Hey there 👋 ,

We had a great response from last week’s deep-dive into Tenderly (you can find the previous newsletter here or read my TLDR twitter thread), so I’m going to continue deep-diving into broader themes and specific companies/institutions I’m particularly interested in. 

I’ll likely keep the shorter round-up at the bottom of the newsletter for now, but let’s go with the flow & see how this evolves 😃

Today, we’re talking about a secretive-till-this-week company, Espresso Systems. They announced an additional $29m in funding last Monday, to bring them up to $32m in total to continue scaling their team & infrastructure.

This newsletter combines a few of my favourite themes: strong technology, a stellar team and the increasing possibility of living in a multi-chain world.

Let’s dive in!

Blockchain 3.0: Privacy-Centric Chains

Before we talk about what Espresso is doing, we first need to wind the clock back to when Vitalik Buterin coined the term, the “Blockchain Trilemma”. 

The Blockchain Trilemma discusses the challenges developers face when creating a blockchain, forcing them to ultimately sacrifice one ‘aspect’ as a trade-off to accommodate the other two. These are:

• Decentralized: creating a blockchain system that does not rely on a central point of control

• Scalable: the ability for a blockchain system to handle an increasingly growing amount of transactions, measured in transactions per second (TPS)

• Secure: the blockchain is resistant to an attack, even if a certain % of nodes in the network are malicious.

Blockchain scalability has been a huge problem in the industry, however ongoing innovation across the decentralized ecosystem has led to a variety of solutions for this challenge.

The Challenge with the Ethereum Blockchain:

If we’re trying to reach mass adoption, then first and foremost, we need scale. 

The issue of scalability has plagued the Ethereum Blockchain from the beginning - how can we help everyone become bankless if it can’t process more than 15 transactions per second? 

To deal with network congestion, transaction fees will go up. 

The other aspect (and this isn’t a ‘Ethereum-only’ challenge), is the desire for ‘compliant privacy’ for certain types of transactions.

If we’re going to get mass adoption, individuals and businesses need privacy to be an integral part of the infrastructure. A business doesn’t want its competitors to see payments to their suppliers, but they need to adhere to certain regulations that require a transparent approach.

So in summary:

• The Ethereum blockchain is a bottleneck; we need a more scalable approach

• Privacy on any public ledger is a friction point in order to reach mass adoption & commercial use cases for many

A Privacy and Scalable World: Espresso

Enter Espresso - a new layer-one blockchain built to solve for exactly this - to allow for higher throughput (scalability) and lower gas fees. 

You might be thinking: “how is this different to Layer 1 chains like Solana or Polygon or these other Layer 2 scaling solutions like Arbitrum and Optimism?” - well, dear reader, you’re not wrong in asking these questions. 

Espresso aims to optimize for both privacy AND scalability by leveraging zero-knowledge proofs.

What are zero-knowledge proofs? 

Have you played Wordle before? The game that I’m still hopelessly addicted to, took the world by storm a couple of months ago and led to a New York Times seven-figure buyout in January.

When I share my answer of the day with friends in our Wordle WhatsApp group, I’m proving that I’ve solved the solution without giving away the answers of said solution.

In essence, that’s what a zero-knowledge proof is - a tool that allows a party to prove a statement is true without revealing the evidence behind that statement.

What are they building?

To recap, Espresso are solving for:

• Higher throughput/higher transactions per second

• Lower gas fees

• While prioritizing user privacy + decentralization 

Espresso has prioritized building a flexible privacy-focused blockchain solution. 

They realize that we’re going to live in a multi-chain world - something I’m bullish on. We’re going to have blockchains developed for different use cases. 

Espresso are trying to make the fewest tradeoffs possible, while incorporating privacy as a consideration.

OK, but how are they actually doing this?

They’ve built their own smart contract application called Configurable Asset Privacy for Ethereum (CAPE), which allows asset creators on the blockchain to customize who can see what information. 

This is probably music to the ears of financial institutions, as it allows them to balance the customers’ need for privacy with compliance procedures placed on the institution.

Team:

By now, if you’ve read everything above, you could probably expect there to be a stellar team behind this. Well, you won’t be disappointed. Here’s some

• Ben Fisch - Co-Founder & CEO, Ph.D. student in Computer Science at Stanford, advising Protocol Labs and Advisor to Chia Project

• Charles Lu - Co-Founder of the Stanford Blockchain Club and MS/Ph.D.-level at Stanford

• Jill Gunter - VC at Slow Ventures, Co-Founder @ Open Money Initiative

• Benedikt Bunz - Ph.D. Stanford, Applied Cryptography

This is a heavy hitter team, backed by top-tier investors. While deep expertise doesn’t necessarily guarantee success, you’d much rather have the folks who’ve published leading research batting for your team.

Conclusion:

Overall, it’s a no-brainer for me to say that I’m extremely bullish on what they’ve set out to achieve. They are tackling an extremely difficult challenge, but having identified the trade-offs involved and tackling the highest impact developer challenge around scalability & privacy, I’m curious to see the impact they make.

We’re going to live in a multi-chain world, so the more interesting theme for me is how these chains will work together in an interoperable manner to achieve a more open and progressive ecosystem.

Sources:

• Privacy and Scalability for Web3 - Greylock’s Investment Thesis

• Safeguarding our privacy in an age of transparency - CoinDesk

• The Blockchain Trilemma - CertiK (Medium)

• Why Sharding is Great - Vitalik Buterin

🗞 Resources of the week:

🎨 Yearly NFT Market Report 2021 - NonFungible

An in-depth 188-page report on the NFT market - this includes popular collections, key trends and predictions for 2022 and beyond.

🙈 BAYC Buys CryptoPunks and Meebits

The Bored Ape Yacht Club parent company, Yuga Labs, bought two of the most popular collections, which seems significant from a commercial rights/IP standpoint. BAYC currently owns culture.

💸 What Smart Money is Buying

Bankless consistently produce excellent research and this is another great piece to help understand what smart DAOs are accumulating.

Until next time

As always, if you're enjoying Living In Beta, I'd love it if you shared it with a friend or two. If anything stood out, whether good or bad, I would love to hear about it. Reply to this email or tweet at me and let’s chat.

Until next time,

Fahim

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