Long processing times and high transaction costs are the bane of Blockchains. Initial techniques to address these scalability issues utilized 'side chains', but 'side chains' proved to exhibit a fatal flaw - the user's funds are subject to theft if the 'side chain's' validators are dishonest.
With the publishing of a paper in June, 2019 entitled Minimal Viable Merged Consensus, a description of the technique now known as optimistic rollups was presented. Since then, the technique of optimistic rollups has been widely accepted by the Ethereum community as a method to scale Ethereum type smart contract execution. These optimistic rollup techniques will be system deployed even prior to the implementation of Serenity Phase 2
RESOURCE REQUIREMENTS OF A BLOCKCHAIN
Basically, three factors affect the resource requirements for running a node in a decentralized network:
BANDWIDTH: the cost of downloading/broadcasting chain data;
COMPUTE: the cost of running computations within smart contracts; and
STORAGE: the cost of saving transaction data for indexing plus the cost of storing 'state' to continue processing new blocks.
[see, e.g. Konstantopoulos, Georgios. (Almost) Everything you need to know about Optimistic Rollup. https://research.paradigm.xyz/rollups. (Accessed May 31, 2021); see also, Buterin, Vitalik. Blockchain Resource Pricing. https://github.com/ethereum/research/blob/master/papers/pricing/ethpricing.pdf. (Accessed May 31, 2021)].
There are two ways to assess Blockchain performance:
THROUGHPUT: the number of transactions per second; and
LATENCY: the processing time for a transaction.
At the heart of the current system-wide displeasure with the Ethereum Chain lies the issue of scalability. Scalability is defined as "[t]he ability to scale throughput and latency superlinearly to the cost of running the system." [Konstantopoulos, supra.] However, the decentralized concept of trust is absent from this basic definition. Accordingly, decentralized scalability is the ability to achieve scalability without increasing trust assumptions in the system.
Different blockchain networks address this issue of scalability in disparate ways. For instance, Polygon addresses increased scalability by utilizing side chains to increase throughput and lower costs. Polkadot, however, utilizes 'sharding' to achieve the same results. As the need within the system for increased scalability grows, more and more networks are developing techniques of optimistic rollups to address these scalability issues.
HOW DO OPTIMISTIC ROLLUPS WORK AND WHY DO THEY AFFECT SCALABILITY
A rollup is a hybrid layer 2 technique whereby computation and state storage are moved off-chain, but some data per transaction is left on-chain. Optimistic rollups utilize fraud-proofs to achieve this goal; [see, e.g. "An Incomplete Guide to Rollups" https://vitalik.ca/general/2021/01/05/rollup.html. (Accessed June 1, 2021)]. Visually an optimistic rollup appears as follows:
How an optimistic rollup works in practice is patently simplistic:
1.) The aggregator places transactions into a rollup block and sends it to a smart contract with a bond. This rollup block is not executed but the contract merely records the hash block and keeps track of all of the rollup block hashes. The rollup block is available for all to view (trust) in historical Ethereum or Ethereum style compatible transactions;
2.) Each rollup block includes the root of the Merkle tree of its state. If the state root is invalid, anyone within some specified timeout period may use a fraud proof to prove the root invalid. Causes of this invalidity may include an incorrect state root or an invalid transaction within the rollup. Should the rollup block be proven invalid, the smart contract rolls back the view of the chain and orphans all blocks descending from the proven invalid block. When a fraud proof is successful, the bond posted comes in to play and a portion of the bond is paid to the prover and the balance is burned; and
3.) Should the specified timeout expire absent any fraud proof, the rollup block is finalized by the smart contract and the bond is released. Withdrawal of user funds may only be completed upon finalization of the rollup block within the smart contract.
OPTIMISTIC ROLLUP SCALABILITY RESULTS
Currently, every Ethereum node stores and executes each user submitted transaction. When a smart contract is executed, it is processed through the EVM thereby interacting with the EVM's state. It is this interaction with the EVM state that makes Ethereum transactions presently so time consuming and expensive.
Optimistic Rollups operate by moving all smart contract execution off chain leaving only the root on chain. Off chain, a sequencer is utilized to store and execute the rollup user transactions locally. All the sequencer reports back on chain is the Merkle root of the rollup transactions together with resulting state roots.
In the sequencer's report the function is absent, meaning published transaction data is not executed and no state access is made anywhere throughout the transaction's progress. The information is merely stored in the blockchain's historical logs which is cheap in cost to write to.
CONCLUSION
Buterin's tweet demonstrates the result of utilizing optimistic rollups. 100x scaling equates to faster transaction times and significantly lower transaction costs desperately needed in the ERC-20 universe.
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