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Optimistic Rollup Tokens: What Are They And How Do They Work?

Oct 21, 2022  |  Raza Mehmood

Ethereum, the world's first smart contracts platform, grew significantly over the years and today supports approximately 3,000 decentralized apps (dApps), 4,000+ smart contracts, and over 90,000 transactions daily.

However, greater Ethereum activity has come at a cost: scalability. Although critical for decentralization and security, block sizes and time limits Ethereum's ability to expand and allow new users. As a consequence, most Ethereum users are aware of the following issues: high gas prices and sluggish transactions.

Scaling Ethereum securely necessitates improving its ability to grow network throughput and latency while avoiding the introduction of trust assumptions. Several scaling options, such as Layer 2 rollups and sidechains, seek to achieve this.

This article delves into Optimistic Rollups (ORUs), a kind of L2 roll-up solution meant to make Ethereum more affordable and quicker to use.


What Exactly Are Optimistic Rollups?

Optimistic rollups are a layer 2 (L2) structure that increases throughput and latency on Ethereum's foundation layer by off-chaining computation and data storage. An optimistic roll-up handles transactions outside of the Ethereum Mainnet, lowering base-layer congestion and enhancing scalability.

The word "optimistic" refers to a distinguishing characteristic of optimistic rollups: they reveal minimal information about transactions on-chain and presume that all transactions are genuine. Rollups are so-called because they consolidate ("roll up") thousands of transactions into batches before sending them to Mainnet.

An Optimistic Rollup's Architecture

Entering The Upbeat Rollup

To handle the connection between the L2 chain and the L1 blockchain, optimistic rollups employ smart contracts implemented on Ethereum (Ethereum). Before receiving an equal amount unlocked on the rollup, rollup participants must put cash into one of these smart contracts.

After obtaining evidence of the user's investment in the rollup contract, a third party known as a sequencer provides the user with monies on the rollup. The user is then able to transact freely on the rollup until their balance is depleted.

Making Use Of The Optimistic Rollup

Users sign transactions on the rollup and submit them to the sequencer, who is in charge of organizing and executing transactions. The sequencer checks transactions, compress the data into a block and sends the batch as a single transaction to Ethereum.

This is another instance when the rollup contract comes into play. The on-chain contract holds a "state root," which is a Merkle root representing the state of the rollup. Let's take a closer look:

State

The term "state" refers to the information known about a network at a certain moment in time. The "rollup's state" represents the current status of the L2 chain and provides features such as existing accounts, balances, smart contracts, and so on.

Every transaction on the roll-up changes its state—for example, Alice's balances will fall when she transfers 5 ETH to Bob. Because the rollup changes from an old state to a new one after completing a transaction, transactions are referred to as state transitions.

Merkle tree

A Merkle root allows users to utilize cryptographic hashes to encapsulate vast quantities of data. Merkle roots also make it easy to determine if a piece of data (for example, a transaction) is part of a bigger dataset (e.g., a batch of transactions).

As a result, the "state root" in the rollup contract is a cryptographic commitment that verifies the rollup's status at various periods in time. A sequencer must provide a pre-state root and a post-state root when submitting a batch of transactions to the rollup contract.

Pre-state root: The old state root specifies the rollup state prior to the execution of the submitted transactions.

Post-state root: A new state root specifies the rollup status after the submitted transactions have been completed.

The contract ensures that the pre-state root matches the current state root once the sequencer submits the batch. If the two match, the contract discards the old state root and saves the sequencer's new state root.

This indicates that the transactions mentioned in the post-state root are now final and cannot be reversed. It should be noted that the sequencer is not required to provide verification of the correctness of batched transactions.

Exiting The Optimistic Rollup

Assume Alice (the user) has had enough of this rollup stuff and wishes to withdraw her cash from the Ethereum Mainnet rollup contract. To do so, she needs Merkle proof proving that her transaction is included in the rollup's state root.

The Merkle proof needs access to the original transaction data, which is assumed to be provided by the sequencer. If everything goes as planned, Alice obtains the data, makes the Merkle proof, and submits to the rollup contract.

On the other hand, using the sequencer to supply transaction data adds trust assumptions. A sequencer may go rogue and execute a transaction moving Alice's token to their wallet, denying her access to the data she needs to verify possession of the cash. Even less malevolent events, like a sequencer falling down, might jeopardize the decentralization and security of optimistic roll-ups.

Optimistic rollups address this issue by forcing sequencers to publish the whole transaction data on the main Ethereum execution layer. This information is broadcast as "call data" on the Ethereum Mainnet, which is less expensive than holding it in the Ethereum Virtual Machine's memory or storage (further reducing roll-up fees).

Which Are The Most Promising Rollup Blockchains?

In terms of Total Value Locked, the best optimistic rollup blockchains are Arbitrum, Optimism, Metis Andromeda, and Boba Network (TVL). The many optimistic rollups (ORUs) are summarized below:

Arbitrum

Arbitrum is an optimistic rollup project that aims to reduce Ethereum's user prices and transaction speed by off-chaining processing and data storage. The Arbitrum Virtual Machine (AVM) enables EVM-compatible smart contracts, letting users utilize their favorite dApps for a tenth of the cost of Ethereum.

Optimism

Optimism is an EVM-compliant, optimistic rollup chain that makes use of Ethereum's security guarantees. Optimism employs an optimistic rollup (OR) structure to aggregate thousands of off-chain transactions, saving customers money on gas costs.

Metis Andromeda

Metis Andromeda is an optimistic rollup-based scalable, low-cost, and functional L2 protocol. Metis Andromeda's distinct stack applies to various use-cases, including dApps, DAOs, and DeFi.

Boba Network

Boba Network is an Ethereum L2 scaling throughput network that employs optimistic roll-up designs. Boba Network provides a Liquidity Provider (LP) service, enabling customers to withdraw cash quickly without waiting for a seven-day challenge period to expire.

Conclusion

Optimistic rollups are a key component of Ethereum scaling attempts utilizing layer 2 architecture. Optimistic rollups improve Ethereum's security and decentralization while charging lower fees and processing transactions more quickly.


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