5min read
Published on: Mar 27, 2024
#Blockchain
#Crypto 360
#Web3
As we all know, Blockchain networks like Ethereum face a scalability challenge due to their limitations in transaction throughput. As the demand for decentralised applications (dApps) and smart contract usage grows, the need for scalable solutions becomes increasingly crucial. One promising approach to address this issue is Layer 2 (L2) scaling solutions, with rollups being a prominent example.
Learn More: Breaking Down Blockchain Technology
Scalability and the Ethereum Problem
Ethereum, the second-largest base blockchain network, has struggled with scalability issues, leading to high transaction fees and network congestion during periods of high demand. This limitation is a result of the network's design, which prioritises decentralisation and security over raw throughput. Rollups offer a way to increase transaction throughput while preserving the security guarantees of the main Ethereum chain.
What are Rollups?
Rollups are a Layer 2 scaling solution that processes transactions off the main Ethereum chain and periodically batches and submits these transactions to the main chain as a single transaction.
This approach helps lighten the load on the Ethereum main chain, allowing for higher transaction throughput and lower fee. The primary goal is to supercharge Ethereum scalability without sacrificing the security and decentralisation benefit that Ethereum offers.
Recommended Read: Ethereum Explained
The two types of rollups are Optimistic Rollups and Zero-Knowledge (ZK) Rollups. Each type offers its own set of benefits, with variations in their verification methods.
a. Multi-round Fraud Proof method.
b. If network confirms a transaction incorrectly, Abitrum unbundles the transactions and re-verifies them all before submit to consensus.
c. Supports FULL EVM Compatibility, allowing developers to port Ethereum DApps without modifying any code.
d. In the early stages, this made Arbitrum more accessible to developers, leading to more DApp launches on Arbitrum initially.
a. Single-round Fraud Proof method.
b. If network confirms a transaction incorrectly, Optimism re-verifies the entire bundled transaction again, without unbundling.
c. Developed OVM (Optimistic Virtual Machine) to support DApps from Ethereum, but developers need to modify parts of the code.
d. Optimism's approach makes it more stable and faster than Arbitrum if the network doesn't make any mistakes.
e. Initially had fewer DApp launches compared to Arbitrum due to the need for code modifications.
What is Zero Knowledge Rollups?
ZK-Rollups are a type of Layer 2 solution that uses the Validity Proof verification method and on-chain transaction recording. ZK-Rollups function similarly to Optimistic Rollups in many ways. Like Optimistic Rollups, they bundle multiple transactions into a single batch or "rollup", which is then sent for verification and recording on the Ethereum network.
However, the key difference, as discussed in the section on Fraud Proofs versus Validity Proofs, is that Optimistic Rollups have a set time window to check for errors.
If an invalid transaction is identified during this challenge period, the entire batch is reverted and recomputed. With ZK-Rollups, on the other hand, transaction computation and verification can happen concurrently.
Unlike Fraud Proofs, where the system must complete computation first before sending the results for verification, Validity Proofs allow these steps to occur in parallel. Therefore, ZK-Rollups do not require the lengthy 1-2 week verification period, making them more efficient.
Various companies have developed ZK-Rollup solutions, StarkNet, and Polygon zkEvn are the 2 projects focusing on this solution.
To sum up, Layer 2 rollups, both Optimistic and ZK-based, offer promising solutions to the scalability challenges faced by blockchain networks like Ethereum.
While Optimistic Rollups provide high throughput with lower computational overhead, they rely on challenge periods and fraud proofs, which can introduce delays and centralisation risks.
ZK-Rollups, on the other hand, offer instant finality and trustless validation but at the cost of higher computational requirements.
As the blockchain ecosystem continues to evolve, both approaches will likely play a crucial role in enabling scalable and secure decentralised applications.
But before delving into the two types of rollups, let's first understand the difference between the two verification methods.
A transaction occurs in Layer 2.
The system takes the Layer 2 transactions, computes them, and creates a Proof document in preparation for verification and recording of the transactions.
The Proof document will be sent for verification and recording on the Ethereum network if it is a Layer 2 solution that uses on-chain transaction recording. But if it is a Layer 2 that uses off-chain transaction recording, the Proof document will be sent for verification and the transactions recorded directly on that specific Layer 2 itself.
The concept of Fraud Proof is that the system will assume all transactions sent from Layer 2 are "completely valid" so it does not need to verify them on Layer 2. Instead, it will send them directly for verification on Ethereum (on-chain) or the solutions themselves (off-chain) in order to reduce transaction time.
After being sent for verification, the system must wait 1-2 weeks. If no transaction errors are detected by the system during this time, those transactions will be recorded on that network. However, if the system detects an invalid transaction, that transaction will be reverted so it can be recomputed.
A transaction occurs in Layer 2.
The system takes the Layer 2 transactions, computes them, and creates a Proof document for verification and recording of the transactions.
The Proof document will be sent for verification and recording on the Ethereum network if it is an on-chain Layer 2 solution. If it is an off-chain Layer 2, the Proof is sent for verification and recording directly on that Layer 2 itself.
The main concept of Validity Proofs used for on-chain recording is: "The transaction verifier on the Ethereum network must work faster than the transaction computer on Layer 2." This differs from Fraud Proofs used for on-chain recording, where computation is completed first before sending transactions for Ethereum verification and recording/reverting.
However, with Validity Proofs, the Layer 2 transaction computation and Ethereum network verification happen concurrently. This may seem confusing - how can verification happen alongside computation? Shouldn't computation finish first?
This is possible due to Zero-Knowledge Proofs. The goal is for the Ethereum verifier to not need to wait for the Layer 2 computer's full computation. The verifier can determine the answer without knowing the input data used.
As an analogy, the Layer 2 computer is like a student manually calculating a complex equation, while the Ethereum verifier is like a teacher using a calculator. The teacher doesn't need to know the student's step-by-step working - only that their final answers match.
Validity Proofs for off-chain recording follow a similar concept and process, just with verification happening on that Layer 2 itself instead of Ethereum. The verifier still must be faster than the computer.
Therefore, one key advantage of Validity Proofs is they do not require the 1-2 week period of Fraud Proofs, since computation and verification can happen concurrently, making Validity Proofs more efficient overall.
So, what are Optimistic Rollups?
Optimistic Rollups are a type of Layer 2 solution that uses the Fraud Proof verification method and on-chain transaction recording. As mentioned earlier, the way Optimistic Rollups increase transaction speed is by bundling multiple transactions into a single batch. This batch is then "rolled up" and sent for verification and recording on the Ethereum network.
With the Fraud Proof technology, all the transactions in the rolled-up batch are assumed to be valid, taking an optimistic view. If no errors are detected within a 1-2 week challenge period while awaiting verification, then the transactions are recorded on the Ethereum network. However, if any invalid transactions are identified during this period, the entire batch is reverted and recomputed for verification.
Several projects have developed Optimistic Rollup solutions, such as Optimism and Arbitrum.
This article is for informational purposes only and not intended as investment or financial advice. It contains opinions and speculations that are subject to change without notice.
The author and publisher disclaim any liability for decisions made based on the content of this article. Readers are advised to conduct their own research and consult a financial advisor before making investment decisions.
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