GTON Academy. L2 solutions: solving Ethereum's scalability issue
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July 11th, 2022

In this article, we are looking at some L2 solutions that aim to solve the Ethereum network's scalability issue.

Over the past few years, scalability has been the main issue with the Ethereum ecosystem, resulting in exorbitant transaction fees that could run into hundreds of dollars.

Responding to this scalability challenge, a number of projects have offered scaling solutions built around the Ethereum network’s existing security profile. Basically, those solutions formed another layer on top of Ethereum and are therefore called layer-2 (L2) solutions as opposed to layer-1 blockchains, such as Ethereum.

Among L2 solutions, rollups have emerged lately as the most promising. The idea behind rollups is that hundreds of transactions are bundled into batches - or "rolled up," hence the name "rollups." Each of those batches is subsequently executed on an L2 network and then finalized as a single transaction on Ethereum. As a result, the fee charged on the execution of the transaction is shared between all the senders, and is small for each of them.

Rollups are more popular then another scaling solution for Ethereum, sidechains. There is one clear advantage of rollups over sidechains. Sidechains rely on validators to make sure that a transaction has been executed on the sidechain. Because of that, sidechain users are much more exposed to centralization risks and reliability risks that come from the use of validators.

Still, rollups have drawbacks, as well. At up to $1, fees for rollup transactions are still relatively high compared with alternative layer-1 networks that have fees in just fractions of a cent. Also, rollups put extra hassle on users requiring them to bridge assets from L1 and wait for hours and even days for withdrawal to be complete.

Among the most popular L2 solutions are Optimistic Rollups, ZK-Rollups and Validium.

Optimistic Rollups

Optimism was founded by former Plasma Group researchers to focus on the development of Optimistic Rollups. Among the earliest projects deployed on the Optimism network was, for instance, Uniswap. More recently, dozens of leading projects expanded to Optimism.

The Optimism team has been focused on closely replicating Ethereum's development environment. One of Optimism's major advantages is compatibility with Ehtereum smart contracts. Optimistic rollups are generally compatible with the EVM and support smart contracts written in Solidity, Ethereum's smart contract language. Still, for different networks, the degree of compatibility might vary.

In addition to Optimism, Optimistic Rollups are used by other L2 platforms, including Polygon.

The GTON Capital team also considered Optimistic Rollups a very promising solution and is building GTON Network based on Optimistic Rollups.

Advantages

Cost-efficiency: Optimistic Rollups makes transactions on the network 50- to 500-fold cheaper than those executed on Ethereum.

Security and decentralization: transaction data is stored on the Ethereum network, which makes it secure and decentralized.

Compatibility: any action could also be done with Optimistic Rollups, as the tech is compatible with EVM and Solidity.

Drawbacks

Optimistic Rollups have a longer withdrawal period than ZK-rollups. Withdrawal from Optimism to Layer 1 typically takes one week due to potential fraud challenges.

Possible vulnerability to economic attacks.

ZK-Rollups

Zero-knowledge (ZK) tech has been applied to blockchain technology since the the emergence of zCash, a privacy-focused payments network, back in 2016. ZK preserves privacy by enabling one party to prove to another party that they know something without revealing exactly what they know.

In L2 scaling solutions, ZK proofs are used to enhance scalability. Although the creation of a proof and the execution of its related transactions may be computationally intensive, verification of proofs remains computationally light.

As a result, the process of confirming the truth of transaction history, which is akin to consensus on layer-1 platforms, can remain highly decentralized - even though the actual transaction execution and proof generation could be centralized.

ZK-Rollups typically post to L1 state differentials - or changes in account balances of entities involved in a transaction within a batch time period - and validity proofs. If batches only include changes in state - as opposed to complete transaction data - they cannot be used to see the entire transaction history.

Let's consider an example of how differentials work. Assume Alice, Charlie and Bob have 5 ETH each. Alice sends 2 ETH to Bob before the next batch is posted on Ethereum. Subsequently, Bob transfers 2 ETH to Charlie. In this case, a ZK-Rollup data batch will only include state differentials: Alice's balance decreased by 2 ETH and Charlie's balance increased by 2 ETH. But the data batch won't include intermediary transitions, such as Bob's, as his account balance didn't change.

Two most popular ZK-based systems are ZK-SNARKs and ZK-STARKs - respectively Zero-Knowledge Succinct Non-Interactive Argument of Knowledges and Zero-Knowledge Scalable Transparent Arguments of Knowledge.

One of the best known projects developing ZK-based L2 solutions is Matter Labs, which built zkSync, a ZK-Rollup that facilitates transfer of ETH, ERC-20 coins, swaps and NFTs.

Advantages

Faster finality time than those of Optimistic Rollups, as the state is immediately verified after sending the proofs to Ethereum.

ZK-Rollups are not vulnerable to economic attacks.

Drawbacks

Absence of EVM support for some ZK-Rollups.

Validity proofs are too intense to compute, which makes ZK-Rollups not worth it for apps with insignificant on-chain activity.

A possibility for an operator to influence transaction ordering.

Validium

Validium networks are similar to ZK-Rollups as they use validity proofs. The difference, however, is that they post only state roots - heavily compressed versions of their respective network's state - but don't post transaction data or state differentials to L1.

For validity proofs, Validium solutions use a data availability committee (DAC), or a group of entities that are incentivized -  using reputation-based schemes or specific financial incentives - to be reliable providers of transaction data on their respective chains. A DAC quorum is needed to approve the validity of state updates and advance a Validium-based chain's state.

Among the most promising solutions using Validium tech are StarkWare's StarkEx, as well as DeversiFi, Immutable X and Sorare.

Advantages

Meanwhile, when it comes to benefits, for the same reason that data is not published to layer 1, Validium-based networks are anticipated to be even more cost effective than Optimistic and ZK-Rollups over the long-term.

Drawbacks

One of Validium's main drawbacks is that transaction data is not published to layer 1 and users have to trust these DACs to make data available when it is needed. In the event that the DAC withholds (or is forced to withhold) data from its users, user funds on layer-2 would be frozen.

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