What do you think of Ethereum’s “Rollup-centric” future?

Rollups solutions must prioritize reduced execution costs, cross-layer interoperability, and user privacy.

key takeaways

  • To alleviate current scalability issues, Ethereum is moving towards a “Rollup-centric roadmap” that combines the best on-chain and off-chain scaling solutions.
  • Ethereum’s on-chain scaling solution, danksharding, provides ample data space for the vigorous development of L2 (Layer 2) scaling solutions such as Optimistic Rollups and ZK-Rollups.
  • Both Optimistic Rollups and ZK-Rollups have their drawbacks: most Optimistic Rollups have long withdrawal waiting periods between tiers; while ZK-Rollups tend to be computationally intensive and cannot provide seamless composability.
  • For a Rollup-centric future to remain viable, Rollups solutions must prioritize reduced execution costs, cross-layer interoperability, and user privacy.

Scalability is a way to increase the speed and throughput of a network while minimizing (transaction) costs and without sacrificing the decentralization and security of the blockchain network. Ethereum is currently unable to scale. Over the past two years, Ethereum’s transaction costs have skyrocketed as the number of users has grown, making the cost of using the network nearly unaffordable for everyday investors.

Ethereum has two core options for scaling: on-chain scaling and off-chain scaling. Combined with “The Merge”, the Ethereum team is introducing a new sharding design called “danksharding” to introduce an on-chain scaling solution. These changes are expected to happen sometime in the next few months.

Off-chain scaling comes from an alternative protocol that sits on top of the existing blockchain and does not require changes to the current Ethereum L1 protocol. The L2 scaling scheme obtains security from the Ethereum mainnet by processing all transaction verification off-chain. The most well-known L2 scaling solution at present is Rollups.

While preparing for the “merger,” Ethereum is moving toward a “Rollup-centric roadmap.” It plans to combine the best on-chain and off-chain scaling solutions.

01. A Brief Guide to Rollups

Rollups is the most prominent L2 scaling solution in this space. We can classify Rollups according to their transaction verification and data storage methods. All Rollups aggregate large amounts of off-chain transaction data into batches and publish the results to the Ethereum mainnet when consensus is reached.

1) Optimistic Rollups

Optimistic Rollups networks, such as Arbitrum or Optimism, assume that all transactions are valid from the start. To keep these transactions safe, the Optimistic Rollups network provides a challenge period where network validators can challenge the legitimacy of a transaction with a fraud proof  on the parent chain (such as Ethereum). By performing proofs only when fraud is suspected, Optimistic Rollups significantly increase throughput and reduce latency (transaction confirmation time). The challenge period is usually seven days.

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Source: ethereum.org

During the challenge period, users can use their assets within the L2 ecosystem, but cannot retrieve assets back to the L1 chain. In response to the longer withdrawal waiting periods in Optimistic Rollups, some fast withdrawal schemes are on the rise. For example, through community-driven liquidity pools, Boba Network has reduced exit waiting periods to minutes.

Also, most Optimistic Rollups are  EVM (Ethereum Virtual Machine) compatible , which means anything you can do on L1, you can do on these Optimistic Rollups networks, and faster and a cheaper way to do it. EVM compatibility is the core reason why most Ethereum-based Rollups to date are Optimistic Rollups. Migrating smart contracts to these Optimistic Rollups solutions is a no-hassle process for Ethereum developers. Additionally, Optimistic Rollups provide complete transparency as all transaction data is published to the Ethereum parent chain.

2) ZK-Rollups

Zero-knowledge (ZK)-Rollups networks, such as StarkNet, are similar to Optimistic Rollups in that they combine a large number of off-chain transactions and submit them back to the Ethereum mainnet in batches. However, instead of assuming that all transactions are valid until proven valid, ZK-Rollups use validity proofs to verify transactions immediately. These validity proofs and compressed data will be submitted to Ethereum L1 for on-chain verification as a proxy for their corresponding original transaction packets.

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Source: Simon Brown 

Proof of effectiveness is very complex and time-consuming, so ZK-Rollups suffer from increased latency compared to Optimistic Rollups. Due to the large amount of computation required to generate cryptographic proofs (validity proofs), transaction sequencers in the ZK-Rollups network require high-spec hardware, making it difficult for everyday users to participate as their sequencers.

Furthermore, most ZK-Rollups are generally not EVM compatible due to their inherent complexity. As a result, it is difficult for Ethereum developers to migrate smart contracts to ZK-Rollups schemes, which makes it more difficult to develop general-purpose applications for these ZK-Rollups schemes without completely changing the smart contract framework. ZKSync and zkEVM have recently deployed an EVM-compatible ZK-Rollup solution on the Ethereum testnet, shedding light on a ZK-Rollup-centric future.

02. Ethereum’s “Rollup-centric” roadmap

At some point this year, Ethereum will undergo a consensus transition from PoW (Proof of Work) to PoS (Proof of Stake), which is called “The Merge”. This change will reduce the energy emissions of the Ethereum network, improve network security, and reduce the risk of centralization from miners. Ethereum’s “Rollup-Centric Roadmap” will support any number of validators as long as they deposit 32 ETH as an economic collateral.

Sharding is an on-chain horizontal scaling scheme that increases the amount of activity that the blockchain can efficiently handle. In essence, the Ethereum blockchain will be split into smaller chains, so-called “shards,” which will run in parallel and eventually connect to each other through the Beacon Chain. Together. Each shard chain will run through a subset of nodes that will check for data availability. This system ensures that anyone can use standard consumer-grade hardware to run network nodes, while increasing the scalability of the network.

Unlike traditional sharding which provides more space for transactions, the latest danksharding schemes focus on providing block space for data blobs. The Ethereum protocol doesn’t try to interpret the data, it just verifies that the data blobs are fully usable. For these data blobs to be considered fully available, no data must be lost, and the Rollup state must be able to rebuild using that data. This data space will be used for L2 scaling schemes that support high transaction throughput.

In short, the PoS consensus mechanism provides robust security and decentralization for L2 Rollups.

Danksharding forms the data layer, providing massive data availability, providing Rollups with a low-cost place to publish their data. Danksharding makes Ethereum’s Rollup-centric roadmap feasible. It turns Ethereum into a settlement and data availability layer and puts scalability in the hands of L2 Rollups. Currently, by combining Rollup and Ethereum architecture, the transaction throughput of current Ethereum’s only 15-45 TPS can be scaled up to 1000-4000 TPS. The introduction of the shard chain will further expand the data storage capacity for Rollups, increasing the throughput to over 100,000 TPS.

03. Rollup-centric future

The dazzling advantage of Optimistic Rollups and ZK-Rollups is that they can solve Ethereum’s scalability problems without compromising security and decentralization. They allow for near-instant transactions at much lower fees while reducing network congestion on the Ethereum mainnet.

However, both types of Rollups have significant drawbacks that call into question their long-term sustainability. Optimistic Rollups are subject to a week-long exit waiting period due to the fraud proof system. And ZK-Rollups is too computationally intensive to be compatible with EVM at present. As mentioned, the developers of both solutions are addressing these issues.

The Ethereum ecosystem provides ample room for the Rollup ecosystem to flourish. The Ethereum roadmap encourages experimentation, allowing the best L2 solutions to thrive in the mature Ethereum ecosystem. In addition to their respective shortcomings, future rollup deployments must address differences in transaction costs, fragmentation of Ethereum’s sharded ecosystem, and privacy concerns.

1) Cost

A scalable blockchain needs to be able to support an increasing number of transactions (transactions) without compromising transaction costs. As mentioned, both Optimistic Rollups and ZK-Rollups solve this problem, but how do they compare?

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ZK-Rollups can incur significant costs when running their proofs of validity. However, as the program improves, the number of transactions included in each transaction batch in the ZK-Rollup network will increase, which will reduce the marginal cost per transaction. In the long run, ZK-Rollup will overcome the initial fixed cost of its proof of effectiveness.

In theory, Optimistic Rollups should have almost no-cost transactions. Unlike ZK-Rollups, Optimistic Rollups do not have heavy backend computation or data compression (which would further increase transaction costs). Typically, Optimistic Rollups operators cover the cost of running fraud proofs. However, posting uncompressed data back to Ethereum increases transaction costs. Additionally, transaction costs on Optimistic Rollups are currently higher than expected as fraud proofs have not yet been fully deployed on these solutions.

On the Ethereum shard chain, the transaction cost of any Rollup scheme should be significantly lower than the current situation. In theory, if ZK-Rollups can continue to reduce marginal cost per transaction, the cost difference between Optimistic Rollups and ZK-Rollups should be very small.

2) Fragmentation

The entire crypto ecosystem suffers from fragmentation. Most protocols operate in silos, and the industry is relatively fragmented. Moving assets between blockchains is complex and unintuitive, especially for new users.

Many Rollups networks have thriving but isolated L2 ecosystems. Developers are rapidly building applications on Arbitrum and Optimism due to the ease of connecting components within the Ethereum protocol. However, once users put their assets into these systems, they often find it a challenge to re-transfer those funds to different platforms. “Cross-layer bridges” and “cross-chain bridges” like Hop and Connext help solve some of the interoperability problems of liquid assets. Users can seamlessly transfer assets from one platform to another relatively quickly and cost-effectively.

A cross-chain bridge locks an asset in an L1 smart contract, and then sends a version of that token asset to another blockchain or Rollup, and vice versa. Without EVM compatibility, users would need to relinquish control of their crypto assets, as the security of this cross-chain bridge no longer depends on the security of the underlying blockchain. In order to transfer assets from Ethereum to Rollups that do not have EVM compatibility (such as Loopring or StarkNet), users can send Token assets to the Rollup from a centralized trading platform, or pay Gas fees to send assets to the Rollup itself . For the latter, these assets will exist in this L2 Rollup.

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For cross-chain bridging of assets from Ethereum to Rollup, L2 bridging has declined in terms of total TVL (total value locked) since the market downturn earlier this year. Despite long withdrawal waiting periods, Optimistic Rollups like Arbitrum, Optimism, and Boba are currently leading in terms of accumulated bridge TVL. zkSync is a fairly new Rollup in the field, but it is one of the few ZK-Rollups with EVM compatibility.

Likewise, in the PoS-based Ethereum world, there are some issues surrounding Rollups interoperability. The “Interoperability Bridge” will be a vital infrastructure component in the Rollups-centric Ethereum ecosystem. They will work to prevent siloed Rollup ecosystems, maintain composability, and alleviate fragmented liquidity. These bridges are necessary for cross-rollup communication and asset migration.

Ethereum’s Rollup-centric ecosystem encourages experimentation and development of current blockchain architectures. Currently, EVM compatibility limits development within the Rollup framework and limits the freedom of smart contract innovation. EVM compatibility may become an obsolete feature to be superseded by future developments in composability-driven technologies.

In the short term, Optimistic Rollups is the leading scaling solution for the Ethereum ecosystem. They have an existing advantage in EVM compatibility, which provides the required composability for their applications. Over time, however, the transition to ZK-Rollups will occur naturally due to several factors: lower, trustless withdrawal waiting periods; higher throughput; superior data compression; A reduction in the marginal cost of transactions.

3) Privacy

Blockchains are inherently public, providing trust in the field through complete transparency. At any given time, anyone can go to Etherscan and see who is interacting with what contracts and how much money is involved. While wallet addresses are an anonymous privacy solution, social media platforms provide an outlet to link public identities with corresponding wallets. 

On the other hand, the current TradFi (traditional finance) system is completely private: people cannot check each other’s finances. In an era where data privacy is a mainstream issue, it’s easy to see why retail investors, especially businesses, are reluctant to disclose their private information and link it to their financial records. The crypto world needs to be as private as the current Web2, otherwise, frankly, there will be no long-term adoption potential.

So how exactly can developers remove identifiable information from public transactions without compromising security?

The beauty of ZK-Rollups is its data compression capabilities. As mentioned earlier, ZK-Rollups verifies all transaction data off-chain and publishes the verified proof and compressed transaction data back to the Ethereum mainnet. Ethereum validators do not need to interpret the data in the transaction batch, but simply check and ensure that the L2 scheme has verified the data.

Privacy-focused ZK-Rollups remove identifiable information from their bundled transaction data and only publish appropriate information. For example, Aztec created a pseudonym system in its Rollup scheme to completely separate transaction data from the parties involved. Users can anonymously send or receive tokens and interact with DApps through their upcoming Aztec Connect bridge.

However, this added privacy feature comes at a price. The Rollup cannot handle the transaction list as before. Aztec introduced a second zero-knowledge proof (so now it’s ZK-ZK-Rollup) to verify a list of ZK proofs, each of which verifies a private transaction. Polygon has launched their enterprise-oriented privacy rollup, Polygon Nightfall, which runs an Optimistic Rollup on top of the ZK Privacy Rollup.

Previous privacy technologies, such as Monero, Zcash, and Tornado Cash, have seen mainstream adoption or left users to choose whether or not to use privacy. When investors want to keep their transactions private, they must choose to use privacy. However, the party on the other end of the transaction may not do so, so one end of the transaction is public. Over time, dynamics in transaction data can be pieced together to reveal the identities of both parties, defeating the purpose of anonymizing identities from transactions in the first place. This vulnerability in apps that provide optional privacy defeats the purpose of establishing privacy transactions in the first place, so privacy should be the default in apps.

Enabling private transactions is simpler for ZK-Rollups because Optimistic Rollups publish all transaction data to their parent chain. However, there are also options that enable Optimistic Rollups to enable private transactions. They could follow Tornado Cash’s lead and sever the on-chain link between source and destination addresses. Current Optimistic Rollups can host privacy-oriented ZK-Rollups like Aztec as L3 (Layer 3). Future deployments could also mix their solutions, like Polygon Nightfall, and implement ZK-Rollup to verify private transactions.

04. Write at the end

The Optimistic Rollups solution is ahead of ZK-Rollups in the current market. Since they are often equivalent to EVMs, Optimistic Rollups have the composability their applications require, and are simpler because there are no complex off-chain computations. In the long run, if ZK-Rollups’ technology continues to improve, based on better product fit, they have the potential to win the L2 Rollup competition. As more EVM-compatible solutions emerge, ZK-Rollups should become more cost-effective, take advantage of unprecedented transaction privacy, and produce a more harmonious cross-chain and cross-layer bridging experience.

Ethereum is not the only L1 blockchain focused on a Rollup-centric roadmap. Tezos, NEAR, and Celestia have moved to some sort of Rollup-oriented blockchain. Also, the current L1 competition may not disappear in the near future. These L2 ecosystems may have to compete not only with each other, but also with L1 ecosystems (like Solana) or even L2 sidechains (like Polygon).

Ethereum’s transition to Rollup-centricity will take a few years. Current Rollups will take time to implement in a proper way, leaving enough room for execution errors. While both Optimistic Rollups and ZK-Rollups have their own tradeoffs, the possibility of a cohesive Ethereum ecosystem bodes well for further cryptocurrency adoption in general.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/what-do-you-think-of-ethereums-rollup-centric-future/
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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