If you were asked which mainnet is the safest and most reliable, which one would come into your mind? If you were to ask people in the crypto industry, most would answer Ethereum. However, if you were to ask them about the limitations of Ethereum, they would mention speed, scalability issues, and expensive transaction fees.
If you are interested in blockchain, you may have heard of the blockchain trilemma, which states that security, decentralization, and scalability cannot all be satisfied simultaneously. Ethereum’s trilemma is the issue of not satisfying scalability, and as seen in the chart below, Ethereum’s transaction speed issues can be clearly seen when compared to other chains.
Ethereum: https://ethtps.info/?ref=blog.infinityswap.one
Solana: https://explorer.solana.com/
Polkadot: https://polkadot.network/blog/polkadot-roadmap-roundup/?ref=blog.infinityswap.one
Cardano: https://cexplorer.io/tps
TPS overview: https://ethtps.info/
When compared to Solana and Avalanche, Ethereum shows a relatively slow speed of 15-20 transactions per second (TPS). To address this speed issue, Ethereum announced the adoption of a rollup-centric scalability improvement this year. It is essential to understand the concept of Layer 2 and rollups in order to comprehend this method so we will study the rollup and its 2 main types.
What is Rollup?
Rollups are a technology introduced to increase Ethereum’s scalability. Improving scalability means making transaction speed, or transactions per second (TPS) faster within the Ethereum network. Blockchains consist of multiple layers, with layer 1 (L1) referring to the existing Ethereum blockchain and adding layer 2 (L2) to it to process transactions.
Example of the Relationship Between L2 and L1 (Ethereum)
When you send ETH, send ERC tokens or mint NFTs, these are all called a transaction. If you think about how many people are using VISA cards around the world (roughly more than 1 billion transactions a day), it is easy to imagine that the transactions happening around the world are so heavy and numerous (with all the requests) for Ethereum that had to create a separate chain in order to handle them quicker, and this is called a rollup.
Here is another example of how transactions are handled in a separate chain.
If you send 1 ETH to Elon Musk and he promises to send you back 2 ETH, there are two transactions involved: (1) where you send ETH to Elon Musk, and (2) where he sends 2 ETH back to you. However, ultimately it is equivalent to Elon Musk giving you 1 ETH.
The process of bundling the balance update into one transaction on Layer 2 and recording only the result and the receipt of the transaction on Ethereum, is called a rollup. Therefore, it can be inferred that Ethereum aims to focus more on storage than on computation. (Ethereum can also perform computation)
The challenge for Ethereum is that the more active rollups become, the more space is required to store the state of the rollup and evidence of the transaction, which is a challenge that Ethereum is trying to solve.
Rollup
Rollups can be broadly classified based on how Ethereum processes the information they possess. The two main types are Optimistic rollup (OR) and ZK rollup (ZKR). In this research paper, we will delve into the differences between these two approaches and discuss which technology is likely to be more widely adopted in the future based on a performance comparison.
Optimistic Rollup (OR) VS ZK Rollup (ZKR)
Optimistic Rollup:
As hinted by its name, Optimistic rollup operates under the assumption that all transactions submitted by validators are correct and accurate. To verify whether a transaction is fraudulent or not, Optimistic rollup goes through a process where assets cannot be withdrawn for a period of 7 days. Once it is confirmed that there are no issues during this period, withdrawals become possible. Validators are required to submit high-priced collateral, and there is a possibility that their collateral will be forfeited if they attempt to submit fake transactions. In this process OR ensures that all data is recorded on top of the Ethereum blockchain.
The process of fraud-proof in Ethereum occurs as follows. Anyone can become a verifier by invoking a special function called the state manager, through which they can initiate fraud-proof for a state change they want to refute. In this process, the user must provide the target transaction and the state root immediately before the execution of that transaction as parameters.
The verifier sends the previous state root of the target transaction and its data to the Ethereum mainnet, calculates the state root immediately after performing the transaction on top of it, and compares it with the state root submitted by the sequencer. If the state root resulting from the verification process differs from the one submitted by the sequencer, the fraud-proof concludes, and the state is rolled back to the corresponding state root.
ZK Rollup:
ZK rollup, based on Zero-knowledge proofs technology, is receiving recognition for its advantages in privacy protection and speed, without the constraint of a 7-day withdrawal period. Zero-knowledge proof is a method where the Prover proves to the Verifier that they possess certain information without revealing any details about the information itself. In the context of rollups, generating valid proofs through zero-knowledge proofs involves mathematical operations and encryption processes. It starts with defining a set of rules, which are then transformed into mathematical representations such as arithmetic circuits and polynomials. Through encryption processes, a zk-SNARK circuit is created, which is subsequently used for proof generation and verification.
Furthermore, experts often express the opinion that as ZK rollup continues to evolve, the importance of Optimistic rollup may diminish.
As mentioned earlier, rollups delegate functionalities to improve scalability, and there are two key factors that determine scalability. The core of scalability enhancement is increasing the throughput, which refers to the capacity of processing transactions in the network without compromising trust and incurring excessive costs while reducing latency, the time taken from transaction request to finalization. Let’s compare the Optimism rollup and ZK rollup, focusing on these two factors:
Throughput: The number of transactions processed per second.
Latency: The time taken from the transaction request to finalization.
Please note that the actual values of throughput and latency may vary depending on the specific implementation and network conditions of each rollup solution.
The above table compares the amount of data required for a simple ETH transfer, compressed and uncompressed, on a rollup. OR is expected to be able to process approximately 4,000 gas per transaction, which translates to about 100 TPS in real terms. The BLS Signature Aggregation technique, which integrates messages generated from multiple public keys into a single signature, can increase this to 500 TPS.
Learn more about BLS signature aggregation right here!
ZK Rollup (ZKR): As mentioned earlier, OR requires recording all data on the Ethereum network in order to conduct fraud-proof in case of contingencies. However, ZKR undergoes data verification from the beginning through validity proof, allowing for off-chain storage of most of the data, excluding some essential data required for state updates. Due to this reason, ZKR has an advantage over OR in terms of processing capacity.
The implementable TPS (Transactions Per Second) of rollups is influenced by how much EVM compatibility they possess. As the EVM compatibility decreases in ZKR, the time required to generate validity proofs decreases. Most ZKRs such as ZKSync and StarkNet utilize the Type 4 methodology, which has the lowest EVM compatibility but the fastest validity-proof generation speed. On the other hand, ORs like Arbitrum and Optimism are evolving in a direction that maximizes EVM compatibility. Therefore, it is not appropriate to determine the superiority between the two rollup types based solely on TPS. Detailed explanations regarding EVM and development environments will be provided later.
Optimistic Rollup (OR): OR imposes a limitation on finality, or hard confirmation, which is set at 7-14 days, due to the existence of a Dispute Time Delay (DTD) or Challenge Period, which allows for raising objections to state transitions executed by the sequencer. Arbitrum generates L2 transaction batches approximately every 5 minutes and sends them to L1 for soft confirmation, thereby recording them on the Ethereum network. However, if a fraud-proof is successfully validated during the Challenge Period, the modified state root value can be reverted. The duration of soft confirmation varies for each OR, as it is inversely proportional to the delay time (batch size) and cost. Faster batch generation reduces the delay time but increases the frequency of sending to L1, leading to higher costs associated with state commitment. Therefore, it is crucial to appropriately balance safety and cost for each OR. Moreover, theoretically, L2 can generate and transmit batches with every block, and it is anticipated that the delay time will decrease as the technology of OR improves in the future.
How is the Current Market Situation?
Optimal rollups currently leading the market in layer 2. Its compatibility with the Ethereum Virtual Machine (EVM) gives it an overwhelming market share, as developers building on Ethereum as a mainnet do not need to re-code from scratch to support Optimistic rollups. Furthermore, we believe that the market is focused on Layer 2, as evidenced by the move to improve scalability through Layer 2 solutions and sharding after the Ethereum Merge. The DeFi Summer of 2020 and the subsequent NFT boom of 2021 have allowed for the rapid growth of Fraud Proof-based Optimistic rollups. On the other hand, ZK rollups based on Validity Proof are still in the testnet stage and require more study.
OR’s first-mover advantage: OR has had a stable mainnet for over a year and has been steadily growing its ecosystem, while most ZKRs haven’t even launched their mainnet yet. Unsurprisingly, the OR ecosystem is by far the largest.
See below to see what is built on each layer 2. Visit the link to see in detail (TVL, Description: technology, operator, risk analysis, etc)
According to L2Beat, the total L2 TVL is approximately $4.5B as of 5 December 2022. Of this, Arbitrum TVL is $2.35B, and Optimism TVL is $1.20B, accounting for 53% and 27% of the L2 market share, respectively. App-specific ZKRs have a combined TVL of less than $1B. Looking at Unique Active Wallets (UAW), Arbitrum and Optimism have reached 1.1 million and 1.4 million, respectively, and their daily transaction numbers have been climbing upwards, recently surpassing 400,000.
Arbitrum and Optimism have stablecoin market caps of $1B and $500M, respectively, and have onboarded a number of competitive DApps, including GMX, Uniswap, Aave, and Stargate Finance. In contrast, most ZKRs have yet to launch their mainnet, or if they have, it’s not yet available to users.
In the meantime, OR will be on a growth trajectory with a first-mover advantage in users and key Dapps. This first-mover advantage will make it difficult for ZKR to bridge the gap in the short term. It will take time for ZKR to gain user trust and grow network activity in a meaningful way, and we believe that 2023 will be the year that ZKR builds its foundation, much like OR did in 2022.
Learn more – UK Block Masonry Academy
https://medium.com/@BlockMasonry
Block Masonry Academy (bento.me)
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