Overview
Loopring is a crypto protocol that can be used to build automated decentralized systems. In the context of decentralized exchanges, Loopring provides users with trustless verifiability and impenetrable security. It can be leveraged to overcome numerous problems common in the decentralized exchange space such as low transaction speeds, a lack of liquidity, high transaction costs, a lack of support for different assets or tokens, counterparty risk, and more. The Loopring token itself has a market cap of more than $365 million and has appreciated over 400% in value since its release in August 2017.
Introduction
Blockchains technology and alternative cryptocurrencies have taken the world by storm, and there are now tradeable crypto-assets used in countless industries, including agriculture, healthcare, finance, shipping, and even in education, the social media space, governance, politics, and more. All of these tokens and assets have actual value based on the real-world problems they solve, demand and supply of the tokens themselves, market speculation on future price, and more.
Online exchanges are used to trade these assets and tokens, and with the explosion of the cryptocurrency space in the last few years, there are now billions of dollars’ worth of trades conducted across exchanges around the world on a daily basis.The total value of all cryptocurrencies combined is a little under $500 billion USD, exceeding that of JPMorgan Chase. There is around $250 billion invested in Bitcoin today, add that to $83 billion in Ethereum.
The Issue at Hand
The biggest issues with online exchanges go beyond the fact that most exchanges, even if they are decentralized, require users to deposit their tokens or assets into a wallet owned by the exchange before trades are possible. Further, there are issues with trade bottlenecks, price discrepancies across exchanges, and slow transaction times. It is therefore clear that although publicly verifiable blockchains have their benefits, they pose highly technical challenges as well.
The very idea behind blockchains is built on having a publicly verifiable ledger of transactions and trades of a token or asset on a network – all transactions of any type are public. This key feature, however, poses an issue perhaps bigger than all of the above: keeping specific types of information that traders may want to keep private is very hard to do, and not doing so can have highly negative outcomes. Further, there is an incentive for malicious actors to try to scam the system by using this kind of public information for personal benefit.
As an example, anyone with a certain level of technical know-how can analyze publicly available blockchain information on who is trading how much of a token or asset and when, and they can then push trades of their own forwards or backwards accordingly. This is a major problem for online exchanges where thousands of concurrent trades wait in a pipeline to be “mined” or recorded into the public blockchain.
This is essentially how the issue of front-running comes into play. Because anyone analyzing trades can see how much of a specific asset or token is being bought or sold at a specific price at a specific time, they can try to quickly buy an asset or token if the price is expected to rise or sell it if the price is expected to fall. By paying a higher mining fee (known as ‘gas’), these traders can essentially jump the queue, so to speak, and have their trades executed before or after those of other traders. This adversely affects market dynamics, supply and demand, and destroys market trust and transparency.
The Loopring Solution: Dual Authoring
Loopring.org has developed an ingenious solution to the issue of front-running. The way it works is highly technical, but here is a non-technical breakdown of the key components of the solution.
Loopring executes trade orders in batches, or rings, containing two to ten orders. Each order has a number of unique components, including but not limited to a randomly generated public and private key pair, the private key of each person submitting an order in a specific ring, addresses of the owners of the tokens or assets that are to be traded in each transaction, and even the private keys of record-keeping miners recording transactions on the network. Apart from all of these unique keys and components, each information field in the ring, and even specific trade parameters, also need to be signed with unique keys before an order can be verified and executed.
When it comes to front-running, the issue is basically that of certain orders being pushed in or out of a mining queue by an unauthorized trader. The name ‘Dual Authoring’ comes from the fact that this solution – which is hardcoded into the Loopring protocol – uses two levels of authorization for all orders. One is for the settlement of orders, and one for confirming or processing them.
The reasons why dual authoring works are that:
• Rings of orders that are submitted for execution cannot be changed by anyone unless they have all of the required keys for all the orders in the ring
• The verification signature generated for each order is unique and it is generated using unique private keys, signed details specific to that particular order, and even the miner address associated with that specific ring – in this way, orders can never be changed once submitted
• The system of mining or confirming orders cannot be duped either because the use of the miner’s signature (their personal, private key) guarantees that nobody can use his or her identity for mining rings
• Whether someone tries to manipulate one order in a ring (known as order filching), or tries to steal an entire ring (known as ring filching), they cannot do so because it is impossible for someone to acquire all of the unique signatures on each order, as well as private order keys and private miner keys
Conclusion
Loopring is more than just a crypto token, and it is more than a simple computing protocol. It is a well-designed smart contract that can be used to create truly transparent and secure exchange systems that are free from the issues of front-running, illiquid markets, and order or ring filching. It also allows users to work with different smart contract platforms beyond just the Ethereum network and ERC20-compliant tokens, drastically improving options for traders and exchanges. By doing all of the above while simultaneously solving the problem of crypto-exchange trade bottlenecks, Loopring is a highly promising piece of tech that is sure to shake things up in the crypto market in the months to come.
Media Contact
Company Name: Loopring Project Ltd
Contact Person: Daniel Wang
Email: Send Email
Phone: 6503086035
Country: Virgin Islands (British)
Website: loopring.org
