One of the most popular blockchain networks is Ethereum. Although Ethereum has gone through the latest crypto crash, it remains expensive for many to use. The transaction and gas fees of Ethereum are quite expensive which makes investors look for other investment options. The Ethereum blockchain is slow and has maxed out its capacity. The blockchain also has several scaling issues.

In Q3 2022 "Ethereum 2.0," is about to be launched which is the next generation of the Ethereum blockchain. It can resolve several issues. But for Ethereum to remain relevant in the market, its developers have to work on the ETH transaction fees and gas fee issues which is very high and remain a problem in 2022. Recently, ETH developers have launched Ethereum rollups. It resolves some of the most critical problems of the crypto and the technology helps to speed up the Ethereum blockchain. In this, part of the transaction gets settled on another network which is faster and cheaper compared to Ethereum before providing the main Ethereum chain with information about the transactions it plans to submit.

What are rollups?

One such scaling solution is Rollups which involve collections of transactions. Rollups combine several Ethereum transactions into a single piece of data before being submitted to the blockchain. The rolled-up transaction is the final which is presented as a single transaction to the Ethereum blockchain.

This process reduces the cost of an Ethereum transaction and also the small cost of rolling up batches of transactions which is split among users. It also saves space and increases transaction speed. In the rollup, Ethereum only needs to process one transaction instead of many, so it is very fast which is useful when Ethereum maxes out at around 15 transactions per second unassisted. Rollups are layer 2 scaling solutions in technical terms that execute transaction operations off the primary ETH blockchain, but still, post the transaction data onto layer 1.

The working of rollups depends on their types:

Mainly two types: optimistic rollups and zero-knowledge (ZK) rollups

Optimistic rollups :

In optimistic rollups, the Ethereum network checks for the validity and correctness of transaction data submitted to the Ethereum network which is based on the idea that by assuming validity, things speed up. To prevent fraud transactions, optimistic rollup protocols allow people to contest bunk trades. Directly on the Ethereum network, the fraudulent transaction is checked, and the dispute is resolved if it's legit. In case of an invalid transaction, parties would lose their ETH investments as both parties have ETH staked.

A similar process is followed whenever any of the parties or a third party report a fraudulent transaction on the Ethereum main network.

Zero-knowledge (ZK) rollups :

zk or Zero-knowledge rollups work in a different way. Here every batch of ETH transactions depends on a piece of cryptography proof called a zk-SNARK, in reference to an additional piece of cryptography called "succinct non-interactive argument of knowledge." Either of the zk-SNARK contracts on the ETH main network verifies a statement and proves mathematically that a statement is true. Hence only the valid proof of the transaction is stored on the ETH network which bypasses the dispute-resolution system. This led it to be a quicker and cheaper option.

Scaling solutions cannot be purchased, but tokens based on the technology can be purchased. The most well-known examples of rollup technologies are Loopring and Boba. Either on Ethereum-based decentralized exchanges or on centralized exchanges their tokens can be bought. By using these layer-2 networks, one can also reduce transaction costs using DeFi services and exchanges. Loopring operates its own layer-2 exchange also called Loopring. All the delights of rollup technologies are available there: gas-free, instantaneous transactions for ERC-20 coins.

Conclusion :

Possibilities are there that Ethereum may become very fast and then rollups would become unnecessary. Possibilities are also there that the popularity of rival L1 blockchains, like Solana and Avalanche, make may Ethereum usurp entirely. ETH developers are trying their best to utilize the opportunity that Bitcoin is currently exceptionally down. They are trying to make Ether the largest cryptocurrency in the market and doing their best to ensure that all the issues within the network are resolved. Whether rollups survive Ethereum's mainnet upgrades will determine their long-term viability. There is a continuous battle between the two competing forms of rollups: optimistic and zero-knowledge. Although some support zero-knowledge proofs saying it is superior because they do not require a dispute-resolution mechanism. 

Indrani bose

CBW - External Analyst

INDIA