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Optimistic Rollups
Optimistic Rollups are not secured by cryptographic zero-knowledge validity proofs. Instead, ORs “optimistically” assume all transactions are valid, but allow for/use dispute resolutions, a withdrawal period, and crypto-economic incentives to maintain the data’s integrity. Essentially, it’s an “innocent until proven guilty” model with watchdogs in place. For a more detailed overview of rollups, check out our previous piece.
Anyone may submit a rollup block. However, all other nodes can execute the same transactions, essentially “checking the work” of the submitter. Only one honest actor is needed to submit the fraud proof and challenge any questionable block. This means fraud proofs are not sent with every batch of transactions. Instead, they’re only used when an entity wants to dispute a transaction, e.g., attempt to prove whether there are any fraudulent transactions in a rollup batch.
Challenge window
By default, Optimistic rollups “optimistically” assume submissions are valid. However, that’s not always the case. To combat this seemingly reckless optimism, checks and balances are put into place. There’s a period of time called the “challenge period,” after withdrawals, where anyone can identify and dispute transactions they believe are incorrect or fraudulent. If the whistleblower can mathematically prove fraud occurred by submitting the correct fraud proof, the rollup will revert the fraudulent transactions, penalize the fraudulent actor, and even reward the watcher.
Withdrawals require the user to wait for the one- to two-week period to end before an operator picks up the transaction data and submits it on-chain. This is one drawback of Optimistic rollups: the large waiting period for asset withdrawals from the L2 layer to the L1 chain. The drawback to this system is the delay when users move funds between the rollup and Ethereum and for transactions to be considered final. Because “watchers” need time to detect fraud, users’ funds typically take a week to be withdrawn and available for further use. ORs can only be considered safe with a ~ one-week challenge window.
However, the benefit of a challenge period is it allows any invalid transaction on the L2 to be disputed by any party and ultimately helps keep the data valid, increasing safety for users. Note these dispute windows are expected to come down over time and, in fact, some third-party solutions already exist to remove this delay entirely.
One such solution is providing instant withdrawals. A third-party that's constantly verifying the chain will then offer to buy the user’s withdrawal for a small fee and then pay the user on Ethereum L1. In this scenario, the user gets their funds immediately and the third-party earns a fee for having to wait for the block to be finalized. These same solutions are available for most ORs and specific implementations, as well as other bridge solutions discussed in sections below.
Unlike the sidechains discussed previously, the breakthrough for rollups is simply increased scalability without sacrificing user security. OR chains are secured by Ethereum L1. Users could be inconvenienced if a dispute or fraud situation arises, but their funds are always safe. Sidechains, such as Polygon, are secured by a separate validator set that may be (definitely are) less secure than the Ethereum network as a result. Additionally, the bridge that connects sidechains to Ethereum are typically highly centralized around just a few individuals. If less than 10 people are compromised, all funds could be vulnerable.
Arbitrum One
Arbitrum is the top Ethereum optimistic rollup scaling solution, with an increasing number of TVL, users, developers, and decentralized applications (dApps). Arbitrum supports up to ~60K transactions per second at an average cost of less than $0.50, making it substantially faster and more affordable than Ethereum.
Arbitrum One is currently the L2 network that has the highest TVL. For an overview of Arbitrum’s ecosystem of applications, see the Arbitrum Portal. Binance, Huobi, and Crypto.com have open withdrawals to Arbitrum, becoming some of the first exchanges to open an on-ramp to Ethereum’s layer 2. Additionally, Arbitrum has partnered with Chainlink nodes and oracles to provide its validation services. This is positive as Chainlink is already used in hundreds of Ethereum L1 projects and will bring the same security and composability to L2. In fact, Arbitrum is top-5 among all protocols in the number of Chainlink price feeds out of all blockchains.
In the beginning, Arbitrum used AVM (Arbitrum Virtual Machine) to allow developers to easily deploy their projects from Ethereum to Arbitrum. Now, after the Nitro update (diuscussed below), instead of using a custom-built EVM emulator, Arbitrum uses Geth, the most popular and well-supported Ethereum client. Core execution and state maintenance function is handled by code from open source Geth.
Previous Issues and Early-Days Centralization
It’s important to note that as promising as rollup technology is, it’s still a new technology not without risk. Arbitrum One experienced downtime for ~45 minutes in September 2021 when a bug caused a large burst of transactions to overload the system. Optimism (OΞ) also experienced a temporary outage (~one hour) in November 2021 in which its L2 transactions were halted.
Rollups currently use sequencers to collect and order users' transactions in a mempool before they get executed and posted to the DA layer. This poses a potential issue regarding the Maximum Extractable Value (MEV) as the sequencer is generally centralized (one company) in current rollup implementations. Arbitrum is built by Offchain Labs, which currently operates Arbitrum's sequencer and illustrates the long road ahead many rollups have towards achieving true decentralization. The current solution would be to decentralize the sequencers, which many rollups plan to do, although this presents its own challenges.
In the event the L2 node is offline, users must be able to withdraw funds from the bridge. Up until recently, becoming a validator for Arbitrum has not been completely permissionless. Arbitrum implemented a whitelist. As previously discussed, v alidators send new L2 state roots to Ethereum mainnet. Due to the existence of a whitelist, if all validators were to fail, nobody could publish L2 state roots and users' funds would be subsequently frozen. But as of Q3 2022, the whitelist has been effectively removed with a new process in place should validatgor go offline.
In the new system, if validators do not submit new state roots within a week, anyone can become a validator and submit the transactions. This is a big step in the right direction for decentralizing the rollup chain.
However, other attack vectors still exist. ORs and their challenge period are susceptible to 51% attacks. In this scenario, the attacker would try to introduce “bad” transaction data into the rollup and attempt to censor any attempts to challenge it during the challenge period. The attacker is ultimately trying to corrupt the state of the rollup (with fraudulent data for their own self-interest) and stop anyone from challenging the submission.
This is why an adequately lengthy withdrawal/challenge period (one to two weeks) is needed. An attacker may be able to censor or sneak a transaction through if the window was short enough, but the longer the window, the harder it is to fool the rest of the chain.
To withdraw from Arbitrum, you first submit the withdrawal transaction on the rollup. Once the transaction is finalized on L1 (up to ~seven days), your funds are free to claim with another L1 transaction (requiring a Merkle proof).
Arbitrum also uses fraud proofs, which, as discussed before, refer to the concept of anyone (with a vested interest) being able to track, backtest, and dispute a transaction’s claim within a challenge window. Arbitrum uses interactive (multi-round) fraud proofs.
Below, you’ll read about different types of fraud proofs and the advantages of interactive (multi-round) fraud proofs, based on which type of fraud proof Offchain Labs (builders of Arbitrum) decided to use.
Two Types of Fraud proofs:
1. Non-interactive (single round) - Optimism
Whenever someone submits a challenge regarding the state of the rollup. The dispute can be solved without requiring other parties' involvement. Re-execution of disputed transactions takes place on layer 1 (Ethereum) using a verifier contract on layer 1. After the re-execution of transactions, if it was found that the challenger’s claim about the correct rollup state was right, the operator who sent the invalid rollup block, its stake, will be slashed. In contrast, the challenger will be rewarded with tokens.
The biggest disadvantage of using non-interactive fraud proofs is that the rollup protocol can’t execute transactions on their rollup, which exceed the Ethereum gas limit, and large transactions can’t be verified in case of dispute on layer 1. Rollups are also required to publish state commitments for individual transactions, increasing the data posted on-chain. It’s not efficient for rollups, and layer 2 users need to pay more fees due to this method being less cost-efficient.
- Interactive (Multi round) - Arbitrum
Whenever someone submits a challenge over the state of rollup. The dispute requires two or more parties to resolve. The asserter (the party making the assertion) and the challenger participate in the dispute resolution process, overseen by a layer 1 verifier contract, which ultimately identifies which party is lying.
To resolve the dispute, the challenger requests the asserter to divide the assertion into two assertions. This dividing process continues until both parties reach an assertion representing a small enough operation that can be executed on Ethereum. Now, the layer 1 verifier contract will resolve the dispute by executing the one instruction on layer 1. The result will then determine which party was lying.
If the challenger's claim is right, the assertor stake will be slashed and part of the slashed stake will be awarded to the challenger while the remaining part is burned. This is done to prevent bogus challenges from happening, which will delay withdrawals of assets from layer 2 to layer 1.
There are various advantages of Interactive fraud proofs, which are absent in non-interactive fraud proofs. Interactive fraud proofs minimize the work layer 1 needs to do to resolve the dispute. As most of the work is done by both parties off-chain, layer 1 needs to execute one small instruction.
A rollup using interactive fraud proofs can also execute rollup transactions that exceed the Ethereum gas limits. There’s also no limit on contract size as it doesn’t require contracts to fit within Ethereum’s contract size limit. It also allows more flexibility in implementation. For example, a rollup can add instructions that don’t exist in the EVM.
Arbitrum, however, does multiple rounds, only stopping for a disagreement disputed on the L1. The disagreement is examined and deconstructed until the precise cause of the conflict is identified. The sequencer and verifier perform the dissection and only the stage at which the dispute is narrowed down will be computed on the L1 to establish the proper end state.
