What Are Blockchain Rollups?
What Are Blockchain Rollups?
As blockchain technology continues to evolve, the need for scalability has become increasingly apparent, especially for networks with a large amount of users like Ethereum. During bull market periods, high network activity can lead to congestion, resulting in higher gas fees and slower transaction times for users. While Ethereum can typically handle around 15 transactions per second (TPS), payment processors like Visa can handle around 1,700 TPS on average. This is why scaling solutions are necessary for blockchains to rival traditional financial systems and achieve mass adoption.
While one might assume that blockchain systems can seamlessly manage thousands of transactions simultaneously, the reality is quite different. Increasing a blockchain’s scalability often compromises its security and decentralization, a challenge known as the blockchain trilemma.
To address this issue, rollup technology has been created to improve transaction execution speed and the number of transactions a blockchain is able to handle without sacrificing blockchain’s core principles.
But what exactly are rollups? Do they work? And what are the types of blockchain rollups out there? Let's explore their purpose, mechanisms, and how they are transforming the landscape of blockchain technology.
What Are Blockchain Rollups and How Do They Work?
Blockchain rollups are a Layer 2 scaling solution designed to enhance the efficiency of blockchain networks. They work by processing transactions off chain before submitting a single aggregated transaction to the main blockchain. Ultimately, rollup technology is a scaling solution that increases the number of transactions a blockchain can process at time, reducing congestion and lowering costs.
To better understand blockchain rollup technology, here are some of their key terms:
Layer 2 Solutions: These are protocols built on top of a main blockchain (Layer 1) to improve its performance. Rollup technology is a Layer 2 solution, addressing issues of scalability without compromising security and decentralization.
Off-Chain Processing: The handling of transactions outside the main blockchain. Rollups work by taking transactions off-chain, where they can be processed more efficiently. Once processed, a summary of these transactions is sent back to the main blockchain.
Batching Transactions: A core feature of rollups is the ability to bundle multiple transactions into a single batch, reducing the number of transactions that need to be recorded on the main blockchain.
Transaction Data: When transactions are processed off-chain, the essential transaction data is compiled into a compact format and submitted to the main blockchain, ensuring that the integrity and security of the transactions are maintained.
Validity Proofs and Fraud Proofs: To ensure the security of off-chain transactions, rollups use cryptographic proofs. There are two types: validity proofs confirm that transactions are legitimate and correctly executed, while fraud proofs provide a mechanism to challenge and verify suspicious transactions during a challenge period.
A Step-by-Step Look at How Blockchain Rollups Work
Initiation: A user initiates a transaction.
Off-Chain Processing: The transaction is processed off-chain by the rollup, where multiple transactions are handled more efficiently.
Batching Transactions: The rollup groups these processed transactions into a single batch.
Creating Cryptographic Proofs: The rollup creates a cryptographic proof that ensures the legitimacy of the batched transactions.
Submission to Main Blockchain: The rollup submits the aggregated transaction data and the cryptographic proof to the main blockchain.
Recording on Main Blockchain: The main blockchain records this as a single transaction.
Types of Blockchain Rollups
Optimistic Rollups
Optimistic rollups are a type of Layer 2 scaling solution that assumes transactions are valid by default, thereby reducing the need for constant verification. They work by processing transactions off-chain and then submitting a batch of these transactions to the main blockchain with a single proof.
How It Works
Optimistic rollups operate on the premise that all transactions are legitimate unless challenged. When a batch of transactions is processed off-chain, a summary of these transactions, along with a cryptographic commitment, is submitted to the main blockchain. Validators monitor the network and can submit a fraud proof if they detect any suspicious transactions. During the challenge period, if a fraud proof is validated, the incorrect transactions are rolled back, and the fraudulent actor is penalized.
Optimistic rollups address the issue of scalability by increasing the number of transactions that can be processed off-chain, and submits them as a single transaction on-chain, thus reducing congestion on the main blockchain, lowering transaction costs and improving transaction speed while maintaining a high level of security through the use of fraud proofs.
Key Benefits of Optimistic Rollups:
Higher Throughput for Complex Smart Contracts: Optimistic rollups are particularly effective for processing complex smart contracts off-chain, allowing the main blockchain to focus on simpler, more essential operations.
Lower Verification Costs: Since transactions are assumed valid by default, the need for constant verification is minimized, leading to lower costs for transaction validation.
Extended Security Measures: The fraud-proof mechanism provides an additional layer of security, ensuring that any potential fraudulent activity is caught and addressed.
Compatibility with Existing Ethereum Infrastructure: Optimistic rollups are designed to work seamlessly with Ethereum’s existing infrastructure, making them easier to implement and integrate with current decentralized applications (dApps).
Flexible Challenge Periods: The challenge period can be adjusted based on network conditions and security requirements, providing flexibility in how security versus speed is balanced.
Zk Rollups
Zk rollups (zero-knowledge rollups) use zero-knowledge proofs to validate transactions off-chain before submitting them to the main blockchain, enabling all transactions to be verified for accuracy without the need to reveal the underlying data.
How It Works
Zk rollups compile a large number of off-chain transactions into a single batch and generate a zero-knowledge proof that confirms the validity of these transactions. A zero-knowledge proof allows the prover to convince the verifier that the transactions are valid without having to reveal details about the transaction such as the transaction amount or parties involved.
There are two primary types of zero-knowledge proofs used in zk rollups:
ZK-SNARKs (Zero-Knowledge Succinct Non-interactive Argument of Knowledge): Known for their efficiency in proof size and verification time, making them ideal for applications with limited computational resources.
ZK-STARKs (Zero-Knowledge Scalable Transparent Argument of Knowledge): Focuses on scalability and transparency, avoiding the need for a trusted setup, which enhances security in certain contexts.
Meanwhile, a validity proof is also generated to confirm that each transaction in a batch has been executed correctly according to the blockchain’s rules. They provide a guarantee that the transactions are legitimate and follow the protocol.
Key Benefits of Zk Rollups:
Faster Finality: Transactions reach finality more quickly due to off-chain processing.
Increased Throughput: By batching transactions off-chain, zk rollups significantly reduce congestion on the main blockchain.
Lower Fees: The reduction in on-chain activity leads to lower transaction fees.
Enhanced Privacy: Zero-knowledge proofs ensure transaction details remain confidential.
Security: Validity proofs ensure each transaction follows the blockchain’s rules, providing a strong security guarantee.
Top Rollup Projects
Rollup technology is revolutionizing the scalability of blockchain networks. Here, we explore the top projects for optimistic and zk rollups.
Top Optimistic Rollup Projects
Optimism
Optimism is designed to increase the number of transactions Ethereum is able to process. The most notable feature about Optimism is that its code is MIT-licensed and open-sourced (a software license that allows anyone to use, copy, modify or distribute the software with very few restrictions). The project is designed from the ground up to work with Etherum out of the box, and it is the most forked rollup, meaning that many developers have taken its original code to create their own versions. A high level of forking demonstrates widespread adoption and trust in the technology, and increases the likelihood of a strong and active developer community contributing to the growth of the project.
Creation Date: 2020
Token Name: OP
Purpose of Token: Governance and network operations
Total Supply: 4.3 billion OP tokens
Current Price: USD$1.72 per OP token (taken on 29 Jul 2024)
Use Cases: Scaling Ethereum, reducing transaction costs, improving throughput for decentralized applications (dApps), and enabling seamless integration with existing smart contracts through the Optimism Virtual Machine (OVM).
Daily TPS (on L2Beat): 5.54 (taken on 15 Aug 2024)
Stage (the maturity of the rollup, gauged by L2Beat): Stage 1
Total Value Locked (on L2Beat): $5.51B (taken on 15 Aug 2024)
Arbitrum
Arbitrum, developed by Offchain Labs, was founded by blockchain experts Professor Ed Felten, Ph.D. holder Steven Goldfeder, and Ph.D. candidate Harry Kalodner at Princeton University. Arbitrum is considered one of the most EVM-compatible rollups, featuring its proprietary rollup technology Arbitrum Virtual Machine (AVM), which executes smart contracts with high compatibility for Ethereum tooling and languages like Solidity and Vyper. Arbitrum’s robust developer tooling and comprehensive documentation enable developers to build quickly and efficiently, making it an attractive choice for many decentralized applications (dApps).
Creation Date: 2021
Token Name: ARB
Purpose of Token: Governance and network operations
Total Supply: 10 billion ARB tokens
Current Price: USD$0.72 per ARB token (taken on of 29 Jul 2024)
Use Cases: Enhancing Ethereum scalability, reducing gas fees, and supporting high-performance dApps.
Daily TPS (on L2Beat): 20.94 (taken on 15 Aug 2024)
Stage (the maturity of the rollup, gauged by L2Beat): Stage 1
Total Value Locked (on L2Beat): $14.90B (taken on 15 Aug 2024)
Metis
Metis seeks to improve the scalability of Ethereum with its Layer-2 network, which bundles Ethereum transactions and processes them off-chain before returning them to Ethereum for recording. The Metis crypto protocol offers several innovative features, including a non-fungible token (NFT) bridge between its Andromeda network and Ethereum, NFT storage, a framework for decentralized autonomous companies (DACs), and middleware that helps developers manage their smart contracts.
Creation Date: 2021
Token Name: METIS
Purpose of Token: Staking, transaction fees and to pay for services on the METIS network
Total Supply: 10 million METIS tokens
Current Price: USD$49.59 per METIS token (taken on of 29 Jul 2024)
Use Cases: Supporting DeFi applications, facilitating efficient smart contract execution, reducing transaction costs, and enabling the management of DACs and NFTs.
Daily TPS (on L2Beat): 0.30 (taken on 15 Aug 2024)
Stage (the maturity of the rollup, gauged by L2Beat): Not started
Total Value Locked (on L2Beat): $282.41M (taken on 15 Aug 2024)
Top Zk Rollup Projects
Starknet
Starknet is a permissionless ZK-rollup on Ethereum that pioneers the use of STARK proofs, enabling general-purpose computation and complex smart contract execution with enhanced security and transparency.
Creation Date: 2020
Token Name: STRK
Purpose of Token: Transaction fees, governance and staking
Total Supply: 10 billion STRK tokens
Current Price: USD$0.53 per STRK token (taken on of 29 Jul 2024)
Use Cases: Mass minting of NFTs, perpetual contracts trading, large scale spot trading, data management.
Daily TPS (on L2Beat): 0.80 (taken on 15 Aug 2024)
Stage (the maturity of the rollup, gauged by L2Beat): Stage 0
Total Value Locked (on L2Beat): $574.66M (taken on 15 Aug 2024)
zkSync
zkSync, a user-friendly zk-rollup powered by Matter Labs, prioritizes Ethereum compatibility and scalability. By harnessing zk-SNARKs, zkSync delivers near-instant, low-cost transactions and enables the creation of customizable Layer 3 scaling solutions with Hyperchains.
Creation Date: 2020
Token Name: ZK
Purpose of Token: Governance and staking
Total Supply: 21 billion ZK tokens
Current Price: USD$0.15 per ZK token (taken on of 29 Jul 2024)
Use Cases of the Project and Token: Scaling Ethereum, reducing transaction costs, and supporting fast, secure payments and transfers.
Daily TPS (on L2Beat): 2.35 (taken on 15 Aug 2024)
Stage (the maturity of the rollup, gauged by L2Beat): Stage 0
Total Value Locked (on L2Beat): $832.31M (taken on 15 Aug 2024)
Loopring
Loopring is a high-performance DEX protocol built on zk-rollup technology, offering a centralized exchange-like experience with fast order execution and deep liquidity, making it ideal for decentralized financial applications. Loopring’s claim to fame is being Etherum’s first zk rollup, and is one of the oldest players in the space.
Creation Date: 2017
Token Name: LRC
Purpose of Token: Governance, transaction fees, and staking
Total Supply: 1.37 billion LRC tokens
Current Price: $0.15 per LRC token (taken on of 29 Jul 2024)
Use Cases: Reducing trading costs, and providing a secure, scalable trading platform.
Daily TPS (on L2Beat): 0.01 (taken on 15 Aug 2024)
Stage (the maturity of the rollup, gauged by L2Beat): Stage 0
Total Value Locked (on L2Beat): $50.62M (taken on 15 Aug 2024)
Taiko
Taiko is an emerging ZK-EVM rollup striving to be a fully decentralized and Ethereum-compatible scaling solution, focusing on privacy, permissionless participation and community-driven governance while maintaining the security and functionality of Ethereum.
Creation Date: 2022
Token Name: TAIKO
Purpose of Token: Governance and transaction fees
Total Supply: 100 million TAIKO tokens
Current Price: USD$2.62 per TAIKO token (taken on of 29 Jul 2024)
Use Cases: Enhancing blockchain scalability, ensuring privacy, and improving transaction efficiency.
Daily TPS (on L2Beat): 21.58 (taken on 15 Aug 2024)
Stage (the maturity of the rollup, gauged by L2Beat): Stage 0
Total Value Locked (on L2Beat): $116.17M (taken on 15 Aug 2024)
How to Trade Blockchain Rollup Tokens on Flipster?
Sign up for an account on the Flipster website or by downloading the Flipster app (Android or Apple).
Click the [Trade] tab.
Search for OP, ARB, METIS, ZK, LRC, or TAIKO and click on it.
Select the leverage (up to 100x).
Select either a Trigger Order or Market Order.
Input the amount of crypto you wish to trade, or select a percentage of your available funds to use.
Once you have confirmed the details, click the [Long] or [Short] button to open a position.
Disclaimer: This material is for information purposes only and does not constitute financial advice. Flipster makes no recommendations or guarantees in respect of any digital asset, product, or service. Trading digital assets and digital asset derivatives comes with significant risk of loss due to its high price volatility, and is not suitable for all investors.