achieved through consensus mechanisms such as Proof of Stake or Proof of Work, and the consensus protocol determines the order of transactions and how new blocks are added to the chain.

The consensus layer agrees on the validity order of transactions.

4. Data availability
The data availability layer ensures that all nodes have access to the necessary data, such as for verifying the validity of transactions and participating in the consensus process. This is achieved by providing a mechanism for nodes to request and obtain transaction data from each other, and by storing the data in an easily accessible format on-chain.

The data availability layer ensures the availability of transaction data.

Modular blockchain is a way of processing the above 4 components by distributing them to different layers according to their functions. Unlike the monolithic blockchain that processes all functions in one layer, modular blockchain can process functions more efficiently, and can improve the scalability problem of blockchain.

Examples of modular blockchains include Ethereum (2.0), Celestia and Polygon Avail, Validiums, and Rollups.

2-0. Layer 2 Scaling Solution

Roll-up

Roll-up is an Ethereum L2 scaling solution that processes transactions on Layer 2 and sends only the final result to the Ethereum mainnet on Layer 1, reducing the load on the mainnet and improving throughput.

[ Source: Naver Dictionary ]

In a Roll-up, multiple off-chain results are collected and computed, and a summary of this information is bundled and stored on-chain as a single result.

In a Roll-up, multiple off-chain results are collected and computed, and a summary of this information is bundled and stored on-chain as a single result.

[ Source: Vitalik Buterin Blog ]

There are two main types of roll-ups in Ethereum: Optimistic Roll-up and ZK Roll-up.

1. Optimistic Roll-up
Optimistic Roll-up performs transaction verification using the fraud proof method. The sequencer submits the transaction data to Ethereum and assumes that the data is correct by default. Validators can raise objections if they discover incorrect data during a certain period. After the objection period expires, the data is considered correct and the Optimistic Roll-up state is finalized.

This method supports general smart contracts, has low initial implementation costs, but can incur high gas fees during objection and verification processes.

2. Zero-Knowlege Roll-up
Zero-Knowledge Roll-up uses a validity proof method to verify transactions. The sequencer submits the transaction data along with zero-knowledge proofs to Ethereum.

This proof is used to verify that the transaction data is correct and any incorrect data is rejected from the start. Therefore, ZK Roll-up does not require an objection period, and reached state finality more quickly.

This method provides higher security and lower gas fees, but may have limitations in supporting complex smart contracts.

The main difference between Optimistic Roll-up and ZK Roll-up is the method used to verify transaction validity.

When the sequencer records data on L1, Optimistic Roll-up and ZK Roll-up each use fraud proof and validity proof methods, respectively, to verify the transaction. In Optimistic Roll-up, if the “sequencer” submits an incorrect record, the “verifier” can raise an objection, and if no objections are made during the objection period, the record is confirmed. Through these roll-up solutions, the scalability of the Ethereum network is improved.

In conclusion, using roll-ups greatly improves the processing speed of the Ethereum mainnet, reduces transaction costs, and enhances blockchain scalability. Through this, Ethereum can support a wider range of use cases and larger-scale applications.

Zero-Knowledge rollups | ethereum.org

Sidechain

The basic concept of a sidechain is to build a new blockchain next to the main chain, and allow assets to move freely between the newly built blockchain and the main chain through a 2-way peg bridge.

The purpose of sidechains is to address the scalability problem of the main chain by building a new blockchain and allowing the assets transferred from the Ethereum network through the bridge to be used in the sidechain with lower fees and faster processing times.

However, sidechains have a critical disadvantage in that the network security level depends not on the security of the main chain but on the unique security of the sidechain. Even if the consensus algorithm used in the sidechain is PoS or PoW to achieve a higher level of network security, in most cases, the security level is lower than that of the main chain.

SIDECHAINS

Plasma

The basic concept of Plasma is to create a series of small sub-chains (child chains) connected to the main blockchain (parent chain). Each child chain independently processes transactions and applies its own rules, while periodically submitting transaction summaries (block roots) to the parent chain for verification. This allows the parent chain to maintain a high level of security and decentralization while processing a large number of transactions.

Like sidechains, Plasma can also build a new blockchain to improve scalability and can have a different consensus algorithm than the main (parent) chain. However, unlike sidechains, Plasma depends on the security of the main chain by periodically submitting the block roots, which are the Merkle root values of the blocks in the form of a Merkle tree, to the main chain.

Merkle tree is one of the data summarization methods that can quickly detect data tampering at the block level. The information of Plasma blocks is summarized in the form of a single hash value called block root generated by this Merkle tree. Users can prove the validity of transactions through the main chain, which stores the block roots. Therefore, even if a child chain is attacked, users can safely withdraw their funds through the main chain. This can be considered the biggest advantage over sidechains, where an attack can result in the loss of all assets.

Validium

Validium is an L2 scaling solution that uses off-chain data storage and processing to improve Ethereum’s throughput. Similar to ZK-rollups, it publishes Zero-Knowledge Proofs to validate off-chain transactions in Ethereum, ensuring correct state transitions and enhancing the security of the Validium chain.

Validium improves Ethereum’s scalability through the following methods:

1. Off-chain data storage
On-chain refers to transactions or data processing that occur and are recorded directly on the blockchain network, while off-chain refers to those that occur outside of the blockchain network. By storing off-chain data, transaction data can be kept outside of the Ethereum network, and only state commitments and validity proofs are published to the Ethereum mainnet, thereby increasing throughput.

2. Recursive proofs
Recursive proofs are an important concept in zero-knowledge proof systems, the process proving the verification of a proof again. Recursive proofs can compress multiple proofs into one, reducing the overall size of the data and speeding up the verification process. Similar to how a Merkle root created through the Merkle tree method can quickly verify the validity of multiple blocks, recursive proofs can verify the validity of multiple Validium blocks at once, leading to faster blockchain processing.

Validium provides integrity assurance of off-chain transactions through validity proof, and offers gas cost reduction, fast transaction throughput, and scalability improvement on Ethereum mainnet, making it suitable for specific use cases. However, Validium requires special hardware and high computing power, has limited support for general computation and smart contracts, and may limit user fund withdrawals due to the security model that relies on the continuous availability of off-chain data.

State Channels

State Channels are a solution for processing transactions off-chain that can occur on a blockchain. They improve speed and reduce costs without significantly increasing the risk for participants, and are developed for the purpose of improving the scalability issues and transaction processing speed of blockchains. State channels essentially go through the following steps:

1. A specific part of the blockchain (e.g. account balances of specific participants) is locked using multi-signature or smart contracts. This ensures that specific participants must fully agree before the state can be updated.

2. State channels have some limitations since all participants need to be online, and signatures from all participants are required for all state changes. However, they can improve scalability and performance of blockchains.

3. In conclusion, State Channels process blockchain transactions off-chain to solve scalability issues and improve speed and cost for participants. This enables blockchain technology to be applied to a wider range of situations and systems to operate more efficiently and reliably.

In conclusion, State Channels process blockchain transactions off-chain to solve scalability issues and improve speed and cost for participants. This enables blockchain technology to be applied to a wider range of situations and systems to operate more efficiently and reliably.

An Incomplete Guide to Rollups

Data Availability Problem

Data Availability refers to the ability of block proposers in a blockchain network to publish all transaction data included in a block and make this data accessible to all network participants. In other words, it refers to the ability of all nodes on the network to access and download the data contained in the blocks on the network. This plays an important role in blockchain networks and ensures that transactions are valid and the blockchain is operated safely.

However, there are limits to maintaining data availability. Demanding that blockchain nodes download and verify data can reduce throughput, causing the processing speed of the blockchain network to slow down. Additionally, as the size of the network increases, storage capacity also increases, increasing hardware requirements and reducing the number of individuals operating all nodes. Ultimately, this increases the risk of centralization.
Data availability

2-1. Polygon Solutions

[Source: Polygon Technology]

Polygon provides a wide range of scalability, infrastructure, and privacy solutions for Ethereum, including sidechains (Polygon PoS) and zk-ID solutions (Polygon ID). In addition, Polygon offers faster, cheaper, and safer solutions through the Polygon SDK, Plasma-based solutions, PoS chains, and four inter-connected zk solutions.

Polygon provides a wide range of scalability, infrastructure, and privacy solutions for Ethereum, including sidechains (Polygon PoS) and zk-ID solutions (Polygon ID). In addition, Polygon offers faster, cheaper, and safer solutions through the Polygon SDK, Plasma-based solutions, PoS chains, and four inter-connected zk solutions.

All projects within the Polygon ecosystem are interoperable regardless of deployment location.

[Source: Polygon Technology]

This framework showcases customizable solutions that are either released or in development to promote blockchain adoption.

Polygon’s solutions support standalone chains and secured chains, and all solutions belong to these two types of chains.

1. Stand-alone-chains
Stand-alone chains are Ethereum-compatible blockchain networks with full sovereignty that provide projects with maximum independence and flexibility as a self-sufficient side chain with self-security. They are most suitable for use in existing projects with large communities for enterprise and validator security.

2. Secured Chains
Secured Chains are blockchain networks that offer security as a service, either through Ethereum or directly through professional validators. They provide the highest level of security but have the drawback of being somewhat less independent.

Below, we will provide a description of the purpose, functionality, and technical details of each solution.

Public Chains

Polygon PoS

Polygon PoS is the public chain of the Polygon network in the form of an Ethereum sidechain, which utilizes Proof-of-Stake (PoS) consensus algorithm and Plasma. Polygon PoS is designed to solve Ethereum’s scalability issues and provide faster speeds and lower fees. Beyond just being an Ethereum sidechain, Polygon PoS provides a tool to bundle multiple blockchains in Polygon to assist Ethereum’s expansion, enabling developers to receive L2 solutions such as ZK-rollups or Optimistic rollups to help Ethereum’s expansion.

In addition, Polygon PoS ensures asset protection through its strong Plasma chain and distributed network of Proof-of-Stake (PoS) validators, as well as its L2 scaling approach that utilizes sidechains for transaction processing, enabling unprecedented transaction speed at a lower gas cost.

The Polygon PoS network is composed of three layers as follows.

[Source: Polygon website]

Bor Layer :
The Bor layer is responsible for collecting randomly generated transactions to create blocks. Blocks created by Bor nodes are validated by Heimdall nodes, and the block root of validated blocks is eventually committed to the Ethereum main chain via Heimdall.

Heimdall Layer :
Heimdall is a set of PoS nodes that run in parallel with the Ethereum mainnet. The Heimdall layer is responsible for managing Proof-of-Stake (PoS) and block verification in Polygon PoS. It validates blocks generated by Bor, selects block producers in the Bor layer, and commits checkpoints to Ethereum’s smart contracts.

Ethereum Layer :
This is a set of contracts on the Ethereum mainnet. There are smart contracts that allow users on the Ethereum network to stake or delegate MATIC tokens to validators. And also the Ethereum layer also performs the function of storing checkpoints.

[Source: Messari]

The chart above quantifies the average transaction costs of Ethereum and Polygon PoS. While Ethereum’s average payment cost is over $20, Polygon PoS’s average payment cost is just $1, achieving significant gas cost savings while maintaining the security of Ethereum.

However, there is a fundamental issue with Plasma known as ‘Data Availability problem‘.

Due to these limitations, resources are being focused on layer 2 scaling and ZK-rollups to improve throughput and find better solutions.

Polygon Avail (DA layer)

Polygon Avail is a data availability solution that brings transaction data off-chain and allows ZK-rollups to send only transaction execution proofs to Ethereum, saving block space and costs.

In traditional Plasma networks, transaction data is stored off-chain in a centralized manner, which is cost-effective but creates data availability issues. On the other hand, rollups solve this issue by storing transaction data on Ethereum, but the network usage results in high costs.

However, Avail addresses this problem by externalizing the data availability layer off-chain and transforming the rollup into Validium. While the transaction list is published to Avail, only small proofs of transaction execution are posted to Ethereum, reducing time and cost by about nine times.

Avail is a solution that Polygon has been focusing on recently. If you want to learn more about Avail in more depth than this article, please check the Polygon Avail link if you’re interested.

Polygon Hermez 1.0

Polygon Hermez is one of the ZK-rollup solutions that emphasizes decentralization, making it an L2 solution that does not require centralized operators. It is an open-source rollup that applied a decentralized operator on top of the Ethereum mainnet and has been available since March 2021.

Users can deposit funds on the rollup network to facilitate fast wallet-to-wallet transfers and payments. It can process up to 2,000 transactions per second, and currently offers transaction fees that are approximately 7 times lower than the Ethereum mainnet gas fees.

Two types of zero-knowledge proofs used: zk-STARK & zk-SNARK
Polygon Hermez uses both zk-STARK and zk-SNARK, two types of zero-knowledge proofs, and while zk-SNARK is used for fast proving purposes, it generates heavy zk-STARK proofs. zk-SNARK is a ‘validity proof’ for a state change that proves the integrity of zk-STARK proofs and can reduce gas costs by up to 15 times.

Decentralized Sequencer
The sequencer of existing roll-up networks is centralized as it receives verification from Ethereum, raising concerns about MEV centralization. Hermez has decentralized its sequencer by introducing a new consensus algorithm called PoE.

Introduction of zkEVM
Hermez has introduced zkEVM, which gives it higher Ethereum compatibility than StarkNet or zkSync. This is expected to make it easier for Ethereum dApps to integrate with Hermez.

Polygon zkEVM (Polygon Hermez 2.0)

[Source: Polygon website]

Polygon zkEVM is Polygon Hermez 2.0, which combines the existing zk-rollup and zkEVM and was renamed to Polygon zkEVM in July 2022.

Based on zero-knowledge proofs technology, it is a decentralized Ethereum L2 scalability solution that provides validity and fast finality for off-chain transaction computations called zk-rollups. It was introduced to directly address the issue of Ethereum’s trilemma, which states that without sacrificing decentralization or security, it is impossible to expand beyond transaction limits.

The benefits of Polygon zkEVM are as follows.

1. Provides a nearly identical experience to EVM :
Since full verification is resource-intensive, ZK Rollup has only been able to implement and operate certain features in a zero-knowledge proof-friendly language, or provide partial functionality, such as supporting simple token transfers and swaps that do not support general-purpose smart contracts, but with the development of zkEVM, it has been possible to provide EVM opcode-level compatibility. This allows developers to import and use Solidity smart contract code just like any other EVM-compatible network.

Polygon zkEVM is a virtual machine designed to emulate an EVM by reproducing existing EVM opcodes for transparent deployment of smart contracts on Ethereum. It can significantly improve Ethereum’s scalability and TPS by developing zero-knowledge rollups (ZK-Rollups) that run on top of the Ethereum mainnet.

2. Reduce fees and inherit Ethereum’s security:
Inherit Ethereum’s security while reducing transaction costs and increasing throughput using zero-knowledge proofs. Developers can easily move existing dApps compatible with the Ethereum Virtual Machine to zkEVM using programming languages and tools they are already familiar with.

In other words, zkEVM provides an almost identical experience to EVM, but with the added benefit of scalability of zero-knowledge proofs.

At the time of the zkEVM announcement, Vitalik Buterin (founder of Ethereum) categorized zkEVMs into four types, with Polygon EVMs described as Type 3 with the possibility of moving to Type 2 with additional releases.

Type 1: Ethereum equivalent steps
zkEVM is the technology that is ultimately needed to make Ethereum layer 1 itself more scalable. Type 1 is the stage where there are no differences from the Ethereum system. It’s the ideal rollup because it’s fully compatible and can reuse much of the existing infrastructure of Ethereum.

Type 2: Equivalent steps to EVM
The zkEVM of Type 2 is the equivalent of an EVM, but not fully equivalent to Ethereum. zkEVM at this stage removes unnecessarily complex parts of the Ethereum stack, and actually provides faster proof times than Type 1. Because it uses a different hash function, it cannot use the infrastructure of the Ethereum system as is, but it can be used with some modifications.

However, due to the unfriendliness of EVM and ZK, proof times can still be slow.

Type 3: Steps closer to EVM
Type 3’s zkEVM has the advantage of being easier to build and faster to validate by removing some features that are difficult to implement at this stage. However, this comes at the cost of being less compatible with more applications.

Type 4: Advanced Language Stage
The zkEVM of Type 4 compiles smart contract source code written in high-level languages (Solidity, Vyper, etc.) into a ZK-SNARK friendly language. By executing in a high-level language instead of doing ZK proofs for each part of the EVM execution phase, many overheads can be avoided and costs can be significantly reduced.

However, if this is not a typical application written in Solidity or the like, you should keep in mind the following compatibility issues.

Polygon Zero

Polygon Zero began as the Mir Protocol, a decentralized application project powered by Recursive-ZK-Proofs, a solution to the problem of transaction delays and high gas costs due to the TPS limitations of the Ethereum network, with the goal of building the world’s fastest ZK rollup.

‘Recursive ZK Proofs’ increase the number of transactions that can be processed at once, providing lower speeds than traditional proof generation systems.

Traditional ZK rollups required significant computing resources to generate proofs for batches containing a large number of transactions, and were slower when EVM compatibility was required to support general purpose applications.

Recursive ZK Proofs, on the other hand, allow a recursive algorithm to aggregate all the proofs as each transaction is validated and eventually organize them into a single proof, making mainnet transmission of the final proof faster and less expensive.

Fastest recursive proof constructor

[Source: Messari]

Polygon Zero made this possible with a recursive ZK proof generator called Plonky2, which can generate a SNARK proof every 0.17 seconds. In 2019, Plonky2 took two minutes to generate each recursive proof, but today it has reduced the generation time to 0.17 seconds, making it the fastest recursive ZK prover in the world.

Polygon Miden

[Source: Polygon website]

What is Polygon Miden

Polygon Miden is the first decentralized rollup that can simultaneously utilize proof of execution for local transactions. It is one of Polygon’s ZK rollup solutions and differs from many other rollups in that it prioritizes ZK-friendliness over compatibility with EVMs. Miden aims to extend the capabilities of Ethereum by emphasizing a ZK-centric design.

A paradigm shift in validation
Blockchains rely on reruns for verification, but reruns require transparency and processing power, and verification by reruns slows down the blockchain.
However, zero-knowledge proofs offer the possibility of verification without re-execution (transparency and processing power).

Run smart contracts locally
Polygon Miden users can execute smart contracts locally and send zero-knowledge proofs to the network. This allows operators to validate and update state faster than executing the original transaction.

The reduced computational burden enables parallel processing and allows transactions to be processed at minimal cost.

The advantage of storing assets locally in accounts is that it forces an attacker to attack every account individually, making it harder to exploit potential bugs.

Asynchronous execution
We avoid having to change the public state of most transactions, which is possible because all interactions between smart contracts are made asynchronous.

Asynchronous interactions improve the processing efficiency of a blockchain by allowing each transaction to be processed independently and the results to be combined later.

The asynchronous execution model mitigates risk by preventing the transfer of funds to non-existent addresses.

SNARK & STARK
While most ZK rollups use ZK-SNARK (Succinct Non-interactive Argument of Knowledge), Miden uses a different proof approach called ZK-STARK (Scalable Transparent Argument of Knowledge).

While both SNARK and STARK have in common that they act as privacy and scaling technologies and provide applications with the ability to validate attestations more securely and at a faster rate, they differ in the details.

App Specific Chain

Polygon Edge

[Source: Polygon website]

Polygon Edge is a modular blockchain development framework that supports a variety of scaling and infrastructure solutions for developing Ethereum-compatible chains. Similar to Substrate (Polkadot) or Cosmos SDKs, Edge facilitates the development of application-specific chains.

Launched in May 2021, Polygon Edge is a scalable, modular framework for building Ethereum-compatible blockchain networks, renamed from the Polygon SDK. SDK stands for “Software Development Kit” and allows blockchain developers to build their own blockchain networks and leverage Polygon’s technology and infrastructure.

Different edge modules

There are a variety of modules that you can customize to meet the needs of your business, each of which performs the following functions

  • Blockchain: The blockchain layer that coordinates everything within the Polygon Edge system.
  • Consensus: A module that allows you to choose the consensus mechanism your new blockchain will use.
  • State: A layer that uses state transition logic to help with the process of changing states.
  • Libp2p: A modular framework that provides the foundation for Polygon Edge, Libp2p allows nodes to interact with each other and participate in complex processes such as consensus and block synchronization.
  • Storage: Modules for LevelDB data storage and in-memory data storage.
  • JSON RPC API: Helps dApps developers connect to the blockchain.
  • Sealer: A module that collects transactions and helps create new blocks.
  • TxPool: Serves as a centralized module for transaction processing, processing transactions manually added or received from other nodes.
  • Minimal: Acts as a hub for all modules running within the Polygon Edge network.

Two consensus mechanisms

Polygon Edge uses a consensus mechanism that supports two forms of PoA and PoS.

(1) IBFT Proof of Authority (PoA)
PoA is a relatively simple and easy-to-understand consensus method that can provide fast block generation times and high throughput as long as validators are trusted. It is the default consensus algorithm, and validators are responsible for creating and adding blocks to the blockchain. Validators form a dynamic set of validators, and a voting mechanism allows validators to be added or removed.

So, if a majority (51%) of the nodes vote to add/remove a particular validator, the validator is added/removed from the set. This process helps to remove malicious validators from the network and add new trusted validators.

(2) Proof of Stake (PoS)
PoS is an alternative to IBFT PoA that allows node operators to choose one of the two consensus mechanisms before starting a chain.

Polygon Edge introduces the concept of epochs, where blocks can be generated by a specific group of validators for a specific amount of time. Node operators can change the length of an epoch during genesis. During each epoch, the validator set is modified, and nodes query the validator set while designing epoch blocks.

PoS is perceived as a green mechanism due to its energy efficiency, enhances security by requiring investment from nodes participating in the consensus, and retains nodes through economic incentives and penalties.

Conclusion
Polygon Edge makes it easy for developers to implement different scaling solutions, consensus mechanisms, and other features by giving them the option to choose a customized blockchain and consensus mechanism, as well as additional features.

Polygon Supernets

[Source: Polygon website]

Polygon Supernets launched in April 2022. Powered by Polygon Edge, they are application-specific blockchain networks designed for specific use cases.

[Source: Polygon Supernets Sales deck]

Supernets is powered by Polygon Edge, but they are not the same thing.

Polygon Edge is a blockchain development framework that provides a variety of scaling and infrastructure solutions.

Polygon Supernets, on the other hand, provides an environment for building high-performance, customized blockchain networks using this framework.

Polygon Edge can be seen as part of Polygon Supernets, a collection of interconnected networks that can act as a secure data sharing hub and foster collaboration. It solves the scalability and throughput challenges that developers face when building blockchains, and allows users to quickly build customized networks.

There are four benefits to using Supernets, including

1. Communication with other blockchains (diversity)
Supernets utilize a variety of technologies, including atomic swaps, cross-chain tokenization protocols, and sidechains. You can think of them as bridges between networks that allow different blockchains to communicate and interact with each other through these technologies.

2. Full support for EVMs and smart contracts
By integrating EVM into the Supernet framework, developers can use high-level languages like Solidity to compile smart contracts created on the platform into EVM bytecode. Developers can also easily port Solidity contracts to Supernets without modification. Thanks to this EVM support, developers with Ethereum experience can easily leverage Supernet utilities with their existing skills and knowledge to create new applications.

3. Support from Polygon Edge Certified Partners
App developers who are inexperienced in creating, managing, and maintaining blockchain networks will not be able to do so effectively. Polygon offers Edge Certified Partners, which consist of certified development teams that can help address these challenges. The company has also created a $100 million fund to support the development and adoption of supernets.

4. Customizable, high-performance blockchain networks
Provides a modular framework and simplifies blockchain development, helping you build a customized blockchain network that fits your business logic, and offers an open architecture that simplifies integration with existing blockchain networks.

Onchain Privacy

Onchain privacy is a concept for protecting the privacy and confidentiality of transactions and user data on a blockchain network. By default, blockchains provide transparency and immutability, meaning that all transactions and data are public and permanently recorded. Because of these characteristics, concerns about privacy and confidentiality can arise. Currently, these concerns and issues are being addressed through technologies such as cryptography, zero-knowledge proofs (ZKPs), mixing services, and ring signatures. This allows organizations and individual users to protect sensitive information while utilizing the benefits of blockchain.

Polygon ID

[Source: Polygon website]

Polygon ID is a Web 3 identity system that integrates into Polygon zkEVM to build a unified on-chain privacy extension service, and uses zero-knowledge proofs to help users verify their identity online without sharing sensitive information with third parties.

The Identity SDK and Wallet dApp development interface can be launched to connect more applications, and the identity infrastructure can facilitate trusted and secure relationships between apps and users based on the principles of self-identity and privacy by default.

Protecting privacy with zero-knowledge proofs

Identity holders using zero-knowledge proofs can be verified while keeping their personal data private. During the VC verification process, you only need to show proof that you are the owner of a VC that matches certain criteria, without telling the verifier the actual VC.

Blockchain Unique ID & On-Chain Verification

Proof-of-stake verification can be performed off-chain or on-chain via smart contracts. Off-chain data in the form of VCs can now be used for on-chain verification, allowing you to guarantee on-chain transactions that were previously difficult to trust.

Granting autonomy

A Polygon ID gives you sovereignty. The user is the only one in control of their private key, which can be shared with third parties without permission from the issuer that issued the VC.

Just as Polygon zkEVM came from the Hermez acquisition, Polygon ID is a package based on iden 3.

It is encapsulated on top of iden 3, a decentralized identity protocol that uses zero-knowledge proof technology, allowing validators to verify that personal credentials are valid without obtaining personal data. This makes it easy to migrate real-world identities to Web3, while protecting user privacy and meeting regulatory requirements such as KYC/AML.

Polygon Identity Framework Architecture

The architecture of the framework consists of three modules: Identity Holder, Issuer, and Verifier.

[Source : Polygon ID Documentation tutorials]

(1) Identify Holder
The holder’s identity information signed by the issuer. You receive a Verified Credential (VC) from the issuer and store it in your wallet, which generates a zero-knowledge proof and provides it to a validator. The validator checks to see if the proof matches certain criteria and returns the result. Identity data is not revealed during this process.

(2) Issuer
Any entity that issues a VC to a certificate holder, which is cryptographically signed by the issuer and delivered to the verifiable certificate holder.

(3) Verifier
The verifier validates the proof presented by the holder. The holder requests to send a proof based on the VC held in the wallet, and during the proof verification, the verifier performs a series of checks.

Use cases

  • DAOs: Polygon ID enables DAOs to verify membership without revealing a member’s identity.
  • KYC: Create solutions that allow users to qualify for KYC with a single proof and avoid having to disclose personal information again when accessing financial and other high-value services.
  • E-commerce: Increase payment security by providing an identity layer for customers, and save on payment data storage costs.
  • Secured lending: Combine personal credit scores and more with a persistent identity, which can be used to bring the necessary elements for secured lending on-chain.
  • Portable avatars and reputation: store and update digital assets, achievements, and progress for use across different games and metaverses.

Several projects have already committed to integrating Polygon ID at launch, including Kaleido, Fractal, and Collab.Land, which collectively have a user base of more than 4 million. In addition, metaverse platform The Sandbox and builder community Guild.xyz will also integrate Polygon ID.

Polygon Nightfall

Polygon Nightfall is a blockchain solution that provides decentralized private transactions for enterprises. The project is a collaboration between Polygon and EY and leverages optimized zero-knowledge technology to provide enterprises with a secure and accessible blockchain network.

Polygon Nightfall seeks an optimal approach to address the challenges of public and private blockchains. While public blockchains offer less privacy, private blockchains increase the likelihood of data alteration, reducing trust.

Polygon Nightfall introduces an Optimistic-ZK hybrid approach to solve the problems of private and public networks, providing complete privacy and anonymity without sacrificing the openness, immutability, and security of the blockchain.

The main advantages of Nightfall are reliability, confidentiality, and efficiency, providing organizations with the most efficient way to conduct business transactions on public networks while enjoying complete transaction anonymity.

2-2. Road map

So far, we’ve seen 2-1 Polygon Solutions to address issues like data availability and scalability in traditional networks.

In the final part of this article, 2-2 Road map, we’ll take a look at Polygon’s roadmap to see what problems we’ve solved and what problems we’ll be solving in the future.

~Prior to April 23

  • 2017
    • MATIC Network founded
  • 2019
    • Binance IEO
  • 2020
    • Mainnet launch – PoS chain and Plasma chain launched
  • 2021
    • February: Matic – Polygon rebranding
    • August: Polygon merges with zk-rollup platform Hermez
  • 2022
    • February: Polygon VC round completed – $450 million raised in new venture funding round
    • April: Committed to carbon-negative roadmap
    • July: zkEVM – Unveils first ZK scaling solution that is fully equivalent to an EVM
    • October: Polygon zkEVM testnet launched
  • January 2023
    • Polygon Labs is introduced
    • Polygon Foundation founded
    • Polygon PoS hard fork V0.3.1
  • March 2023
    • zkEVM mainnet beta launch
    • Launch of Polygon Avail’s mainnet – complete separation of Avail from Polygon Labs

Roadmap for April 23 and Beyond

  • 2023-04 : Polygon zkEVM Mainnet to be launched – ZK Scaling
  • 2023-05 : Nightfall first product will be released
  • The public testnet for Polygon Avail is already up and running, with further announcements on the roadmap and public mainnet plans coming soon.

If you look at Polygon’s roadmap, you’ll see that in the past we’ve focused on improving scalability, and in the future we’re focused on solving on-chain privacy and data availability issues.

(Data Availability)
Polygon Avail maximizes the characteristics of a modular blockchain, which handles only data availability (and consensus) among the blockchain’s duties, leaving computation to other layers.

(Onchain Privacy)
Polygon ID provides users with a secure digital identity.

Use zero-knowledge proofs to help users verify their identity online without sharing sensitive information with third parties.

Polygon Nightfall is a privacy-enhanced product.

  • A public network focused on enterprise customers.
  • Reducing transaction costs and ensuring privacy for enterprises
  • Polygon and Ernst & Young (EY) collaboration
  • Reduces the cost of private transfers of ERC20, ERC721, and ERC1155 tokens
  • Leveraging Optimistic Roll-up technology and Zero-Knowledge Proof

OUTRO

In the second installment of our polygon series (2. Polygon products), we talked about how polygons are structured, what problems they have, how we’re solving them, and what problems we’ve solved and are focusing on.

Three-line summary

✅ Polygon has a unique structure called the Modular Blockchain.

✅ Through this unique structure, Polygon solves a problem for Ethereum by providing a variety of Layer 2 scaling solutions for the Ethereum network.

✅ Polygon has been focusing on solving various issues, ranging from scalability problems to the current challenges of on-chain privacy and data availability (DA).

In the next article (3. Polygon in Number), I will provide a detailed numerical analysis of polygons so that you can make a concrete, numerical decision about why you should choose a polygon.

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Luniverse NOVA X Polygon – 1. What is Polygon and Layer2?

This series of posts has been produced in collaboration with the Aslan Academy’s research team, ART: Aslan Research Team, a blockchain research society. In light of the Luniverse NOVA’s support for the Polygon chain, this series has been prepared to facilitate an understanding of Polygon. The content has been structured to be easily comprehensible without complex knowledge of blockchain, allowing for an effortless reading experience.

1-0. What is Polygon ?

Polygon is a prominent Layer2 chain for Ethereum, initially launched in 2017 with the aim of addressing Ethereum’s scalability issues. Key features of Polygon include high compatibility with Ethereum, reduced gas fees through enhanced scalability, and a variety of sub-products. Leveraging these strengths, Polygon has become a leading public blockchain as of 2023, boasting the second-highest on-chain transaction volume with an average of approximately 90 million transactions per month.

Numerous DApp projects have been steadily migrating to Polygon to take advantage of its stability and scalability. In addition, major Web2 companies such as Starbucks, Coca-Cola, Reddit, Meta, and JP Morgan have also onboarded their Web3 projects through Polygon over the past year.

Mike McGlone, chief strategist at Bloomberg, has mentioned that Polygon serves as a beacon for blockchain developers, as it employs cutting-edge zero-knowledge technology to guarantee privacy and transaction processing speed. He stated, “There is no protocol that can compare with the network efficiency provided by Polygon (MATIC).”

In this series, we’ll analyze why Luniverse’s Polygon is gaining the trust of enterprises and investors in three posts.

  • Luniverse NOVA X Polygon – 1. What is Polygon and Layer2?
    • An overview of how polygons came to be.
  • Luniverse NOVA X Polygon – 2. Polygon products
    • Polygon’s products and technical details
  • Luniverse NOVA X Polygon – 3. Polygon in Numbers 
    • Analysis of polygons through numbers

In this article (1. What is Polygon and Layer2?), we will introduce what polygons are, how they came into existence, and how they solve the problems of existing blockchains.

 

1-1. Ethereum

Before delving into the core topic of Luniverse NOVA and Polygon, we will first summarize the concept of Ethereum, which was the prominent public blockchain prior to Polygon, and address the challenges it encountered.

Ethereum Overview

Ethereum is a blockchain platform for running DApps and smart contracts. Vitalik Buterin, who first proposed the concept of Ethereum, wanted to address the limitations of Bitcoin (launched in 2013), which only allowed for a limited scripting language, by introducing the concept of the Ethereum Virtual Machine (EVM), which could run code of arbitrary complexity, enabling general-purpose programming. Vitalik Buterin released the Ethereum whitepaper in December of that year, and on July 30, 2015, Ethereum’s first block was mined, officially launching Ethereum into the world.

Ethereum uses a relatively well-known cryptocurrency called ETH (ether) to process transactions; it uses a distributed ledger to process transactions, the same as Bitcoin; it supports the development of decentralized applications (DApps) and smart contracts using a language called Turing-complete Solidity; and it is a public chain with a decentralized network to ensure trust and transparency away from centralized systems.

Nevertheless, with the launch of successful projects like CryptoKitties and NFT Boom, Ethereum’s performance issues and the security of its assets have continued to raise concerns, and to address them, Ethereum has undergone several protocol changes through soft and hard forks.

So, what are the inherent Problems facing Ethereum?

Ethereum’s Problem: The Trilemma

The systemic Trilemma of blockchain means that Scalability, Decentralization, and Security have conflicting properties, making it difficult for a blockchain to solve them all at once.

Vitalik Buterin, the co-founder of Ethereum, wrote about “The Scalability Trilemma” in his blog, “[Why sharding is great: demystifying the technical properties (2021.04.07)]” A few days later, he wrote about the limits of blockchain systems in his own article, “[The Limits to Blockchain Scalability (2021.05.23)]”.

The Trilemma derived from The Scalability Trilemma, or what we call the Blockchain System Trilemma, best describes the problem with Ethereum that we’ll be addressing.

First, let’s start with the Problem of Ethereum’s Scalability. Ethereum’s scalability has been discussed as a major issue preventing the mass adoption of blockchains for the following reasons: does Ethereum, the leading public blockchain, actually have the performance to support commercial services?

3. Low Scalability – low information throughput (TPS).

Low information throughput simply means that the amount of transactions that can be processed in a second (Transactions per second, TPS) is very low. Ethereum averages (24.02 TPS), with a high of 56.88 TPS (block number 15377496). Compared to traditional Mastercard (5,000 TPS) and Visa (24,000 TPS), Ethereum (24.02 TPS) can be viewed as a significantly lower throughput of information per unit time to run applications.

2. High Transaction Fees – high demand compared to supply (gas fee inflation)

The low TPS of a blockchain creates a market where users have to compete to be selected by the block producers (miners) for transactions. For this reason, if there are more transactions to be processed (demand) than there are blocks to be created (supply) in Ethereum, the gas fee to be paid to those block producers (miners) will be higher. In other words, low scalability = low information throughput per unit time (small block size or low processing speed) leads to higher fees per unit transaction. (For more details, see this article).

This means that you could end up paying about 20,000 won in gas fees to send about 1,000 won to an acquaintance.😅 Below is a transaction created recently (23.04.19). The actual amount sent is $6.64 (about 8800 won), but the transaction fee is $4.35 (about 5800 won). That’s about 65% of the transaction amount in fees.

3. large number of Network Users (160 million addresses) – increasing demand.

With the above two problems of low scalability, these problems become more serious as the number of Ethereum users increases. Therefore, it is difficult to use Ethereum for dapps that require stable performance.

So, can’t these scalability issues simply be solved technically?

Here’s a great article from 2021 by Vitalik Buterin on the limits of blockchain scalability. It summarizes why the blockchain trilemma exists and what happens when you try to solve it simply technically.

For a blockchain to be decentralized, it’s crucially important for regular users to be able to run a node, and to have a culture where running nodes is a common activity. … the main bottleneck in Ethereum is storage size, and statelessness and state expiry can fix this and allow an increase of perhaps up to ~3x – but not more, as we want running a node to become easier than it is today. … Sharded blockchains can scale much further … those limits are high enough that we can probably process over a million transactions per second with the full security of a blockchain.

But it’s going to take work to do this without sacrificing the decentralization that makes blockchains so valuable.

Source: The Limits to Blockchain Scalability from Vitalik Buterin’s website

For decentralization, it’s not a good idea for blocks to get too large. This is because it increases capacity and makes it harder for ordinary users to run nodes. … The biggest cause of Ethereum’s bottleneck (low scalability) is storage size (block size). This can be solved technically, and security is not an issue, but decentralization may be sacrificed

If you raise the maximum size of a block to solve this scalability problem, you end up with a node that is only operated by a few people or organizations that can afford the capacity of that node, which can sacrifice decentralization.

Not only that, but it can also be a problem for the security of the blockchain. The number of transactions that can be included in a block depends on the computational complexity of the transactions, and if the maximum size of a block is increased indefinitely to solve scalability, it may improve scalability (TPS), but it has the disadvantage of increasing the computational complexity per block and creating more uncle blocks.

As such, it can be said that the trade-off between the three factors mentioned in the blockchain system trilemma – scalability, decentralization, and security – has been a limitation of existing Ethereum (or any public blockchain).

Solution: Polygon

Wouldn’t it be great if there was a perfect blockchain that solved Ethereum’s trilemma?

One of the solutions to Ethereum’s problems, which Vitalik Buterin has also been thinking about and proposed in 2021, is Layer2 blockchains. Polygon is the most prominent Layer2 blockchain.

1-2. Polygon

Polygon Overview

Originally, there was a scalability solution called Plasma that Ethereum itself was creating to solve the problem. Plasma is a layer 2 solution that connects a separate off-chain to the original parent chain. Polygon was a project created to implement Plasma technology at the time.

Fast forward to around 2017, when Indian developers Jaynti Kanani, Sandeep Nailwa, Anurag Arjun, and Mihailo Bjelic noticed these problems with Ethereum and created the Matic network to solve them. Matic was the name used before it was rebranded as Polygon, and as a nod to this, the original Matic coin is still used today as the native token of the Polygon network.

Polygon was started with the goal of “Blockchain Mass Adoption”. The main features of Polygon are high compatibility with Ethereum, low gas costs through high scalability, and various sub-products. We will cover the details of the last sub-products in the next article (2. Polygon products).

Before we start talking about Polygon Networks, there is a concept that needs to be clarified.

These are EVMs, Layer2, and gas costs.

📌 EVM (Ethereum Virtual Machine)

EVM stands for Ethereum Virtual Machine.

An EVM is a virtual machine for running smart contracts on Ethereum, which is responsible for executing smart contracts and updating their state. EVMs operate according to the rules provided by Ethereum and run in an isolated sandboxed environment to ensure security when it comes to executing smart contracts. Since the EVM is a decentralized global computer, it can be accessed by anyone, which allows you to create secure and immutable smart contracts.

With its EVM-based blockchain structure, Polygon provides a development environment that existing Ethereum developers are familiar with and is highly compatible with Ethereum. Because of this, Polygon can make it easier for projects that started on Ethereum to transition to the Polygon network.

📌 Layer2 (L2)

The meaning of Layer in the crypto ecosystem is a structure that represents layers, with different ecosystems on each layer.

Let’s start with Layer1, which refers to blockchains that have their own network as the system for recording, authorizing, and processing transactions in blocks, like the blockchain as we know it. Bitcoin, Ethereum, and Solana are some examples of Layer1 blockchains. However, while Layer1 blockchains provide the decentralization and security that are the hallmarks of blockchain, they are limited in scalability as a side effect, and Layer2 blockchains were born to solve this problem.

You can think of a Layer 2 blockchain as an “extension” of a Layer 1 blockchain. A Layer 2 blockchain is a way to interact with Layer 1 to improve scalability while maintaining security and decentralization. For example, you can have a separate blockchain for quickly recording transactions, and then bundle the transactions processed on that blockchain into some sort of unit and write only the summarized information back to Layer 1, reducing the burden on the Layer 1 blockchain while ensuring reliability. In this way, it maintains the decentralization of the blockchain and increases its efficiency, so in conclusion, it can be seen as an “extension pack” that helps developers and users who use the blockchain in various ways to use it more easily.

Polygon is a Layer2 scaling solution for Ethereum.

Polygons were created to solve one of Ethereum’s trilemmas, specifically scalability.

📌 Gas Fee (Transcation Fee)

Transaction fees are the cost of processing a transaction on a blockchain network, and they must be paid before the transaction is recorded on the blockchain. In Ethereum, these transaction fees are called “gas fees”.

Ethereum’s transaction fee algorithm automatically adjusts the gas fee based on current conditions on the Ethereum network. The gas fee is determined by the amount of work and computation required to process a transaction on Ethereum. When demand on the Ethereum network is high, the gas fee increases, and when demand is low, the gas fee decreases. This gas fee adjustment algorithm is one of the key factors in ensuring the stability and scalability of Ethereum.

These transaction fees protect the cryptocurrencies used on the Ethereum network and contribute to maintaining the stability and security of the Ethereum blockchain. Transaction fees also help maintain competitive transaction processing speeds on the Ethereum network. As such, transaction fees play a very important role in the blockchain ecosystem: supporting transaction processing, incentivizing block producers (miners) to validate transactions, and eliminating spam transactions (at a cost).

Translated with DeepL

Polygon is characterized by high scalability and, as a result, low gas costs.

Polygon has very low fees per transaction for these units. This is due to their high scalability (fast transaction speed).

1-3. Again, what is a polygon?

Polygon is an Ethereum-based scaling solution, an Ethereum Virtual Machine (EVM)-compatible Layer2 blockchain that is highly compatible with Ethereum.

Through its unique Layer2 structure (Modular BlockChain), Polygon solves the problems of slow speed and high cost of Ethereum-based applications, while inheriting the advantages of Ethereum’s decentralization and security, such as high scalability (fast speed and low cost).

Polygon also has a diverse set of Layer2 solutions. To achieve this goal, we support Polygon PoS Chain, Polygon zkEVM, and are planning to support Polygon Miden. We will cover these various solutions in detail in the next article (2-Polygon Products).

In conclusion, Polygon is an EVM-based blockchain with high compatibility with Ethereum, and is expected to play an important role in solving the scalability and processing speed problems of the Ethereum ecosystem through various Layer2 solutions, and in developing blockchain-based applications and services.

With that in mind, here’s a glimpse of the direction from the perspective of a polygon operator.

Interview with Co-Founder Mihailo Bjelic Part1

  • Polygon is a multi-chain scalability project. We’re curious to know how you came up with the idea to provide a variety of scalability solutions to give users a choice.?

    When Polygon first came out in 2017 under the name Matic, it was a single scalability solution project focused on Plasma. However, since then, many ideas for scalability solutions have started to emerge. Looking at the market situation, we realized that we needed to provide users with a variety of scalability solutions. This vision led us to plan a multi-chain scalability project.

  • Polygon has been offering Plasma services since the days of Matic. The Ethereum community often talks about rollups as the next step for Plasma. Does Polygon recognize the limitations of plasma, which is why they’re moving to a multichain solution?

    I don’t consider plasma to be an obsolete technology. The market for scalability solutions is an ongoing experiment with no one company taking the lead. A lot of that is coming from the public, who have a relatively poor understanding of the technology and may think of plasma as an old technology. At Polygon, we want to create a space that connects users to multiple scalability solutions, but we didn’t move to multichain because we think plasma has limitations.

Interview with Co-Founder Mihailo Bjelic Part2

  • Solving scalability problems is a difficult task. What are the challenges of scalability solution projects in Polygon’s opinion in the current environment: 1.

    I don’t think there is a specific one-stop solution. The market for scalability solutions is not yet mature enough for mass adoption. I think the technology is also immature. To solve this, I think it is important for developers and users to gain more experience. In particular, we need to gain experience across boundaries. For example, we should feel and apply the same UX (user experience) of centralized exchanges. Polygon is also focusing on this aspect.

  • Many projects are collaborating with Polygon. Why do you think you chose polygons when there are so many other scalability projects out there?

    I think there are two aspects to this.

    The first is that Polygon is well-reviewed by real people who use it. Polygon has been evolving since 2017, and the community has a lot to offer.

    The second is the response from developers. Developers look at how validated the project is in the real world. For example, the larger the TVL of a DeFi, the higher the demand for security. If a project with proven scalability is connected to DeFi, developers will take notice. In the case of Polygon, 30 million blocks have already been validated. I think that’s enough real-world validation, and I think that’s why people are using Polygon with confidence.

  • Collaborations on games and NFT projects stand out.

    Some of the other projects collaborated because of Polygon’s technical advantages, but the main reason was experience. Polygon has experience in gaming and NFTs since the days of Matrix, and other projects appreciate that. Of course, the fact that Polygon is technically compatible with Ethereum Virtual Machines (EVMs), making it easy to use, also played a role in the collaboration. It also saves on gas costs. But I think the biggest driver of collaboration is the trust we’ve built over the years as we’ve been working on scalability solutions.

  • He also collaborates with DeFi projects. What’s great about connecting DeFi with Polygon?

    Polygon has been battle-tested since its launch. This means that the risk of other projects actually using our scalability solutions is low. I think that’s why DeFi projects are looking at Polygon. There’s also the technical advantage of being able to implement our scalability solution in 15 days. Polygon is currently working with several DeFi projects. In March, Polygon powered SushiSwap with its Layer 2 solution.

  • Sustainability and decentralization are his goals for the future. What kind of ecosystem will we eventually build?

    The goal of Polygon is to build a service that everyone can easily use. We want Polygon to be the most widely used scalability solution in the future.

To summarize, Polygon is a multichain scalability project that aims to provide a variety of scalability solutions to give users a choice. However, we believe that the market for scalability solutions has not yet developed to the point of mass adoption, and we believe it is important to increase the Web3 experience for developers and users. To this end, we are actively collaborating with various game companies and brand-based NFT projects, and we are also supporting a number of DeFi projects such as JP Morgan, 1inch Network, and Uniswap.

OUTRO

In the first installment of our Polygon series (1. What is Polygon and Layer2?), we looked at how Polygon came to be, how it solves the problems of traditional blockchains, and what it is and what it does.

Three-line Summary

✅ Polygons came about as a result of solving Ethereum’s Trilemma.

✅ Polygon is an EVM-based Layer2 scaling platform for solving Ethereum’s scalability, with various sub-products.

✅ Polygons are characterized by high scalability and low gas fees.

In the next post (2. Polygon products), we’ll cover Polygon’s various solution products and technical details.

 

 

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