Reading Optimism: Creating a Bright Future for Ethereum

Introduction

Everyone has heard of Ethereum 2.0 and how it solved the Ethereum scaling problem. What if I told you that Ethereum has been scaled with or without Ethereum 2.0?

The shift from a Proof of Work (PoW) to a Proof of Stake (PoS) consensus model is just the tip of the iceberg. The final real challenge is to create a whole new framework for blockchain scalability, moving from monolithic to modular blockchains. This is Ethereum’s solution to the blockchain triad problem, with the goal of increasing throughput while maintaining decentralization and security. The blockchain triad refers to the fact that blockchains must balance three core principles (decentralization, speed, security), and it is unlikely that any one principle will be sacrificed without sacrificing the other. improved below.

For the kind of blockchain that does all the computation and processing on a single chain, a monolithic blockchain would be better. Most Layer 1 (L1) today follow this structure and are monolithic blockchains. In contrast to this is a modular blockchain, which splits the chain into an execution layer, a security layer, and a data availability layer. Each chain has a specific role and is built on top of the other chain to acquire the idiosyncrasies of the previous layer of blockchains. In Ethereum, Ethereum L1 is the security and data availability layer, and the second layer (L2) built on top of it is the execution layer.

The goal of a modular architecture is to hopefully outperform monolithic blockchains by orders of magnitude at every level. The intent is to allow the L2 to do anything a monolithic L1 can do, and better, while still interoperating seamlessly with other L2s. Optimism is an example of Ethereum L2, which aims to achieve the above goals.

DeFi

Monolithic and modular blockchain structure

What is Optimism?

Optimism is the first Ethereum L2, leading the development of Ethereum Virtual Machine (EVM) compatible Optimistic Rollup solutions. Optimism is similar to Ethereum in that it can process transactions at scale while maintaining the security of Ethereum.

Optimistic Rollup gets its name from the way transactions are handled. By default, people are optimistic that transactions are accurate and that no calculations are required. It relies on fraud proof mechanisms to ensure the legitimacy of transactions. A validator (anyone running an Optimism “full node”) is able to challenge the validity of transaction proposals submitted by orderers, and the rollup will then be checked by performing transaction computations on Ethereum. The challenge period set by Optimism is 1 week. After the transaction proposal is challenged during the challenge period, the final result will be obtained and then submitted to the Ethereum main network.

If the proposal turns out to be fraudulent, the validator is rewarded and the orderer is penalized. The orderer needs to bind the ERC-20 token pool, which is where the reward comes from. The token in Optimism is ETH. This creates an incentive mechanism that encourages validators to catch bad guys and orderers to submit only accurate transaction proposals. Fraudulent proposals are removed and correct proposals are finally implemented. The transaction itself will not be affected in any way, only the fraudulent proposal result for that transaction will be removed.

DeFi

A brief description of how fraud proofs work

In addition to its technical prowess, Optimism has another intriguing aspect: the organization behind it is a public welfare company whose goal is to support public welfare projects. Since the project is not yet fully decentralized, the team donates all profits from centralized orderers to public goods on Ethereum for their expansion and maintenance. In 2021, the team has donated a total of $1 million to such projects.

What benefits does Optimism bring?

Optimism brings 4 main benefits: EVM equivalence, data security, speed and cost.

Even if Optimism isn’t the most EVM compatible chain, that’s one of them, the point being that it’s one step closer to EVM equivalence. Optimism is able to support any Ethereum application using the Optimistic Virtual Machine (OVM), an EVM-compatible virtual machine. Developers can use any Ethereum-based dApp with Optimism with little or no architectural changes. This allows decentralized applications (dApps) on Ethereum to seamlessly integrate on Optimism.

Unlike sidechains like Ronin, which have their own security measures because they operate independently, rollups like Optimism can get their security directly from the Ethereum mainnet. Transactions are processed on Optimism, but the data of the transaction is written and stored on Ethereum. Therefore, Optimism maintains the security of Ethereum while maintaining scalability.

In the use of Ethereum, the calculation step is very slow and expensive. By not counting transactions by default, Optimism is able to improve scalability by a factor of 10-100, depending on the nature of the transactions. Optimism enables almost instant transactions, allowing users to instantly check the results of their transactions; and transactions on Optimism are also cheap, at a fraction of the cost of Ethereum transactions.

Currently, the base transfer fee on Optimism is $1.66, while the fee on Ethereum is $8.77. In total, Optimism is estimated to have saved over $335 million in on-chain transaction miner fees.

Are there any downsides to Optimism?

Optimism has 3 main drawbacks: longer withdrawal times and higher fees, potential incentive bias among online users, and potential censorship of transactions by L1.

Since the challenge period for fraud proofs is 1 week, the waiting period for withdrawals via the official Optimism cross-chain bridge is also 1 week. You must pay attention to this in the process of use, because the withdrawal through the main chain bridge cannot be cancelled once submitted. Withdrawals through the main chain bridge are expensive, potentially over $100, because of the extensive security measures placed on the bridge. Such a long and expensive withdrawal period can adversely affect the acceptance and composability of Optimism.

To solve this problem, third-party chain bridges such as Hop exchange have emerged. These bridges enable instant withdrawals and are generally cheaper than the main bridge. Optimism is working to reduce withdrawal fees, but the necessary updates are still months away.

The network relies on incentives that encourage validators to challenge fraudulent proposals and orderers to submit correct proposals. If there are few or no fraudulent proposals, validators receive little or no reward from operating nodes, as they are only rewarded when they successfully challenge fraudulent proposals. This inhibits the enthusiasm of validators to operate nodes. Without validators, the orderer would be able to submit fraudulent transactions at will, leading to network failures.

However, this is unlikely to happen. In addition to the potential network rewards that may be earned, there are incentives for users to act as honest validators. In order to ensure the normal operation of the protocol, applications on Optimism (such as third-party bridges, DeFi protocols) have incentives to encourage users to become honest validators.

Orderers may bribe Ethereum miners: if a transaction has enough value, orderers can get fraudulent proposals through during computational checks for a fraction of the cost. This breaks trust in the network and can lead to network failures. However, this is unlikely to happen because miners are aligned with the incentives of the Ethereum network. If this happens, the value of the Ethereum network itself will be negatively affected. Miners would lose their long-term value as Ethereum miners by coveting this one-time reward. Honest orderers and validators tend to bribe miners with higher rewards because the total value involved may be higher than the value of a single transaction.

How does Optimism compare to Arbitrum ?

Optimism was the first to invent the EVM-compatible Optimistic Rollup protocol, but the delay in the mainnet launch gave Arbitrum an advantage. For example, Uniswap was first released on Optimism, but due to the delay of Optimism, the Uniswap team proposed that it could be released on Arbitrum while waiting for Optimism.

Optimism and Arbitrum are both Optimistic Rollups and thus are similar in many ways, the main difference being their fraud proof systems. Optimism opted for non-interactive fraud proofs, which re-execute the entire transaction order and perform the required computations on L1 to get the result.

In contrast, Arbitrum has opted for interactive fraud proofs that only execute specific steps that are contested on L1. Dissect and break down the disputed section until the specific steps that lead to the dispute are identified. Parsing is performed by orderers and validators, and computations are performed on L1 to confirm the final result only when the dispute is narrowed down to a specific step.

The benefit of non-interactive fraud proofing is that it is much simpler in design, eliminating the need for coordination among the various parties involved, so fraud proofing is instantaneous. Interactive fraud proofs require two or more parties to work together to carefully study the challenge, and therefore take longer to resolve. The downside is that computing the entire transaction on L1 is much more expensive than computing a single step. In non-interactive fraud proofs, there is also a limit (L1-based) on the size of blocks and transactions that can be validly verified, but interactive fraud proofs do not have this limitation as it only requires a single step of verification.

Optimism is currently working on moving to an interactive fraud proof model equivalent to EVM, which is in line with their overall goal. The difference between EVM-equivalent and EVM-compatible is that the former is processed on the EVM, while the latter is processed on a compatible virtual machine, such as the Arbitrum Virtual Machine (AVM), as is currently done on Arbitrum. The Arbitrum team is also working on EVM equivalence. Blacksmithing needs to be hard on its own, and it’s clear that both projects are striving to push the boundaries of Optimistic Rollup, constantly innovating and learning from each other.

In the past 30 days, Optimism has 452,000 unique active addresses, while Arbitrum has 668,000, which is slightly better. However, Optimism currently performs better than Arbitrum for on-chain transactions. This shows that although Optimism currently has a smaller user base, users are more motivated to participate on-chain.

DeFi

Arbitrum’s daily transaction volume

How to interact with Optimism?

Large Ethereum-based dApps such as Uniswap and Synthetix are already deployed on-chain and fully operational. Optimism has a growing native ecosystem that includes DeFi projects like Rubicon Finance, and an already up and running NFT marketplace: Quixotic. Several NFT collections have appeared on Optimism, with the top three being OptiPunk ( a derivative of CryptoPunks ), Optimistic Bunnies, and OldEnglish. The most popular dApps right now are DeFi dApps; 50% of the top 10 are DeFi apps by log occurrence. The log occurrence rate refers to the number of times an entity’s smart contracts are successfully executed.

DeFi

The log occurrence rate of various dApps on Optimism

You need to connect to various platforms and dApps through an Ethereum wallet such as MetaMask , similar to what you would do on Ethereum. You need to bridge the ERC-20 asset to the Optimism chain before using it. This step can be achieved through Optimism’s own chain bridge or a third-party chain bridge. Third-party chain bridges are sufficient for most transactions, so are highly recommended. Typically, it’s cheaper and has the added benefit of instant withdrawals, while Optimism’s own chain bridge requires a 1-week waiting period.

What is the future of Optimism?

Optimism does not have a native token and has no plans to issue a native token in the short term, but it will happen sooner or later. Centralized exchanges may offer direct access to Optimism, similar to what exchanges like Binance and Huobi offer to Arbitrum. This allows users to bypass the bridging step and deposit assets directly into Optimism, reducing the costs associated with bridging.

The Optimism team will gradually realize the decentralization of the network in the future; we will see the realization of Optimism decentralization once key network upgrades and improvement measures are launched. Currently, the team has disabled the previous Fraud Proof and is working on a re-improved Interactive Fraud Proof model.

The Optimism ecosystem is growing day by day, making management recommendations for the on-chain deployment of major DeFi applications such as Aave. The process of deploying Ethereum-based dApps on Optimism is convenient and successfully removes barriers to entry for existing dApps. Whether it’s the successful deployment of a slew of dApps on-chain, or the formation of a vibrant ecosystem, it’s only a matter of time. Given Optimism’s low transaction fees, we may see more DeFi, NFT, and GameFi projects built on the blockchain in the future.

DeFi

Smart money on Optimism partially overlaps with Ethereum

It seems that the exploration of smart funds has not yet started to get involved in Optimism. At present, the overlap between smart NFT miners and Ethereum is the highest, reaching 10%. This shows that Optimism is still in its early stages, and the ecosystem still has a lot of potential and room to continue to develop.

The current L2 solutions are not yet interoperable and can only exist in silos. In order to create a truly scalable Ethereum, interoperability is a key element that needs to be addressed. Once the key upgrade is officially launched and Optimism achieves a higher degree of decentralization, this is likely to be the direction that Optimism will strive for in the future.

The launch of Ethereum 2.0 will increase the capabilities of Optimism. A faster and more efficient Ethereum L1 means that all programs built on top of Ethereum and relying on it will also become more efficient. Ethereum 2.0 alone may not be able to meet the growing demand for block space, so L2 will be necessary to meet this demand.

in conclusion

The L2 solution will continue to exist, and most of the future transactions on Ethereum will take place here. L2 has been criticized for complicating user operations because users have to take more steps to acquire assets on and off-chain. As it stands, this criticism is reasonable, but over time the issue will be resolved through streamlining of the third-party application process or by the L2 team itself. ETH 2.0 did not cause them to be obsolete, but gave them greater scalability and efficiency.

Optimism is a type of L2 that will play an integral role in the scaling process of Ethereum. They’ve set a high bar for themselves, trying to achieve EVM equivalence; and despite the delays at release, they’ve stuck with the delivery in the end. The ease of Optimism program deployment will make many existing DApps willing to give it a try, and with the establishment of the Optimism ecosystem, low miner fees will also attract users to choose Optimism for transactions. In addition to developing software, they also actively support and develop high-impact projects in the Ethereum ecosystem, funding them.

Right now, the entire blockchain-powered world is still in its infancy, and Ethereum’s modular structure may just be the key to unlocking a whole new possibility. Most of us agree with the idea of ​​a cross-chain future, but a more accurate term would be a multi-chain future.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/reading-optimism-creating-a-bright-future-for-ethereum/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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