After Years of Upheaval, Neo-Plasma Looks Set to Ease Ethereum Transaction Fees

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In the early days of blockchain, as the industry was starting to make waves with the greater public, Ethereum was growing into a thriving ecosystem.  Launched publicly in 2015, the platform was designed to evolve beyond Bitcoin, focusing on decentralized applications rather than acting as a store of value.  While it has and remains the leader of blockchain ecosystems (Bitcoin may be worth more, but Ethereum’s massive adoption from developers has no equal), by 2017 the gas fees were becoming more and more unwieldy.

Seeing this as a major obstacle, co-founder Vitalik Buterin proposed a scalability solution called Plasma.Seeing as how we aren’t using Plasma or some version today, it’s clear that its rollout wasn’t successful.  At least, perhaps until now.  Let’s dive into what Plasma is, why its original form never took place, and why new technology could hold the missing piece to significant Ethereum scalability.

What Is Plasma, And Why Isn’t It Enough?

As a quick recap, Plasma was designed to directly address the issues caused by Ethereum consensus.  This process is incredibly effective at preventing invalid transactions, with 11.2K nodes located in nearly 3K locations around the globe each capturing new blocks and presenting them for verification from the network.  Its system is the foundation for Ethereum’s strength, but it is simply not a scalable solution.  For transactions, and especially non-fungible payments, the process can be performed off the mainnet and become much cheaper and faster.  Plasma was meant to post only verified states, striking a balance between scalability and Ethereum security.

The Plasma Cash iteration, developed in 2018, provides the simplest example of Plasma in action.  The system handles payments, handling coins as NFTs to make their ownership easier to track.  Through the use of Merkle trees, the ownership (and transfer of assets) is tracked with each block created.  The blocks themselves are created by an operator, who is responsible for regularly publishing blocks to the chain and sending the Merkle root and any branches associated with the affected users.

This system works well, but falls into problems as soon as it is generalized for a broad range of applications.  There are several primary issues with the original Plasma model.

First, the operator can “misbehave” by publishing an invalid block, or by publishing an unavailable block.  Either way, this creates an error on the chain, which requires the affected users to take action.  When a user wishes to exit, they bear the burden of providing the Merkle tree that showed the asset transferring to them.  This then creates a 7-day challenge period where any other user can contest the exit by showing proof that the ownership isn’t valid.

Second, the Plasma system gets more complicated once it moves away from NFTs and into fungible tokens.  The original thought to solve this was to simply create NFTs for each reasonable denomination of a coin.  This would work in terms of tracking ownership, but creates the problem of fragmentation:  trying to exit with fragments of tokens located throughout the chain creates major gas fees.  While the “unspent transaction output” (UTXO) model can help to resolve the situation for payments to the EVM, moving beyond this diminishes the utility of Plasma because the issue of “ownership” of an object is not required for many use cases.

Cais Manai, the Chief Product Officer at Ten, the Layer 2 rollup that hyper-scales and encrypts Ethereum, said, “Plasma chains handle transaction processing off-chain and only submit aggregated results to Mainnet. This works well for payments, where state change is simple, i.e. UTXO based (debit one account, credit another), and the verification can be done using less data (e.g., Merkle proofs of transactions). Ultimately, you’re just tracking who owns a particular state while ensuring no double spends.”

“It becomes problematic for applications requiring more complex data interactions and verifications, which are inherent to general-purpose computing and smart contracts. Think about a DEX with a constantly evolving liquidity pool, being operated on by thousands of users through trades, deposits and withdrawals. It’s virtually impossible to reconstruct a valid state without access to the data,” added Cais Manai.

These issues created a system with promise, but not one that could remove all the barriers.  However, 2023 paved the way for Zk-SNARK technology, providing a unique opportunity for Ethereum in general and Plasma in particular.

Zk-SNARKs, The Missing Piece

In November 2023, Buterin provided new thoughts on the Plasma model, updating it with the pairing of Zk-SNARKS to solve critical shortcomings.

The “Neo-Plasma” model could extend use cases to the EVM without running into many of the issues.  As Buterin states, “they can be used to implement a parallel UTXO graph for ETH and ERC20 tokens, and SNARK-prove equivalence between the UTXO graph and the EVM state. Once you have that, you could implement a ‘regular’ Plasma system over the UTXO graph.”

Zk-SNARKS offer the validity needed to overcome the long process of challenging operator error, as it prevents the operator from creating invalid blocks.  The result of this is the elimination of history challenges, transforming Plasma into an instant-withdrawal system and greatly boosting its value.

“Vitalik’s “exit game” mechanism for Plasma is a critical component for ensuring security and trust in the Plasma framework,” said Dr. Nir Haloani, the Chief Technology Officer at the privacy centric Ethereum Layer 2 solution Coti.  “While this mechanism has been complex and potentially clunky in real-world applications, advancements in zero-knowledge proofs, such as ZK-SNARKs, could make neo-Plasma more viable by simplifying the exit process and enhancing scalability and privacy. This makes the idea of leveraging neo-Plasma to address Ethereum’s scalability and privacy issues more realistic,” Dr. Halaoni added.

How Will Neo-Plasma Boost Ethereum?

Where even Neo-Plasma falls short is where use cases of CDP (collateralized debt position) are involved, as there is still an issue of an economic owner of the assets in question.  Removing these types of use cases still create massive opportunities for Ethereum, however.  While rollups outperform the Neo-Plasma model in terms of security, Neo-Plasma prevents the issues faced by validiums where the underlying data can be unavailable for long periods of time. Dr. Nir Haloani believes a hybrid solution combining Rollups and Plasma, leveraging advancements in zero-knowledge proofs (ZK-SNARKs), could address Ethereum’s scalability and privacy issues more effectively.

“Rollups have become the gold standard for scalability by compressing transaction data and posting it to the Ethereum mainnet, while Plasma, with its capability to handle transactions off-chain and only post final states, offers additional scalability and security enhancements,” according to Dr. Halaoni.

Leona Hioki, the Co-founder of INTMAX, the Ethereum Layer-2 zkRollup that uses stateless architecture, agrees. Hioki added, “The elimination of the Online Requirement, which was Plasma’s biggest issue, signifies a major resolution. Plasma Free, while being Plasma, allows for the complete execution of the Ethereum Virtual Machine (EVM), making it both comprehensible and useful.”

The biggest advantage for the Neo-Plasma model is a much needed balance of solid security, full scalability, and low transaction fees.  Ethereum, with all its growth, must overcome volatile gas fees if it hopes to achieve true mass adoption with a mainstream audience.  Further, unpredictable gas fees that can hit certain levels eliminate many different use cases that create a small profit, but if scaled can generate true revenue.

These are the use cases that will attract more and more traditional companies who are ready to extend their product lines by adding Web3 value.  Neo-Plasma may just play a significant part in this larger ecosystem growth over the next few years.

Disclaimer: The Industry Talk section presents information from cryptocurrency brokers and is not part of the editorial content of Cryptonews.com.

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