What are Rollups?

Introduction

Rollups represent one of the most popular and effective Ethereum scaling solutions. As a Layer 2 off-chain scaling solution, Rollup bundles thousands of off-chain transactions into batches and sends them to the main blockchain for storage and verification. It greatly improves transaction volume and transaction speed while inheriting the security of Ethereum Mainnet.

Introduction

Currently, all blockchains are struggling with the “impossible triangle” problem: decentralization, scalability, and security. Any blockchain can have at most two of them. For example, when Ethereum achieves decentralization and security, it sacrifices scalability. As the number of users on the network increases, Ethereum is overwhelmed and unable to bear such a huge traffic. As a result, issues such as slow transaction speed and high fees occur.

The main goal of scalability is to increase transaction speed and throughput (transactions per second, TPS) without sacrificing security or decentralization.
Rollups, the most frequently mentioned term recently, are solutions to scale Ethereum. It is the most feasible scaling solution for Ethereum before completing sharding and scaling Mainnet.

Ethereum Scalability

There are two types of blockchain scaling: on-chain scaling and off-chain scaling.

On-Chain Scaling

On-chain scaling involves a change to the Ethereum protocol to truly improve its transaction speed and transaction throughput. At present, the main focus of on-chain scaling is sharding. On-chain scaling is more difficult than off-chain scaling.

Sharding

Sharding technology is not a new concept. It has long been used in traditional commercial databases. Sharding is the process of horizontally splitting a database into several shards to lighten the load. The sharded data will be randomly assigned to each node and processed independently and simultaneously in parallel.
Sharding will effectively improve the transaction speed and transaction throughput of blockchain. It may even help Ethereum address the “impossible triangle”.

Off-Chain Scaling

Off-chain scaling refers to improving the scalability of Mainnet through innovations outside of the Mainnet, which will not incur changes to the Ethereum protocol. Besides Layer 2, other popular off-chain scaling solutions at present are Sidechain and Plasma, etc.

Layer 2 Scaling

Decentralization and security should never be compromised in achieving scalability. Layer 2 is an independent blockchain. As it inherits the security and decentralization of the Mainnet, Layer 2 has the potential to achieve higher scalability. There are currently two types of Layer 2 scaling - Rollups and state channels.
Rollups are currently the mainstream solution for scaling Ethereum. They play crucial roles in shaping Ethereum’s roadmap. Based on the security model, rollups can be divided into two categories: optimistic rollups and zero-knowledge rollups.
State channels enable users to transact securely, quickly, and cheaply off-chain, and then settle finality with Mainnet.

Sidechains

Sidechains are EVM-compatible blockchains that run independent of Ethereum Mainnet. Sidechains are compatible with Ethereum Mainnet via cross-chain bridges and run under their own consensus algorithms in parallel with Mainnet. Unlike Ethereum, sidechains sacrifice some measure of decentralization or security to achieve high transaction throughput and faster transaction speed. The two most popular sidechains are Polygon and Fantom.

Plasma

Plasma chains are separate blockchains anchored to Ethereum Mainnet that use fraud proofs to arbitrate disputes. Unlike sidechains, Plasma chains are built on top of the Ethereum blockchain and can extend many “child” chains. To some extent, Plasma chains benefit from Ethereum Mainnet’s security. Plasma was once seen as a solution for scaling Ethereum, but was then replaced by Layer 2. A well-known Plasma blockchain is OMG Network.

Why do Rollups Matter?

Layer 2 off-chain scaling is the mainstream scaling solution

On-chain scaling is difficult to implement as it requires changes to the Ethereum protocol. Therefore, off-chain scaling is currently the main focus of the scaling upgrade.
Off-chain scaling refers to improving the scalability of Ethereum Mainnet through innovations outside of it. This method does not need to change the original Ethereum protocol. Common off-chain scaling solutions include Layer 2, Plasma, Sidechains, etc.
Layer 2 is currently the most popular off-chain scaling solution benefiting from the following features:

1. Enjoys high transaction throughput, improves user experience, and reduces Ethereum network congestion.

2. Layer 2 rollups can compress a large number of transactions and reduce the cost of using the network.

3. Achieves decentralization and security while pursuing scalability, which makes it distinct from other off-chain scaling solutions.

The most popular and widely used technology of Layer 2 is rollup, which features high transaction throughput, low transaction fees, and accessibility to Layer 1 assets.

Rollup-centric Ethereum Roadmap

In 2020, Vitalik proposed a Rollup-centric Ethereum Roadmap and the concept of multi-rollups.
Multi-rollups, though still in its infancy, may create more possibilities for Ethereum in the future. Given rollups’ possibility to achieve high transaction throughput, coupled with on-chain scaling - sharding combined for data availability (DA) storage, Rollups as a Service (RaaS) may be proposed in the future, allowing anyone to start his own rollups quickly.
The emergence of multi-rollups also creates a demand for cross-rollups bridging technology. When Rollups become the mainstream, it is necessary to build technologies that can achieve convenient and secure asset transfer between rollups while eliminating high transaction fees on Ethereum.

What are Rollups

Rollups serve as the main option currently to implement Layer 2. Rollups themselves are independent blockchains, where users transact and then send data to Ethereum for storage. In this way, Rollups could benefit from the security of the mainnet. Also, by bundling hundreds of transaction data into a single batch, rollups help reduce transaction fees drastically as the fees are shared by all.
Rollups aim to improve the scalability of Ethereum by computing transactions in an independent blockchain, and packaging transaction data and submitting it on Ethereum for storage.
At present, there are two kinds of rollups: optimistic rollups and zero-knowledge rollups. They are distinct from each other in their different security models.

What are OP-Rollups

Optimistic rollups are considered “optimistic” because they assume all transactions on OP-Rollups are real and valid, and treat all transactions in an optimistic way.

How do OP-Rollups verify the correctness of a transaction?

OP-Rollups adopt cryptoeconomic incentives to ensure validators act honestly. Anyone on the blockchain can become a validator but should pay some deposits, which is similar to Proof-of-Stake. If the validator proposes an invalid transaction or is trying to fork maliciously, his deposits will be slashed.
OP-Rollups use fraud proofs to detect the authenticity of transactions. After transactions on OP-Rollups are bundled into batches and submitted on Ethereum Mainnet, there is a time window called the Challenge Period, during which anyone can verify the batches by computing a fraud proof.

Entering OP-Rollups

To enter OP-Rollups, users need to deposit ETH, ERC-20 tokens, or other accepted cryptocurrency assets into the cross-chain bridge. The bridge contract will relay the transaction to Layer 2 (or OP-Rollups), where an equivalent amount of assets is minted and sent to the user’s chosen address on the OP-Rollup.

Exiting OP-Rollups

Exiting rollups is more complicated. If a user wants to exit OP-Rollups, he can only withdraw his funds scrowed on Ethereum Mainnet after the challenge period, during which anyone can challenge the transaction results. Although the process is quite simple for users, it is time-consuming as it usually takes 1-2 weeks.

EVM Compatibility

The advantage of OP-Rollups is its compatibility with EVM, which allows development teams to migrate existing smart contracts on Ethereum to OP-Rollups without changes to the codes. It not only saves time but brings convenience by taking advantage of Ethereum’s infrastructure like programming languages, testing tools, etc.
To learn more about EVM (Ethereum Virtual Machine), please visit What is EVM on Gate Learn.

Arbitrum

Arbitrum is the leading Layer 2 blockchain that adopts OP-Rollups, accounting for nearly half of the total Layer 2 market cap.

In addition to some successful projects that have already been running on Arbitrum, such as Uniswap, Yearn, and Sushiswap, there are other unique native projects, including GMX, a derivatives protocol, and TreasureDAO that intends to build a huge NFT ecosystem, etc.
Although Arbitrum does not yet have a native token, it is the largest Layer 2 chain by TVL, which makes its investors keep a close eye on its development. Arbitrum launched the Arbitrum Odyssey event in April 2022, aiming to bring a complete Arbitrum ecosystem journey to users. The event was cooperated with Project Galaxy and designed to last for 8 weeks. Users could receive NFT airdrops by completing weekly tasks. After collecting 13 NFTs or more, users could be rewarded with exclusive NFTs that marks the end of the Arbitrum journey.
But only a week after the event‘s start, a large number of users flocked in, resulting in an explosion of transaction volume and network congestion, as well as a skyrocketing network fee. Given this situation, Arbitrum decided to suspend Odyssey and resume it after the release of Nitro.

Arbitrum Daily Transaction Volume
(Image source: Arbiscan)

Arbitrum Unique Addresses
(Image source: Arbiscan)

OPTIMISM

OPTIMISM, referred to as OP, is also a Layer 2 chain powered by OP-Rollups. It is the second largest Layer 2 chain by market cap. Unlike Arbitrum, OP announced its first airdrop on June 1, 2022, followed by an ecosystem incentive program. Incentivized by high rewards, investors flocked to OP, leading to a significant increase in its TVL.

OP also got support from some well-established projects such as Uniswap and Aave. In addition, Velodrome, the liquidity base-layer of the OP ecosystem, is a decentralized exchange that adopts a ve(3,3) model and has achieved considerable success. It had even surpassed Uniswap, the leading decentralized exchange, by TVL.

What are ZK-Rollups

Slightly different from OP-Rollups, ZK-Rollups bundle a large number of transactions into batches that are executed off-chain and update the smart contract state by submitting validity proofs to the Mainnet. ZK-Rollups only need to post the minimal summary data to Mainnet for validation.

How ZK-Rollups verify the correctness of transactions

The state of ZK-Rollups is maintained by smart contracts deployed on Ethereum Mainnet. Through validity proof, the state of ZK-Rollups will be updated after being verified by Mainnet. The summary data submitted to Mainnet contains Ethereum smart contract changes and cryptographic proof that those changes are correct

ZK-Rollups also use Proof-of-Stake to select operators. Operators must deposit cryptocurrency in the contract as stakes in advance. The size of each stake will influence the staker’s chances of getting selected. If the operator acts maliciously, his stake can be slashed.
If a user decides to exit a ZK-Rollup, he must also bundle transactions, and verify and update the smart contract state through validity proof. Unlike OP-Rollups, ZK-Rollups have no challenge period.

EVM Compatibility

It is not easy for ZK-Rollups to be compatible with EVM. Running complex smart contracts is much more difficult than conducting simple computations, which is why the development of ZK-Rollups is much slower than that of OP-Rollups. But with the improvement of the zero-knowledge proof technology in recent years, it is no longer difficult to implement zkEVM.

Validity Proofs

ZK-Rollups bundle on-chain transactions into batches, which are validity proofs. Validity proof allows parties to prove the correctness of a statement without revealing the statement itself. Hence, they are also called zero-knowledge proofs.
At present, there are two types of validity proofs as follows:

1. ZK-SNARK (Zero-Knowledge Succinct Non-Interactive Argument of Knowledge)
   ZK-SNARKs are popular for their small proof sizes and drastically increased transaction speed and throughput. If the information used to create public parameters falls into the possession of malicious actors, false validity proof may be generated. So ZK-SNARK faces security and trust issues.

2. ZK-STARK (Zero-Knowledge Scalable Transparent Argument of Knowledge)
   ZK-STARK is considered to be an improvement to ZK-SNARK because of its transparency. It relies on publicly verifiable randomness to set up parameters for generating and verifying proofs. In addition, ZK-STARK is scalable and requires less time to validate large datasets.
   However, as ZK-STARK produces larger proof sizes, it is more expensive to verify on the Mainnet.

Immutable X

Immutable X, founded in 2018, is one of the most well-known blockchain that uses ZK-Rollup. It is characterized by providing a sound NFT transaction environment. Many large blockchain games are planned to be released on Immutable X, including Illuvium, Ember World, etc.
Gods Unchained, a card game launched at an earlier stage, is also very popular. In Gods Unchained, players will buy, build, and collect cards that can be used to construct decks and battle against other players.

Polygon zkEVM (Hermez)

Recently, Polygon has continued to expand its business in ZK-Rollups. Following efforts in acquiring Mir Protocol and Hermez Network, Polygon launched Polygon Hermez in July 2022. This is the first open-source EVM-equivalent zkEVM project. Benefiting from Polygon’s strong brand, Hermez had gained extensive attention as soon as it was launched. After the testnet goes live, developers can seamlessly deploy any Ethereum smart contract on Polygon Hermez.

(Image source: Polygon zkEVM)

OP-Rollups vs ZK-Rollups

Security Model

ZK-Rollups rely on the trustless cryptographic mechanism to ensure security, while OP-Rollups rely on crypto-economic incentives to maintain trust.
OP-Rollups bundle multiple transactions together into batches and send them to Mainnet for verification. They do not verify the authenticity of these transactions in advance but optimistically assume that all transactions are correct. OP-Rollups have a challenging period of about 1-2 weeks, allowing anyone to challenge the authenticity of the transaction by computing fraud proofs, thereby protecting the blockchain state. If the user wants to exit, he must wait until after the challenge period to determine the correctness of the transaction.
ZK-Rollups will produce validity proofs for bundled transactions in advance, and send them to smart contracts on Mainnet to prove the correctness of the state change. As validity proofs can be proposed to update the blockchain state, users can exit ZK-Rollups at any time.

Block space utilization

OP-Rollups bundle a large number of transactions in batches and send them to Mainnet for verification. In contrast, ZK-Rollups send small-sized summary data to the Mainnet. As the cost of sending data to Mainnet is the main cost incurred on Rollups, ZK-Rollups are superior as they only need to send minimal validity proofs.

EVM Compatibility and future growth

Due to their higher compatibility with EVM, OP-Rollups occupy a majority of the Layer 2 market cap. But finalizing the correctness of transactions is subject to a delay due to fraud proofs.
ZK-Rollups have the advantages of low cost, trustlessness and faster transaction confirmation. The downside is that it is difficult to be compatible with EVM, along with many existing problems to be solved, such as the not fully open-sourced code and different development methods.
From a comprehensive perspective, OP-Rollups are more open-source than ZK-Rollups, making their development process easier. That’s why the current Layer 2 market is dominated by OP-Rollups. However, due to fraud proofs, OP-Rollups are inherently inferior to ZK-Rollups in terms of security; while ZK-Rollups are limited by problems of high technical barriers and immature development, etc.
As for the future of rollups, OP-Rollups are more favored by the public as an ideal solution in the short term, which can effectively relieve the load on Ethereum. And ZK-Rollups is seen as a much more promising solution to achieve higher security and scalability in the medium and long term.

Challenges of Rollups

Not fully decentralized

The current Rollups can be viewed from two aspects. Blocks are generated by specific operators in a centralized way, but are verified by Ethereum which is trustless and highly decentralized.

Specific operators can submit data proofs to Layer 1, but this may cause a single point of failures. Actually, Arbiturm has been down several times for this reason.

Security and development difficulty

Based on how data will be submitted to Ethereum, Rollups are divided into two types: optimistic rollups and zero-knowledge rollups.

OP-Rollups have mature open source codes and are developing rapidly because they are easier to implement. However, as OP-Rollups assume that all transactions are correct, fraud proofs and token incentives are needed to stimulate validators outside of Mainnet to check the correctness of transactions during the challenge period. If users want to withdraw, they must wait until the challenge period ends. So OP-Rollups are inferior in terms of security.

Given this, solutions to OP-Rollups’ security issues should be proposed. Otherwise, they will finally be replaced by ZK-Rollups which are safer.

ZK-Rollups needs to produce validity proofs for the compressed transactions. They need to send the transaction data to Ethereum for storage and prove the correctness of the blockchain state change. Users could withdraw from a ZK-rollup at any time because exit transactions are executed once the ZK-rollup contract verifies the validity proof.

Although ZK-Rollups enjoy higher security, many problems still exist, including the not fully open-source codes, the different development methods of different teams, the limited transaction speed due to the computation of zero-knowledge proof (ZKP), and the difficulties of being compatible with EVM. All of these factors are restricting ZK-Rollups from being implemented in the short term.

Cross-rollup bridging is required to realize multi-rollups. Since cross-chain bridges are less secure and susceptible to asset stealing, we should avoid adopting the design of cross-chain bridges but focus on their security and interoperability. As the underlying technology is quite complex and still in its infancy, we will not dive deeper into it in this article.
The vision of ​​multi-rollups is appealing indeed, but currently rollups are still at an early stage. As more and more professional teams enter Rollups, many challenges that have been existing for a long time may be addressed, and the widespread education of this field and the number of applications will also grow correspondingly. In the future, we will definitely usher in an all-round multi-rollups ecosystem.

Conclusion

Since the Rollup technology is still in its infancy, more time is needed to conduct in-depth research and development. At present, Rollups are widely seen to have high technical barriers and difficulties in achieving EVM compatibility. Therefore, OP-Rollups are seen as an ideal solution in the short term while ZK-Rollups in the medium and long term.
Rollups aim to reduce the load on Ethereum. Presently, daily transaction volume of Arbitrum and Optimism, two leading Layer 2 chains, are around 100,000, which are relatively low numbers. By contrast, the daily transaction volume of Ethereum Mainnet reaches 1 million. It is obvious that more time is needed for layer 2 to attract more users and projects from Mainnet.
The Multi-rollups concept plus on-chain scaling - sharding combined for data availability storage might be a solution to the “impossible triangle” problem of blockchain, whose development will kick-start a brand-new chapter.

(Image source: Etherscan)

The goal of Ethereum scaling is to improve its scalability without sacrificing decentralization or security, with a view to solving the “impossible triangle”. The Rollup is only one of the many possible ways to achieve the huge scaling goal. Rollups, together with the sharding technology to achieve on-chain scaling, can truly improve Ethereum’s throughput. Before that, all we can do is to update ourselves with the latest technologies and related news continuously, receive different viewpoints, and construct our own knowledge framework about the future development of this sector, thereby creating potential opportunities of our own.