Home Ethereum What are Ethereum stacks? A scalable solution to reduce transaction costs

What are Ethereum stacks? A scalable solution to reduce transaction costs

What are Ethereum stacks?  A scalable solution to reduce transaction costs

In short

  • Ethereum rollups “roll” a bunch of transactions into one.
  • They come in two basic forms: optimistic accumulations and unknowing accumulations.

Even after the latest crypto crash, Ethereum remains expensive for many to use. This is because the Ethereum blockchain is slow and has reached its maximum capacity. Now you have to pay through the nose for every extra byte of block space if you want to buy the next “must have” NFT.

Until “Ethereum 2.0“, the next generation of the Ethereum blockchain, solves all these problems, the community must rely on so-called scaling solutions: a technology that accelerates the Ethereum blockchain. Scaling solutions differ, but usually settle part of the transaction on another network—one faster and cheaper than Ethereum—before providing the Ethereum mainchain with information about the transactions it plans to submit.

What are rollups?

Rollups are one such scaling solution. They involve accumulating (hence the name) collections of transactions. The final, cumulative transaction is presented to the Ethereum blockchain as a single transaction.

Rollups reduce costs: the cost of an Ethereum transaction, plus the low cost of stacking batches of transactions, is distributed among users. They also speed things up: the rollup is very quick to complete and the Ethereum blockchain only needs to process one transaction rather than many. This is useful when Ethereum peaks at around 15 transactions per second without assistance.

Vitalik Buterin, co-founder of Ethereum, believes that scaling solutions like rollups will continue to play an important role on the blockchain even after the implementation of Ethereum 2.0. (Note: The Ethereum Foundation has since dropped the 2.0 tag to refer to the network’s move to proof-of-stake and adoption of shard chains.)

How do rollups work?

There are two main types of rollups: optimistic rollups and unknowing rollups.

Optimistic cumulations make the assumption that all this aggregated data is valid and that no one is trying to trick the blockchain by hiding fake transactions in the aggregates. The idea is that assuming validity speeds things up. To protect against fraudulent transactions, optimistic accumulation protocols allow people to dispute overlapping transactions. The fraudulent transaction is submitted directly to the Ethereum network to verify if it is legitimate and settle the dispute. Both parties staked ETH and would lose money if they were wrong or lying.

Accumulations without knowledge (also called zk-rollups) work very differently. They rely on a piece of cryptography called zero-knowledge proof, which allows someone to mathematically prove that a statement is true (that someone is, say, Greek) without disclosing any additional information about that statement. (like a passport). In crypto, these are called zk-SNARKs, in reference to an additional piece of cryptography called a “non-interactive succinct knowledge argument”. This method bypasses the inherent dispute resolution system of optimistic rollups, because the “SNARK” bit only allows valid transactions to be uploaded to the rollup.

Who builds the rollups?

Optimistic summaries:

  • Optimism: a cheap layer 2 system for Ethereum
  • Arbitration: an L2 protocol for Ethereum
  • Boba Network: the next generation of OMG Network

Totals without knowledge:

  • Loopring: a protocol that also provides gasless decentralized exchange
  • Immutable X: an L2 protocol for NFTs
  • ZKSync: a zero-knowledge L2 for Ethereum

How to buy rollups?

You cannot “buy” a scaling solution, but you can invest in tokens that build on the technology. Loopring and Boba are popular examples of stacking technologies. You can buy their tokens on Ethereum-based decentralized exchanges or centralized exchanges. Check sites like CoinMarketCap or CoinGecko to find the biggest markets.

You can also use the DeFi services and exchanges created by these Layer 2 networks to reduce transaction costs. Loopring, for example, operates its own Layer 2 exchange, also known as Loopring. There, you can enjoy all the fun of rollup technologies: gas-free instant swaps for ERC-20 coins.

Did you know?

Rollups are just a scaling solution. Another common solution is called sidechain, a blockchain compatible with the Ethereum virtual machine, which connects to Ethereum via a bridge. An example of a sidechain network is

Polygon (formerly MATIC).

The Future of Rollups: Technology for the Ages or a Band-Aid to a Solvable Problem?

In the short term, the battle will continue to rage between the two competing forms of rollups: optimistic and unknowing. Some argue that zero-knowledge proofs are superior because they don’t require a dispute resolution mechanism.

The long-term future of rollups depends on how Ethereum mainnet upgrades go. Ethereum could one day become so fast that rollups would look like an unnecessary speed boost on a super-fast blockchain. Conversely, rival L1 blockchains, like Solana and avalanche, could become so popular that they completely usurp Ethereum. If the majority of DeFi traffic took place on blockchains other than Ethereum, rollups would become redundant.

Alternatively, the accumulations could continue to increase if Ethereum becomes more powerful. They could integrate with upcoming updates to make Ethereum easier and cheaper to use for the masses.

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