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Hi, Bradley Keoun here, editor of The Protocol.  

As dutifully chronicled in The Protocol, the number of “layer 2” networks or “rollups” – designed to provide a home for cheap and fast transactions while still relying on the main Ethereum blockchain for security and settlement – just keeps growing. (Ever heard of “superchains?”) All that traffic back and forth threatens to create additional congestion, the very thing that the layer 2’s were designed to prevent. In this week’s issue, our Margaux Nijkerk writes about the growing cottage industry of “data availability” or DA solutions, which aim to meet an important need for these layer 2 networks – confirming the existence and availability of crucial transactional details, without adding to the congestion. 

    We also highlight the data-analysis firm Arkham Intelligence’s controversial plan to offer “bounties” for people to reveal the identities behind otherwise anonymous or pseudonymous blockchain addresses, Robert F. Kennedy Jr.’s bitcoin binge and how the “Zapple Pay” project might have actually succeeded in finding a workaround to Apple’s efforts to crack down on an iPhone app that offers bitcoin tipping as a feature. 

What Is Ethereum’s ‘Data Availability’ Problem, and Why Does It Matter?

Avail founder Anurag Arjun. (Avail)

Ethereum is suddenly becoming so crowded with new “layer 2” networks – separate blockchains that sit atop the main network and specialize in fast and cheap transactions – that experts are trying to figure out how to handle the growing number of transactional details.

The whole point of these layer 2 networks in the first place is to reduce congestion. So one way to accomplish that is to reduce the number of times that data needs to be downloaded from the main network. 

Enter what’s known as the “data availability problem” – how to prove that the records of the transactional details exist, and are available if needed, without actually downloading them – using cryptography and advanced mathematics.

Top developers of Ethereum have proposed their own plans for handling the data, known as EIP-4844 or colloquially “proto-danksharding.” Such measures are expected to significantly scale the blockchain and introduce “blobs” for data, which helps the blockchain to process that data more efficiently, and on the cheap. 

But there’s also a new breed of players – Celestia and Avail are seen as two of the leaders in the space – trying to develop alternate solutions for data availability, arguing that the fullest implementation of Ethereum’s own proposed solution, known as danksharding, might still be years away. 

Network News

The arc of Arkham. Among a handful of increasingly influential blockchain-analysis firms, Arkham Intelligence shot to prominence over the past year with smart posts and data on things like asset outflows from the crypto exchange Binance and stablecoin transfers by Sam Bankman-Fried’s trading firm. But a series of moves by Arkham this week has attracted scorn on Twitter. First there was Arkham’s announcement of a new “bounty” program that rewards people for outing the identities behind otherwise anonymous or pseudonymous blockchain addresses, drawing a backlash from privacy advocates. Then there was the revelation that the firm may have inadvertently leaked emails of participants in a referral program. CEO Miguel Morel faced critics on a Twitter Spaces Tuesday, arguing that public blockchains are the “worst for privacy.” Later Morel tweeted that he would “lead by example” and post his Arkham holdings “publicly, on-chain, for all to track.” 

Algorand casualty? Algofi, the largest decentralized finance protocol on layer-1 blockchain Algorand, said in a blog post it will shut down following a “confluence of events” that meant it could no longer be maintained to its highest standard. The announcement follows a sharp drop in activity on the Algorand blockchain, where the amount of collateral or “total value locked” in protocols built on the network has tumbled by 71% since February to about $59 million; the native ALGO token’s price is down about 95% from the peak of the last bull market. The U.S. Securities and Exchange Commission recently declared in legal filings that ALGO should be considered a security, a designation that would theoretically lead to heavier regulation. 

Bitcoin Kennedy: It turns out that the U.S. Democratic presidential candidate Robert F. Kennedy Jr., who debuted his campaign at the Bitcoin 2023 conference in Miami earlier this year and is accepting contributions in BTC, owns some of the cryptocurrency too. In campaign finance disclosures, Kennedy disclosed ownership of $100,000 to $250,000 worth of BTC as of June 30, According to CNBC, his campaign initially said the investment was his wife’s, then later clarified that it belonged to Kennedy himself. Among Republican candidates, Ron DeSantis and Vivek Ramaswamy have made positive comments on bitcoin.    

Screengrab from Robert F. Kennedy Jr.’s campaign finance disclosures. (CNBC)

Also:

Protocol Village

StarkWare co-founders President Eli Ben-Sasson and CEO Uri Kolodny (StarkWare)

Money Center

Pall of Crypto Winter Still Hangs Over Blockchain Development

Number of active open-source crypto developers, stacked by category – green for those with less than one year in the business, peach for those with one to two years of experience and blue for those with more than two years. (Source: Electric Capital)

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