Messari: How to view the "Rollup-centric" future of Ethereum?

Original Title: 《Ethereum's Rollup-Centric Future》

Original Author: Ally Zach

Original Compilation: Unitimes

Key Points

• To alleviate current scalability issues, Ethereum is shifting towards a "Rollup-Centric roadmap," combining the best on-chain and off-chain scaling solutions.
• Ethereum's on-chain scaling solution, danksharding, provides ample data space for the flourishing development of L2 (Layer 2) scaling solutions like Optimistic Rollups and ZK-Rollups.
• Both Optimistic Rollups and ZK-Rollups have their drawbacks: most Optimistic Rollups suffer from long withdrawal waiting periods between layers, while ZK-Rollups often require extensive computation, hindering seamless composability.
• To keep the Rollup-centric future viable, Rollup solutions must prioritize reducing execution costs, cross-layer interoperability, and user privacy.

Scalability is a method to increase the speed and throughput of a network while minimizing (transaction) costs without sacrificing the decentralization and security of the blockchain network. Ethereum is currently not scalable. Over the past two years, as the number of users has increased, Ethereum's transaction costs have skyrocketed, making it nearly unaffordable for everyday investors to use the network.

Ethereum has two core options for scaling: on-chain scaling and off-chain scaling. In conjunction with "The Merge," the Ethereum team is introducing a new sharding design called "danksharding," thereby introducing on-chain scaling solutions. These changes are expected to occur sometime in the coming months.

Off-chain scaling comes from alternative protocols built on top of existing blockchains, requiring no changes to the current Ethereum L1 protocol. L2 scaling solutions handle all transaction validations off-chain while obtaining security from the Ethereum mainnet. The most well-known L2 scaling solutions currently are Rollups.

While preparing for "The Merge," Ethereum is transitioning to a "Rollup-Centric roadmap." It plans to combine the best on-chain and off-chain scaling solutions.

01. Brief Guide to Rollups

Rollups are the most prominent L2 scaling solutions in the field. We can categorize Rollups based on their transaction validation and data storage methods. All Rollups aggregate a large number of off-chain transaction data into batches and publish the results to the Ethereum mainnet upon reaching consensus.

1) Optimistic Rollups

Optimistic Rollups networks, such as Arbitrum or Optimism, assume that all transactions are valid from the start. To ensure the security of these transactions, Optimistic Rollups networks provide a challenge period, during which network validators can dispute the legitimacy of a transaction through a fraud proof on the parent chain (like Ethereum). By executing proofs only when fraud is suspected, Optimistic Rollups significantly increase throughput and reduce latency (transaction confirmation time). The challenge period typically lasts seven days.

Image Source: ethereum.org

During the challenge period, users can use their assets within the L2 ecosystem but cannot withdraw assets back to the L1 chain. In response to the longer withdrawal waiting periods in Optimistic Rollups, some fast withdrawal solutions are emerging. For example, Boba Network has reduced the withdrawal waiting period to just a few minutes through community-driven liquidity pools.

Additionally, most Optimistic Rollups are EVM (Ethereum Virtual Machine) compatible, meaning anything you can do on L1 can also be done on these Optimistic Rollups networks, and in a faster and cheaper way. EVM compatibility is the core reason why most Ethereum-based Rollups belong to Optimistic Rollups. For Ethereum developers, migrating smart contracts to these Optimistic Rollups solutions is a straightforward process. Furthermore, Optimistic Rollups provide complete transparency, as all transaction data is published to the Ethereum parent chain.

2) ZK-Rollups

Zero-Knowledge (ZK)-Rollups networks, such as StarkNet, are similar to Optimistic Rollups in that they also aggregate a large number of off-chain transactions and submit them back to the Ethereum mainnet in batches. However, ZK-Rollups do not assume all transactions are valid before being proven; instead, they use validity proofs to immediately verify transactions. These validity proofs and compressed data serve as proxies for their corresponding original transaction batches, submitted to Ethereum L1 for on-chain verification.

Image Source: Simon Brown

Validity proofs are very complex and time-consuming, leading to increased latency compared to Optimistic Rollups. Since generating cryptographic proofs (validity proofs) requires extensive computation, transaction sequencers in ZK-Rollups networks need high-spec hardware, making it difficult for everyday users to participate as sequencers.

Moreover, due to their inherent complexity, most ZK-Rollups are typically not EVM compatible. Therefore, it is challenging for Ethereum developers to migrate smart contracts to ZK-Rollups solutions, making it more difficult to develop generic applications for these ZK-Rollups solutions without completely altering the smart contract framework. ZKSync and zkEVM have recently deployed EVM-compatible ZK-Rollup solutions on Ethereum's test networks, bringing hope for a ZK-Rollup-centric future.

02. Ethereum's "Rollup-Centric" Roadmap

At some point this year, Ethereum will undergo a transition in its consensus mechanism from PoW (Proof of Work) to PoS (Proof of Stake), known as "The Merge." This change will reduce the energy emissions of the Ethereum network, enhance network security, and mitigate centralization risks from miners. Ethereum's "Rollup-Centric roadmap" will support any number of validators as long as they stake 32 ETH as economic collateral.

Sharding is an on-chain horizontal scaling solution that can increase the volume of activities the blockchain can efficiently handle. Essentially, the Ethereum blockchain will be divided into smaller chains, known as "shard chains," which will operate in parallel and ultimately connect through the Beacon Chain. Each shard chain will run through a subset of nodes that will check data availability. This system ensures that anyone can run a network node using standard consumer-grade hardware while enhancing the network's scalability.

Unlike traditional sharding that provides more space for transactions, the latest danksharding solution focuses on providing block space for data blobs. The Ethereum protocol will not attempt to interpret this data but will only verify that these data blobs are fully available. For these data blobs to be considered fully available, no data can be lost, and the Rollup state must be able to reconstruct using that data. This data space will be used to support L2 scaling solutions with high transaction throughput.

In short, the PoS consensus mechanism provides robust security and decentralization for L2 Rollups.

Danksharding forms a data layer, providing a large amount of data availability, thus offering Rollups a low-cost venue to publish their data. Danksharding makes Ethereum's Rollup-centric roadmap feasible. It transforms Ethereum into a settlement and data availability layer, handing scalability over to L2 Rollups. Currently, by combining Rollup and Ethereum architecture, Ethereum's transaction throughput can scale from just 15-45 TPS to as high as 1000-4000 TPS. The introduction of shard chains will further expand data storage capacity for Rollups, increasing throughput to over 100,000 TPS.

03. A Rollup-Centric Future

The dazzling advantage of Optimistic Rollups and ZK-Rollups lies in their ability to address Ethereum's scalability issues without compromising security and decentralization. They allow for nearly instantaneous transactions at much lower costs while reducing network congestion on the Ethereum mainnet.

However, both types of Rollups have significant drawbacks that raise questions about their long-term sustainability. Due to the fraud proof system, Optimistic Rollups are affected by withdrawal waiting periods of up to a week. Meanwhile, ZK-Rollups have too high a computational load and are currently incompatible with EVM. As mentioned earlier, developers of both solutions are working to address these issues.

The Ethereum ecosystem provides ample space for the flourishing development of the Rollup ecosystem. The Ethereum roadmap encourages experimentation, allowing the best L2 solutions to thrive within the mature Ethereum ecosystem. Beyond their respective drawbacks, future Rollup deployments must address the discrepancies in transaction costs, the fragmentation of Ethereum's sharding ecosystem, and privacy protection issues.

1) Costs

A scalable blockchain needs to support an increasing volume of transactions without compromising on transaction costs. As mentioned earlier, both Optimistic Rollups and ZK-Rollups address this issue, but how do they compare?

ZK-Rollups may incur significant costs when running their validity proofs. However, as programs improve, the number of transactions included in each batch within the ZK-Rollup network will increase, reducing the marginal cost per transaction. In the long run, ZK-Rollups will overcome the fixed costs initially generated by their validity proofs.

Theoretically, Optimistic Rollups should have nearly costless transactions. Unlike ZK-Rollups, Optimistic Rollups do not have heavy backend computations or data compression (which further increases transaction costs). Typically, Optimistic Rollups operators bear the costs of running fraud proofs. However, publishing uncompressed data back to Ethereum increases transaction costs. Additionally, since fraud proofs have not been fully deployed on these solutions, transaction costs on Optimistic Rollups are currently higher than expected.

On Ethereum's shard chains, the transaction costs for any Rollup solution should be significantly lower than the current situation. Theoretically, if ZK-Rollups can continue to reduce the marginal cost per transaction, the cost difference between Optimistic Rollups and ZK-Rollups should be minimal.

2) Fragmentation

The entire crypto ecosystem faces fragmentation issues. Most protocols operate in an isolated manner, resulting in a relatively fragmented industry. Moving assets between blockchains is complex and non-intuitive, especially for new users.

Many Rollups networks have thriving but isolated L2 ecosystems. Developers are rapidly building applications on Arbitrum and Optimism due to the ease of connecting components within the Ethereum protocol. However, once users place their assets into these systems, they often find it challenging to transfer those funds back to different platforms. "Cross-layer bridges" and "cross-chain bridges" like Hop and Connext help address some interoperability issues for liquid assets. Users can relatively quickly and cost-effectively transfer assets seamlessly from one platform to another.

Cross-chain bridges lock assets in a certain L1 smart contract and then send a version of that token asset to another blockchain or Rollup, and vice versa. Without EVM compatibility, users will need to relinquish control over their crypto assets, as the security of that cross-chain bridge no longer relies on the security of the underlying blockchain. To transfer assets from Ethereum to Rollups that lack EVM compatibility (like Loopring or StarkNet), users can send token assets from a centralized exchange to that Rollup or pay gas fees to send assets to that Rollup itself. In the latter case, these assets will exist within that L2 Rollup.

For bridging assets from Ethereum to Rollups, L2 bridging has seen a decline in total TVL (Total Value Locked) since the market downturn earlier this year. Despite long withdrawal waiting periods, Optimistic Rollups like Arbitrum, Optimism, and Boba currently lead in accumulated bridge TVL. zkSync is a relatively new Rollup in the field, but it is one of the few EVM-compatible ZK-Rollups.

Similarly, in the PoS-based Ethereum world, there are also some interoperability issues surrounding Rollups. "Interoperability bridges" will become critical infrastructure components in the Rollup-centric Ethereum ecosystem. They will work to prevent isolated Rollup ecosystems, maintain composability, and alleviate fragmented liquidity. These bridges are necessary means for cross-Rollup communication and asset migration.

Ethereum's Rollup-centric ecosystem encourages experimentation and the development of current blockchain architecture. Currently, EVM compatibility limits development within the Rollup framework, restricting the freedom of smart contract innovation. EVM compatibility may become an outdated feature, replaced by the development of future composability-driven technologies.

In the short term, Optimistic Rollups are the leading scaling solution in the Ethereum ecosystem. They have an existing advantage in EVM compatibility, providing the necessary composability for their applications. However, over time, a natural transition to ZK-Rollups will occur due to several factors: lower, trustless withdrawal waiting periods; higher throughput; superior data compression capabilities; and reduced marginal costs per transaction.

3) Privacy

Blockchains are inherently public, providing trust in the space through complete transparency. At any given time, anyone can go to Etherscan to see who is interacting with what contracts and how much money is involved. While wallet addresses serve as an anonymous privacy solution, social media platforms provide a loophole that links public identities to corresponding wallets.

On the other hand, current TradFi (traditional finance) systems are entirely private: people cannot see each other's financial situations. In an era where data privacy has become a mainstream issue, it is easy to understand why retail investors, especially businesses, are reluctant to disclose their private information and link it to their financial records. The crypto space needs to be as private as current Web2 systems; otherwise, frankly, there will be no potential for long-term adoption.

So how can developers remove identifiable information from public transactions without compromising security?

The advantage of ZK-Rollups lies in their data compression capabilities. As mentioned earlier, ZK-Rollups validate all transaction data off-chain and publish verified proofs and compressed transaction data back to the Ethereum mainnet. Ethereum validators do not need to interpret the data in the transaction batch but only check and ensure that the L2 solution has validated that data.

Privacy-focused ZK-Rollups will remove identifiable information from the bundled transaction data and only publish appropriate information. For example, Aztec has created a pseudonymous system in its Rollup solution, completely separating transaction data from the associated parties. Users can send or receive tokens anonymously and interact with decentralized applications through their upcoming Aztec Connect bridge.

However, this increase in privacy features comes at a cost. The Rollup cannot process transaction lists as it did before. Aztec introduced a second zero-knowledge proof (thus it is now a ZK-ZK-Rollup) to verify a list of ZK proofs, each validating a privacy transaction. Polygon launched their enterprise-focused privacy Rollup, Polygon Nightfall, which runs an Optimistic Rollup on top of a ZK privacy Rollup.

Previous privacy technologies, such as Monero, Zcash, and Tornado Cash, have faced mainstream adoption challenges or left it up to users to choose whether to use privacy. When investors want to anonymize their transactions, they must opt to use privacy. However, the other party on the other end of the transaction may not do so, leaving one side of the transaction public. Over time, the dynamics in transaction data may be pieced together to reveal the identities of both parties, undermining the purpose of obscuring identities from the start. The vulnerabilities present in applications that offer selective privacy undermine the purpose of establishing private transactions from the outset, thus privacy should be the default setting in applications.

For ZK-Rollups, enabling private transactions is simpler because Optimistic Rollups publish all transaction data to their parent chain. However, there are also options that can enable Optimistic Rollups to achieve privacy transactions. They can emulate Tornado Cash's approach by severing the on-chain link between the source and target addresses. Current Optimistic Rollups can host privacy-oriented ZK-Rollups like Aztec as L3 (Layer 3). Future deployments could also mix their solutions, such as Polygon Nightfall, and implement ZK-Rollups to validate privacy transactions.

04. Conclusion

Optimistic Rollups solutions currently lead the market over ZK-Rollups. Typically equivalent to EVM, Optimistic Rollups possess the composability required by their applications and are simpler due to the absence of complex off-chain computations. In the long run, if the technology of ZK-Rollups continues to improve, they have the potential to win the L2 Rollup race based on better product-market fit. As more EVM-compatible solutions emerge, ZK-Rollups should become more cost-effective, leveraging unprecedented transaction privacy and creating a more harmonious cross-chain and cross-layer bridging experience.

Ethereum is not the only L1 blockchain focusing on a Rollup-centric roadmap. Tezos, NEAR, and Celestia have also shifted towards some form of Rollup-oriented blockchain. Furthermore, the current L1 competition may not disappear in the near future. These L2 ecosystems may not only compete with each other but also with L1 ecosystems (like Solana) and even L2 sidechains (like Polygon).

Ethereum's transition to a Rollup-centric approach will take years. Current Rollups will need time to implement properly, allowing sufficient room for execution errors. While both Optimistic Rollups and ZK-Rollups have their respective trade-offs, the possibility of a cohesive Ethereum ecosystem is a positive sign for the further adoption of cryptocurrencies overall.