An article to understand the ultimate expansion plan of Ethereum: rollups

What are rollups? What is the difference between Optimism and ZK rollups? How is Arbitrum different from Optimism? Why is rollup considered the holy grail when expanding Ethereum? You will find the answers to these questions in this article.

introduce

Ethereum expansion has always been one of the most discussed topics in the cryptocurrency field. During periods of frequent network activities such as the CryptoKitties boom in 2017, the DeFi summer in 2020, or the cryptocurrency bull market in early 2021, the debate about the expansion of Ethereum usually heats up.

During these periods, users’ unprecedented demand for the Ethereum network has led to extremely high gas fees, which makes users pay very expensive transaction fees in daily life.

In order to solve this problem, for multiple teams and the entire Ethereum community, finding the ultimate scalability solution has always been one of the top priorities.

Generally speaking, there are 3 main ways to expand Ethereum or most other blockchains: expand the blockchain itself-the first layer of expansion; build on top of the first layer-the second layer of expansion plan and Build on the side chain of the layer 1 network.

When it comes to layer 1 networks, Eth2 is an alternative solution for scaling the Ethereum blockchain. Eth2 refers to a set of interrelated changes, such as migrating to Proof of Stake (PoS), merging the state of the Proof of Work (PoW) blockchain into the new PoS chain and shards.

Especially sharding, it can significantly increase the throughput of the Ethereum network, especially when it is combined with rollup.

If you want to know more about Eth2, you can check this article here.

When it comes to extensions beyond the first layer, developers have tried a variety of different extension solutions, but the result is a mixture of different solutions.

On the one hand, we have second-layer solutions like Channels, which are fully protected by Ethereum, but only apply to a specific set of applications.

On the other hand, the side chain is usually compatible with the Ethereum Virtual Machine (EVM), which can extend general-purpose applications. Their main disadvantage is that they do not rely on the security of Ethereum, but have their own consensus model, so their security is not as good as the second-layer solution.

The goal of most rollups is to achieve the best combination of the two by creating a general and scalable solution while still relying entirely on the security of Ethereum.

An article to understand the ultimate expansion plan of Ethereum: rollups

This is the holy grail of expansion because it allows all existing smart contracts to be deployed on Ethereum with little or no change without sacrificing security.

No wonder rollups may be the most anticipated extension of all solutions.

But what are rollups?

rollups

Rollups is a scalable solution that works by executing transactions outside of layer 1, but publishing transaction data on layer 1. This allows rollups to scale the network and still gain security from the Ethereum consensus.

Moving the calculations out of the chain can actually process more transactions, because part of the data of the rollups transaction must fit in the Ethereum block.

To achieve this, rollups transactions are executed on a separate chain, which can even run EVM versions specific to rollups.

The next step after executing rollups transactions is to batch them together and publish them to the main Ethereum chain.

The whole process is essentially to execute transactions, obtain data, compress data and roll it up to the main chain in a single batch, so it is called “rollups”.

An article to understand the ultimate expansion plan of Ethereum: rollups

Although this seems to be a potentially good solution, a problem will naturally arise next:

“How does Ethereum know that the published data is valid and was not submitted by a malicious participant trying to benefit himself?”

The exact answer depends on the specific rollups implementation, but generally speaking, each rollup deploys a set of smart contracts on the first layer, responsible for processing recharge and withdrawal, and verification proofs.

Proof is also where the main differences between the different types of rollups come into play.

Optimism’s rollups use fraud proof. In contrast, ZK rollups use validity proofs.

Let us further study these two types of rollups.

Optimism and ZK rollups

Optimism rollups transfer the data to layer 1 and assume that it is correct, hence the name “Optimism”. If the published data is valid, then we are on the right processing path and do not need to do anything else. Optimism rollups benefit from not needing to do any extra work in the Optimism scene.

In the case of an invalid transaction, the system must be able to identify it, restore the correct state, and punish the party submitting such a transaction. To achieve this, Optimism’s rollups implements a dispute resolution system that can verify fraud proofs, detect fraudulent transactions, and inhibit bad actors from submitting other invalid transactions or incorrect fraud proofs.

In most Optimism rollups implementations, the party that can submit batch transactions to the first layer must provide a guarantee, usually in the form of ETH. Any other network participant can submit a fraud proof if they find an incorrect transaction.

An article to understand the ultimate expansion plan of Ethereum: rollups

After submitting the fraud proof, the system enters the dispute resolution mode. In this mode, suspicious transactions are executed again on the main chain of Ethereum. If the execution proves that the transaction is indeed fraudulent, the party submitting the transaction will be punished, usually by cutting the ETH that it provides guarantees.

In order to prevent bad actors from spamming information on the Internet with false fraud evidence, parties wishing to submit fraud evidence usually must also provide a guarantee.

In order to be able to perform rollups transactions on layer 1, Optimism rollups must implement a system that can replay transactions in the exact state they were in when they were originally executed in rollups. This is one of the complex parts of Optimism rollups and is usually achieved by creating a separate manager contract that replaces certain function calls with the state in the rollups.

It is worth noting that even if there is only one honest party monitoring the status of rollups and submitting fraud proofs when needed, the system can work as expected and detect fraud.

It is worth mentioning that, due to the correct incentive mechanism in the rollups system, entering the dispute resolution process should be an exception rather than a frequent occurrence.

And ZK rollups does not have any dispute resolution solutions. It is achieved by using an encryption technique called zero-knowledge proof, so it is also called ZK rollps. In this model, each batch released to layer 1 contains an encrypted proof called ZK-SNARK. When the transaction batch is submitted, the first layer contract can quickly verify the proof, and invalid transactions can be directly rejected.

This sounds simple, right? In practice, many researchers have spent countless hours to iterate on these cryptography and mathematics.

There are some other differences between Optimism and ZK rollups, so let’s introduce them one by one.

An article to understand the ultimate expansion plan of Ethereum: rollups

Due to the nature of the dispute resolution process, Optimism rollups must give all network participants enough time to submit a fraud proof, and then complete the transaction at the first level. This period is usually long to ensure that even in the worst case, fraudulent transactions are still disputed.

This leads to a long time to withdraw funds from Optimism’s rollups, and users even need to wait one to two weeks before they can withdraw funds to the first layer.

Fortunately, there are some projects that are improving this situation by providing rapid “liquidity”. These projects can almost immediately withdraw funds to the first layer, the second layer and even the side chain, and charge a small fee. Hop protocol and Connext are the projects we want to study.

ZK rollups does not have the problem of long-term withdrawal, because as long as the rollups batch processing and validity certificate are submitted to the first layer, the funds can be withdrawn.

So far, it seems that ZK rollup is just a better version of Optimism rollup, but they also have some disadvantages.

Due to the complexity of the technology, it is much more difficult to create EVM-compatible ZK rollups, which makes it more difficult to extend general-purpose applications without rewriting the application logic. Nevertheless, ZKSync has made significant progress in this area, and they may soon be able to launch EVM-compatible ZK rollups.

In terms of EVM compatibility, Optimism rollups are slightly easier. They still need to run their own version of EVM and only need to make some modifications, but 99% of the contracts can be transplanted without any modification.

The calculation amount of ZK rollups is also much larger than that of Optimism rollups. This means that the nodes that calculate zero-knowledge proofs must be high-spec machines, which makes it difficult for other users to run them.

When it comes to scalability improvements, both types of rollups should be able to scale Ethereum from 15 to 45 transactions per second (depending on the transaction type) to 1,000 to 4,000 transactions per second.

It is worth noting that by providing more space for rollup batches on layer 1, the system may be able to process more transactions per second. This is why Eth2 can create a huge synergy effect through rollups, because it increases the possible data available space by creating multiple shards-each shard can store a large amount of data. The combination of Eth2 and rollups can make the transaction speed of Ethereum reach 100,000 transactions per second.

Now, let us discuss all the different projects working on Optimism and ZK rollups.

Optimism rollups

When it comes to Optimism rollups, Optimism and Arbitrum are by far the most popular choices.

An article to understand the ultimate expansion plan of Ethereum: rollups

At present, the Ethereum mainnet has partially launched Optimism, and partners include Synthetix or Uniswap to ensure that the technology can work as expected before it is fully released.

Arbitrum has deployed its own version on the mainnet and started adding different projects to its ecosystem. They decided to give a time window to all agreements that wanted to publish the agreement instead of letting the liquidity provider deploy their agreement first. When this period of time is over, they will open the door to all users at once.

Some of the most famous projects launched on Arbitrum are Uniswap, Sushi, Bancor, Augur, Chainlink, Aave, etc.

Arbitrum also recently announced a partnership with Reddit. They will focus on launching a separate rollups chain, allowing Reddit to expand their reward system.

Optimism is working with MakerDAO to create the Optimism Dai bridge and enable Dai and other tokens to be quickly withdrawn to the first layer.

Although both Arbitrum and Optimism try to achieve the same goal-to build an Optimism rollups solution compatible with EVM-there are some differences in their designs.

rbitrum have a different mode of dispute resolution. They came up with an interactive multi-round model that allows the scope of the dispute to be narrowed, and only executes a few instructions on the first layer to check whether the suspicious transaction is valid, instead of re-running the entire transaction on the first layer to verify whether the fraud evidence is valid.

This also leads to a side effect that the smart contracts deployed on Arbitrum may exceed the maximum contract size allowed on Ethereum.

Another major difference is the method of processing transaction sequencing and miner extractable value (MEV). Arbitrum will initially run a sequencer responsible for sorting transactions, but in the long run, they want to decentralize it.

Optimism prefers another approach, namely transaction sequence, and MEV, which can be auctioned to other parties within a period of time.

It is worth mentioning that there are some other projects that are also undergoing Optimism rollups. Fuel, OMG team, OMGX and Cartesi, etc. Most of them also tried to develop a version of rollups compatible with EVM.

ZK rollups

Although it seems that the Ethereum community is mainly focused on Optimism rollups, at least in the short term, let us not forget that the ZK rollups project is also progressing very fast.

An article to understand the ultimate expansion plan of Ethereum: rollups

With ZK rollups, we have some options available.

Loopring uses ZK rollups technology to extend its exchange and payment protocol.

Hermez and ZKTube are using ZK rollups to expand payments, and Hermez has also established an EVM compatible ZK rollups.

Azgtec is focusing on introducing privacy features into their ZK rollups technology.

Rollups based on starkware have been widely used by projects such as DeversiFi, Immutable X and dYdX.

As we mentioned earlier, ZKSync is developing a virtual machine compatible with EVM, which will be able to fully support any smart contract written in Solidity.

Summarize

As we have seen, many things are happening in the Optimism and ZK rollups camps, and the competition between different rollups will be worthy of attention.

Rollups also have a great impact on DeFi. Users who were previously unable to trade on Ethereum due to high transaction fees will be able to stay in the ecosystem the next time the network activity is high. They will also give birth to a new application that requires cheaper transactions and faster confirmation times. All of these are fully guaranteed by the Ethereum consensus. It seems that rollups may trigger another period of high growth in DeFi.

However, rollups still have some challenges.

An article to understand the ultimate expansion plan of Ethereum: rollups

Composability is one of them. In order to combine transactions using multiple protocols, all protocols must be deployed in the same rollups.

Another challenge is the exhaustion of liquidity. For example, if no new funds enter the entire Ethereum ecosystem, the existing liquidity that exists on the first layer of protocols (such as Uniswap or Aave) will be shared between the first layer and multiple rollups. Lower liquidity usually means higher slippage and worse transaction execution.

This also means that there will naturally be winners and losers. Currently, the existing Ethereum ecosystem is not large enough to use all scaling solutions. In the long term, this situation may change, but in the short term, we may see some rollups and other scaling solutions become unused.

In the future, we may also see users living completely in a rollups ecosystem, not interacting with the main Ethereum chain and other scalable solutions for a long time. This will be particularly obvious if we will see more centralized exchanges that can realize direct recharge and withdrawal.

Nevertheless, rollups seem to be the ultimate strategy for expanding Ethereum, and related challenges are likely to be alleviated in some way. It is obviously very interesting to see how rollups gain more and more users.

A question that often arises when discussing rollups is whether they pose a threat to the side chain. Personally, I think that sidechains still have their place in the Ethereum ecosystem. This is because although the transaction cost of layer 2 is much lower than that of layer 1, it may still exceed the price of certain types of applications, such as games and other high-volume applications.

This situation may change when Ethereum introduces sharding, but by then the sidechain may create enough network effects to survive in the long term. How this will develop in the future will be a very interesting thing.

In addition, the cost of rollups is higher than that of side chains, because each batch of rollups still needs to pay for Ethereum block space.

It is worth remembering that the Ethereum community is very concerned about Ethereum’s expansion strategy-at least in the short to medium term, and possibly even longer. I recommend reading Vitalik Buterin’s article on the Ethereum roadmap centered on rollups.

 

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/an-article-to-understand-the-ultimate-expansion-plan-of-ethereum-rollups/
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