“Whenever the next big multi-billion-dollar cryptocurrency exchange written by a totally incompetent developer gets hacked, no one will lose any money.” — Vitalik Buterin
Hacking has been a significant problem for cryptocurrency exchanges in the past few months. Large thefts at the Coincheck and BitGrail exchanges have had a dampening effect on investors’ trading enthusiasm. Vitalik Buterin, co-founder of Ethereum, believes he has a solution to this problem. It’s an updated version of the existing on-chain scaling solution Plasma, and it’s called Plasma Cash. Buterin announced his idea at the EthCC conference in Paris recently.
What Is Plasma?
Plasma is a system of smart contracts and works by optimizing data that is passed to the root Blockchain. Buterin and Joseph Poon, co-creator of The Lightning Network, created Plasma in 2017 in order to solve the scalability issues of Ethereum. Plasma works to reduce transaction fees for smart contracts and decentralized applications (dApps).
Under the current Plasma system, users must download and confirm each smart contract – or Plasma block. This prevents exponential scaling.
What Is Plasma Cash?
Plasma Cash is an improvement on the current system. According to Buterin, the Plasma Cash system will reduce the number of smart contracts that users must download to a handful of data points. The principal benefit will be the reduction in the amount of data that the clients will have to process. This will reduce transaction fees for smart contracts and DApps and optimize data at the same time. Buterin developed Plasma Cash with the help of Dan Robinson and Karl Floersch.
How Would Plasma Cash Work?
Buterin stated that the Plasma Cash system would create a Plasma coin when the user deposits ether into a crypto exchange or any third party service. This coin would have the value of that ether and a unique ID that cannot be merged or split. Each Plasma coin would have an owner and would not be fully fungible or interchangeable. Even if an exchange hack occurred, users with Plasma Cash would not lose their money:
“A user actually only needs to verify the availability and correctness of the Plasma chain only […] at the specific index of the coin, of any coins that they own and any coins that they care about. Regardless of what happens in the exchange, users can run their money through the Plasma exit procedure and get their money out.”
Obviously, a solution that protects investors from having their coins stolen is going to be a huge improvement on the crypto exchange experience. If Plasma Cash works as Buterin says it will, this will benefit users, exchange owners, and, of course, its creator, Buterin. Win-win-win.