The Emergence and Growing Dominance of Layer2 Optimistic & ZK-rollups
Blockchain technology has long since lit the fuse for starting a decentralized digital revolution in the world of global finance. The most notable first achievement of blockchain is held by Bitcoin, which has since become a sort of store-of-value and a global economy of its own by providing an avenue for anyone, anywhere to hold, transfer, and receive digital assets in a trustless manner. Then came Ethereum~ powered by the smart contract language, Solidity, Ethereum broadened the scope of blockchain and its potential use cases via smart contracts and decentralized applications (DApps). However, as the number of users and transactions on-chain increases, Layer1 blockchains hit a wall: scalability. As the number of users and transactions on the network increases, scalability becomes a core issue for blockchain, causing delays and high transaction fees. To address these challenges, layer2 rollups have emerged.
Layer 2 rollups operate on top of a main blockchain, such as Ethereum, inheriting the layer1’s security. They bundle multiple transactions into a single transaction and verify them on-chain, while simultaneously providing lower fees. By inheriting the security derived from Layer1, Layer2 rollups shine in their ability to scale. This technology bundles a large number of transactions into a single transaction, allowing for a faster and more efficient processing of transactions. Layer2s also allow for customized solutions that cater to specific use cases, such as gaming or privacy.
The most commonly known type of layer2 rollup is the optimistic rollup. Possibly the best example of an optimistic layer2 blockchain at the time of writing this is Arbitrum, which hit a significant milestone: it exceeded the daily number of transactions on Ethereum. Arbitrum’s success highlights how layer2 rollups have passed a sort of litmus test to prove they are capable of scaling above and beyond the layer1 base chain.
Layer 2 optimistic rollups provide a promising solution to the scalability challenges faced by traditional L1 blockchains. By processing transactions off-chain and periodically updating the main blockchain with the results, faster transaction times and lower fees are achieved. As the technology continues to be adopted by the masses, I expect to see a cadre of thriving ecosystems locking billions upon billions of TVL on-chain in a network of L2s deriving their security from a L1 counterpart, primarily, Ethereum. Interoperability between different rollup blockchains may present issues, however.
The goal of most Layer2 blockchains is to create a circular economy atop the layer1 it inherits its security from, growing its user base alongside TVL on-chain. With around 1.5 Billion locked up on-chain, Arbitrum has achieved measurable success towards this metric. However, even as Optimistic rollup L2s show growing dominance in the industry, they possess a glaring flaw in their challenge period for transaction finality, usually ~7 days, to withdraw liquidity from the Layer2 back to the L1. The velocity of money is greatly impeded by the optimistic rollup, and a great onus is placed on the average user by the large window of time where their funds take to withdraw from the Layer2.
And so, maybe not surprisingly, a new sort of rollup solution bereft of this issue, the ZK-rollup, has entered the scene. One of the dominant emerging trends in rollup blockchain solutions is centered around ZK-anything — that is, ZK-solutions are being aggressively pursued by a number of teams & projects. Like the optimistic rollup, ZK-rollups offer a promising solution to the scalability challenges faced by traditional L1s. By batching a large number of transactions off-chain and processing them on the main chain using zero knowledge proofs, they offer higher throughput and lower transaction fees without the same limitation of the optimistic rollup’s long challenge period.
Some of the front-runners on this leading edge of innovation in blockchain are zkEVM rollups ZK-sync, Scroll, Starknet ~ which range in compatibility with their associated Layer1, Ethereum (Type 1–4 Ethereum Equivalence).
ZK-rollups still do have some issues baked in. They require a high level of expertise to develop, deploy, and audit. As there are so few experts on ZK out there, auditing a bridge for instance becomes inherently difficult. Verification process using ZK-proofs are computationally intensive, so a number of startups have cropped up to produced specialized technology like FGPA & ASICs to further speed up the production of ZK-proofs. It may take some number of years for ZK technology to truly mature.
In totality, I fully expect ZK & Optimistic rollups to lead blockchain into a new era. Rather than iterating on L1 design, new innovations will be made on L2 & L3, deriving security from an associated L1 while achieving scalability impossible to achieve on traditional L1s. There is more than enough space in the market to support a broad range of L2 rollup solutions iterating towards the most optimal expression of blockchain: a truly decentralized, scalable, and secure blockchain.
Ah, but what if there was a way to combine the benefits of both optimistic & ZK-rollups? And so, I present to you, the Hybrid Rollup: a hybrid rollup solution that marries an optimistic rollup to a ZK-prover, thereby unfettering itself from the limitations of an optimistic rollups finality, narrowing this window from days to minutes. This hybrid solution retains the best qualities of the optimistic rollup, its scalability.
Hybrid rollup: optimistic rollup with a ZK-prover.
A hybrid rollup solution is the most optimal expression of the L2 rollup that fits within the current technological capabilities of the industry, and this is what Rooch Network will implement, in partnership with zkMove!
With just the optimistic rollups fraud proofs, a user withdraws a transaction submitted at, say, BlockT, then needs to wait for a challenge period of ~N blocks (usually around a week) to reach finality. With zkMove producing ZK-proofs, that same withdraw TX can be finalized as soon as the ZK-proof is submitted and verified (~30 minutes). Our technical team has built OMO, a general purpose emulator with per-step proof, and with it interactive fraud proof generated by OMO can be arbitrated on any Layer1. At Rooch Network we believe this hybrid rollup architecture is the most optimal solution for L2 rollup design.
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