You are reading an excerpt from our free but shortened abridged report! While still packed with incredible research and data, for just $40/month you can upgrade to our FULL library of 60+ reports (including this one) and complete industry-leading analysis on the top crypto assets.
Becoming a Premium member means enjoying all the perks of a Basic membership PLUS:
- Full-length CORE Reports: More technical, in-depth research, actionable insights, and potential market alpha for serious crypto users
- Early access to future CORE ratings: Being early is sometimes just as important as being right!
- Premium Member CORE+ Reports: Coverage on the top issues pertaining to crypto users like bridge security, layer two solutions, DeFi plays, and more
- CORE report Audio playback: Don’t want to read? No problem! Listen on the go.
Intro
Blockchain rollups are an innovative technology that aims to improve the scalability of blockchain networks by offloading some of the computational work from the base layer (L1) to a secondary layer (L2). The core concept of a rollup is to process transactions on L2, while still relying on L1 for security and finality. Rollups are especially critical as they enable more transactions per second without compromising the decentralized nature of blockchains. This summary provides a detailed exploration of the mechanisms behind rollups, specifically focusing on optimistic rollups, fraud proofs, and the challenges associated with ensuring security, efficiency, and decentralization.
Blockchain State and Rollups
A blockchain state is determined by applying a state transition function (STF) to a sequence of transactions. This process must be deterministic to ensure that all full nodes in the network reach the same state. Unlike traditional blockchain systems that handle transaction ordering and consensus internally, rollups delegate these tasks to a separate network, referred to as the base layer (L1). The rollup full nodes compute the final state based on the transaction batches and their ordering, which L1 finalizes.
One of the critical functions in rollups is enabling cross-layer transactions, such as bridging assets between L1 and L2. To achieve this, both L1 and L2 must maintain awareness of each other's states. This requires L2 nodes to fetch and verify data from L1, necessitating that L2 nodes run L1 full nodes themselves. However, because L1 nodes do not run L2 nodes, they must be convinced of the L2 state through other means, typically by publishing cryptographic commitments in the form of state roots on L1.
Fraud Proofs: Ensuring Rollup Security
Fraud proofs are essential to ensuring that incorrect state transitions are identified and corrected. There are two main types of fraud proofs: single-round and multi-round. Single-round proofs attempt to prove the entire state transition in one step, which can be challenging for complex systems. Multi-round proofs, on the other hand, break down the state transition into smaller steps, enabling more efficient verification.
Single-Round vs. Multi-Round Fraud Proofs
Single-round proofs, such as those initially implemented in Fuel v1 and Optimism's OVMv1, attempt to re-execute all L2 transactions on L1 to verify the state. However, this approach has limitations, especially when dealing with more complex virtual machines (VMs). In contrast, multi-round proofs divide the execution trace into smaller segments, using techniques like bisection to isolate the specific point of disagreement between the challenger and the asserter. This process, also known as the bisection game, allows for a more efficient resolution of disputes by focusing only on the problematic part of the state transition.
Onchain vs. Offchain Fraud Proofs
Rollups can implement fraud proofs either onchain or offchain. Onchain fraud proofs are necessary for trust-minimized bridges with L1, as they allow L1 to adjudicate disputes and release funds from escrow. Offchain fraud proofs, though less common, can potentially reduce the challenge period to the network's latency, provided certain assumptions hold.
Arbitrum Fraud Proofs
Arbitrum incorporates fraud proofs, a mechanism enabling any interested party to track, test retrospectively, and contest a transaction's validity within a specified challenge period. Specifically, Arbitrum employs interactive (multi-round) fraud proofs.
Below is a discussion of various types of fraud proofs and the rationale behind Offchain Labs' (creators of Arbitrum) choice for interactive fraud proofs:
- Non-Interactive (Single Round) Fraud Proofs - Example: Optimism
When a state challenge arises, it's resolved without the need for additional party involvement. The disputed transactions are re-executed on the Ethereum layer (Layer 1) through a verifier contract. If the challenge is upheld, the operator who issued the erroneous rollup block faces a penalty, while the challenger is rewarded.
This model has a key drawback: it can't handle transactions that exceed Ethereum's gas limit, limiting its capacity to verify large transactions in disputes. Additionally, it demands individual transaction state commitments to be published on-chain, leading to higher data volume and increased costs for Layer 2 users.
- Interactive (Multi-Round) Fraud Proofs - Example: Arbitrum
Challenges to the rollup state involve multiple parties - the asserter and the challenger. The dispute resolution, managed by a Layer 1 verifier contract, determines who is at fault. The challenger prompts the asserter to divide their assertion, continuing until an operation small enough for Layer 1 execution is isolated. The verifier contract then resolves the dispute by executing this small operation on Layer 1.
If the challenger is correct, the asserter's stake is penalized, with a portion awarded to the challenger and the rest burned, deterring frivolous challenges that could delay withdrawals from Layer 2 to Layer 1. The advantage here is that interactive proofs minimize the workload on Layer 1, as most of the resolution happens off-chain, requiring Layer 1 to execute only a small instruction. They also enable the execution of transactions beyond Ethereum's gas limits and don't confine contracts within Ethereum's size limit, offering greater flexibility and implementation options.
Arbitrum's interactive fraud proof approach involves multiple rounds, halting only when a dispute reaches Layer 1. The conflicting issue is meticulously dissected until the root cause is pinpointed. This process, conducted by the sequencer and verifier, ensures that only the critical phase of the dispute is computed on Layer 1, establishing the correct final state.
