Deutsche Bank is Launching Its Own L2
Deutsche Bank has announced the launch of its own Zero-Knowledge Rollup (ZK Rollup) Layer 2 (L2) on the Ethereum network.
Let’s delve into why they chose Zero-Knowledge (ZK) technology and Ethereum, and what it means to be public but permissioned.
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Why Choose Ethereum L2 Instead of a Standalone Chain?
Instead of creating a standalone blockchain, Deutsche Bank has chosen to remain within the Ethereum network. This decision is influenced by two key factors:
1. Ecosystem Interoperability:
Many major financial institutions are also launching their L2 solutions on Ethereum. For example, BlackRock has announced plans for its own L2, and Coinbase has already deployed theirs. As more banks and institutions follow suit, a highly interconnected ecosystem will emerge. By staying within Ethereum, Deutsche Bank ensures seamless interaction with other players in the financial ecosystem, something that would be much harder to achieve with a standalone network.
2. Economic Security:
The Ethereum network, valued at hundreds of billions of dollars, provides unparalleled economic security.
— Submitting a fake block or attempting to cheat the system on Ethereum is nearly impossible due to its robust economic structure.
— Any attack would require controlling 51% of Ethereum’s total ETH supply, which is practically unattainable at current market valuations.
Ethereum’s proven stability, high decentralization, and unparalleled security make it the clear choice for institutions managing large-scale assets.
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Why Choose ZK Rollups Instead of Optimistic Rollups?
1. Mathematical Certainty:
ZK Rollups utilize Zero-Knowledge Proofs for transaction verification. These proofs are absolute and rooted in mathematics, requiring no trust. Transactions can be verified anytime without relying on assumptions about user behavior.
Optimistic Rollups, by contrast, depend on the rationality of participants, incentivizing them to act truthfully for monetary rewards or to avoid penalties. While effective for smaller scales, this model is constrained by the staked asset value securing the system. Institutions like Deutsche Bank, handling trillions of dollars, find Optimistic Rollups inefficient and cost-prohibitive.
2. Privacy:
ZK Rollups inherently provide privacy features. As the name suggests, Zero Knowledge allows information to be verified without revealing the underlying data. This ensures the chain can be public yet private:
— Transactions remain visible on the blockchain.
— Participant identities and transaction amounts can be kept confidential.
This dual nature of transparency and privacy makes ZK Rollups ideal for institutions like Deutsche Bank that prioritize confidentiality.
3. Future-Proofing:
Optimistic Rollups are widely regarded as a temporary workaround. As blockchain technology evolves, most rollup solutions will need to transition to ZK Rollups for better scalability, security, and efficiency. Deutsche Bank’s decision to adopt ZK Rollups from the outset positions them ahead of the curve.
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What Does “Public but Permissioned” Mean?
A public but permissioned blockchain combines openness with access control. Since Deutsche Bank controls this blockchain, it can implement permissioned access by requiring users to undergo processes like KYC (Know Your Customer). This ensures all participants on the network are trustworthy, recognizable, and traceable.
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In Summary
Deutsche Bank’s decision to leverage Ethereum and ZK Rollups highlights its focus on interoperability, security, privacy, and future readiness. By aligning with the leading trends in blockchain technology, Deutsche Bank is well-positioned to thrive in the evolving digital finance landscape.
