As the number of people using Ethereum has grown, the blockchain has reached certain capacity limitations. This has driven up the cost of using the network, creating the need for “scaling solutions.” There are multiple solutions being researched, tested and implemented that take different approaches to achieve similar goals.
The main goal of scalability is to increase transaction speed (faster finality), and transaction throughput (high transactions per second), without sacrificing decentralization or security (more on the Ethereum vision). On the layer 1 Ethereum blockchain, high demand leads to slower transactions and nonviable gas prices. Increasing the network capacity in terms of speed and throughput is fundamental to the meaningful and mass adoption of Ethereum.
While speed and throughput are important, it is essential that scaling solutions enabling these goals remain decentralized and secure. Keeping the barrier to entry low for node operators is critical in preventing a progression towards centralized and insecure computing power.
There are two ways to scale a blockchain ecosystem. First, you can make the blockchain itself have a higher transaction capacity. The main challenge with this technique is that blockchains with “bigger blocks” are inherently more difficult to verify and likely to become more centralized. To avoid such risks, developers can either increase the efficiency of client software or, more sustainably, use techniques such as sharding to allow the work of building and verifying the chain to be split up across many nodes; the effort known as “eth2” is currently building this upgrade to Ethereum.
Second, you can change the way that you use the blockchain. Instead of putting all activity on the blockchain directly, users perform the bulk of their activity off-chain in a “layer 2” protocol. There is a smart contract on-chain, which only has two tasks: processing deposits and withdrawals, and verifying proofs that everything happening off-chain is following the rules. There are multiple ways to do these proofs, but they all share the property that verifying the proofs on-chain is much cheaper than doing the original computation off-chain.
Layer 2
The problem is, that transaction speed suffers when the network is busy, making the user experience poor for certain types of dapps. And as the network gets busier, gas prices increase as transaction senders aim to outbid each other. This can make using Ethereum very expensive.
Most layer 2 solutions are centered around a server or cluster of servers, each of which may be referred to as a node, validator, operator, sequencer, block producer, or similar term. Depending on the implementation, these layer 2 nodes may be run by the individuals, businesses or entities that use them, or by a 3rd party operator, or by a large group of individuals (similar to Mainnet). Generally speaking, transactions are submitted to these layer 2 nodes instead of being submitted directly to layer 1 (Mainnet). For some solutions the layer 2 instance then batches them into groups before anchoring them to layer 1, after which they are secured by layer 1 and cannot be altered. The details of how this is done vary significantly between different layer 2 technologies and implementations.
Rollups
Rollups are one of the most promising categories of Layer 2 solutions. These solutions move transaction computations off-chain, but store transaction data to the Ethereum chain, which means that rollups are secured by Layer 1.
All this is accomplished via smart contracts whose primary function is to bundle, or ‘roll up’, transaction data and move it off chain for processing. This data is handled by network participants typically referred to as sequencers or validators, who then submit batches of highly compressed transaction data back to the main chain. Those batches contain the minimum information needed to verify whether the transactions are valid.
Because rollups move computation off-chain but still submit (highly compressed) data to the Ethereum mainnet, they can produce gains in scalability without creating data availability issues which is sometimes the case with other Layer 2 solutions. Some rollups also come with the option of off-chain data availability (where no data is actually posted on Ethereum), which can lead to significant gains in throughput, but at the cost of reduced security.
There are two types of rollups with different security models:
- Optimistic rollups: assumes transactions are valid by default and only runs computation, via a fraud proof, in the event of a challenge.
- Zero-knowledge rollups: runs computation off-chain and submits a validity proof to the chain.
Optimistic rollups
Optimistic rollups sit in parallel to the main Ethereum chain on layer 2. They can offer improvements in scalability because they don’t do any computation by default. Instead, after a transaction, they propose the new state to Mainnet or “notarise” the transaction.
With Optimistic rollups, transactions are written to the main Ethereum chain as calldata, optimising them further by reducing the gas cost.
As computation is the slow, expensive part of using Ethereum, Optimistic rollups can offer up to 10–100x improvements in scalability dependent on the transaction. This number will increase even more with the introduction of shard chains as more data will be available if a transaction is disputed.
The rollup contract keeps track of its entire history of state roots and the hash of each batch. If anyone discovers that one batch had an incorrect post-state root, they can publish a proof to chain, proving that the batch was computed incorrectly. The contract verifies the proof, and reverts that batch and all batches after it.
Zero-knowledge rollups (ZK-rollups)
Zero-knowledge rollups (ZK-rollups) bundle (or “roll-up”) hundreds of transfers off-chain and generate a cryptographic proof. These proofs can come in the form of SNARKs (succinct non-interactive argument of knowledge) or STARKs (scalable transparent argument of knowledge). SNARKs and STARKs are known as validity proofs and get posted to layer 1.
The ZK-rollup smart contract maintains the state of all transfers on layer 2, and this state can only be updated with a validity proof. This means that ZK-rollups only need the validity proof instead of all transaction data. With a ZK-rollup, validating a block is quicker and cheaper because less data is included.
With a ZK-rollup, there are no delays when moving funds from layer 2 to layer 1 because a validity proof accepted by the ZK-rollup contract has already verified the funds.
Being on layer 2, ZK-rollups can be optimised to reduce transaction size further. For instance, an account is represented by an index rather than an address, which reduces a transaction from 32 bytes to just 4 bytes. Transactions are also written to Ethereum as calldata, reducing gas.
Conclusions
Rollups are a powerful new layer-2 scaling paradigm, and are expected to be a cornerstone of Ethereum scaling in the short and medium-term future (and possibly long-term as well). They have seen a large amount of excitement from the Ethereum community because unlike previous attempts at layer-2 scaling, they can support general-purpose EVM code, allowing existing applications to easily migrate over. They do this by making a key compromise: not trying to go fully off-chain, but instead leaving a small amount of data per transaction on-chain.
There are many kinds of rollups, and many choices in the design space and are still at early adoption stage. However expect much more exciting work to come out of the rollup space in the years to come.
