Optimistic rollups are layer 2 (L2) protocols designed to increase the throughput of Ethereum by processing transactions off-chain.
They still derive security from Ethereum by publishing transaction results on-chain, using a fraud-proving scheme to make sure transactions are valid.
Optimistic rollups reduce computation on the main Ethereum chain, offering up to 100x improvements in scalability.
How Do Optimistic Rollups Work?
Optimistic rollups use a combination of off-chain and on-chain activity for efficiency, challenge periods for security, and a system of aggregators for transaction management:
- Off-Chain Processing: Transactions are handled outside the main Ethereum network, which is faster and cheaper. These transactions are bundled into batches.
- On-Chain Security: Transactions are posted to the Ethereum main chain in batches. This approach ensures that the main chain remains aware of all transactions, maintaining transparency and integrity.
- Challenge Period: After transactions are posted, there is a period where anyone can challenge them if they believe there is an error. If a challenge is valid, the transaction is corrected, ensuring the network remains secure.
- Aggregators and Incentives: Aggregators collect and submit the transactions to Ethereum, earning fees for doing so. Aggregators put down a deposit, which they risk losing if they act dishonestly.
Together, the components boost speed and minimize costs, while keeping transactions honest.
Pros and Cons of Optimistic Rollups
Pros:
- Scalability without losing security: Optimistic rollups make Ethereum faster and handle more transactions without compromising security.
- Transparency and censorship resistance: All transaction data is stored on Ethereum, making it open and harder to censor.
- Compatibility with existing Ethereum tools: Works well with Ethereum’s existing smart contracts and programming languages like Solidity.
Cons:
- Withdrawal periods: Optimistic rollups have a withdrawal period that allows time for challenging and verifying transactions.
- Potential for centralization issues: Rollup operators can influence the order of transactions.
- Need for honest participants: The system relies on at least one honest node to maintain security.
Current Implementations of Optimistic Rollups
Optimism
Optimism officially launched its mainnet in December 2021, using optimistic rollups to increase transaction speed and reduce costs.
The system relies on quick fraud checks, which can sometimes lead to higher gas fees since these checks are done on Ethereum’s main layer.
Optimism’s Optimistic Virtual Machine (OVM) provides compatibility with Ethereum applications with minimal adjustments.
The network’s OP token is used for governance, while transaction fees are paid in ETH.
Arbitrum
Arbitrum, created by Offchain Labs, launched its mainnet in August 2021.
It uses a slightly different multi-round fraud proof system, which resolves disputes by only checking the disputed part of a transaction on the main Ethereum chain.
Arbitrum’s Arbitrum Virtual Machine (AVM) allows for the easy migration of Ethereum applications to its network, with minimal changes.
The ARB token is used for governance, while transaction fees are paid in ETH.
Base
Base is built using Optimism’s technology and was launched by Coinbase in 2023.
Despite being a newer player in the layer-2 space, it quickly caught up to its peers in terms of usage and the total value locked in its ecosystem.
Just like Optimism, Base integrates smoothly into Ethereum’s DeFi and NFT ecosystems using OVM. Its goal is to make blockchain as easy to use as current web technologies, aiming to bring the next billion users to web3.
While decentralized, it works closely alongside Coinbase, providing easy fiat gateways and access to millions of users within the exchange’s ecosystem.
Conclusion
Optimistic rollups make Ethereum faster and cheaper by handling transactions off the main chain and then checking them for honesty.
Current versions of optimistic rollups are already popular and proving to be very useful for DeFi, with several billion dollars worth of funds secured across the top optimistic rollup platfo
