Loopring protocol provides developers the tools they need to build their own decentralized exchanges. This article will discuss, "What Is Loopring Protocol? How Does Loopring Work?" Let's get started.
What Is Loopring Protocol?
Loopring is a protocol for creating order book-based, decentralized exchanges (DEX) that are not custodial on Ethereum. Without ever requiring ownership of the buyers' or sellers' cash, it routes and processes trades, matching sellers and buyers at a market price. Different from centralized exchanges, where users must deposit funds with the exchange before it can make trades on their behalf, this one does not take payment from traders.
Loopring is a layer-2 protocol. This means that it is based on the Ethereum mainchain (layer 1). Contrast this with other DEX projects, like Uniswap or SushiSwap, which are built directly on layer-1.
Both models have advantages and disadvantages. The biggest advantage of layer-2 DeFi solutions is that they inherit a lot of the layer-1 security, although using them for transactions is faster and cheaper than the mainchain.
How Does Loopring Work?
The amount of data a transaction contains determines how much it costs to perform it directly on Ethereum (layer 1). Larger transactions in terms of data demand more processing power, which drives up the cost. In order to address this, layer-2 solutions try to conduct transactions outside of layer-1.
Loopring is a layer-2 that utilizes a cryptographic technology called zkRollups. ZkRollups are Loopring's secret sauce.
Rollups are like carpools. Take an instance in which you and three other coworkers commute daily. There is a $10 per car toll on that commute. If each person drives alone, the cost is $10. However, if you carpool, you each pay $2.50.
Within a blockchain context, rollups batch transactions and execute them outside of layer-1. The transaction data is then posted to the layer 1 for consensus. This batching is what makes transactions on layer 2 cheaper.
The “zk” in zkRollups stands for “zero knowledge”. Zero-knowledge proofs are cryptographic methods that allow one party to prove to another party that a statement is true, without revealing any information about that statement.
What Is Loopring Protocol? How Does Loopring Work? - Hopefully, this article can help you to get some knowledge.
