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Intro

Rollups are a relatively new L2 solution on Ethereum that enables exponentially more scalability while providing nearly identical security guarantees as the Ethereum mainnet. Their primary innovation is to move computation off-chain while storing only the bare minimum transaction data on-chain with no added trust assumptions. The rollup chain handles the expensive and computationally-dense data processing, enabling exponential growth in Ethereum’s ability to execute transactions. 

Scalability, in blockchain, essentially represents the capacity of a network to handle more transactions without compromising on its original security parameters. Bridges are crucial in this equation—they can expand a network's computational capacity by channeling it through another blockchain.

However, the true challenge lies in retaining the security guarantees. A Layer 2 solution tethered to Bitcoin, for instance, can inherit Bitcoin's data integrity and consensus mechanisms, but its capability to execute smart contracts (absent in Bitcoin) remains a separate concern. Therefore, while it enhances Bitcoin's security model, it doesn't necessarily scale it. Ethereum rollups, on the other hand, perfectly exemplify the scalability principle—they offload some computational burden, yet any transaction on the rollup can seamlessly transition back to Ethereum without any extra security assumptions.

However, rollups fragment liquidity as funds deposited on Arbitrum, for example, are not easily bridged over or interoperable with funds and dapps on Optimism. As such, interoperability among rollups and Ethereum mainnet has become crucial to the long-term vision of Ethereum. Interoperability bridges, such as Hop, focused on the ETH-rollup connection, will become a critical component in a rollup-centric future and look to mitigate fragmented liquidity. 

Rollups can be advantageous over alt L1 chains because they can increase scaling via a separate layer, i.e., the rollup chain, but they also increase security and composability ease due to existing atop the L1 and its architecture.

This compromise, generally speaking, creates the following advantages:

• Reduced network fees (gas fees)
• Greater participation
• Higher network speeds

At a high level, there are two distinct forms of rollups: optimistic and zero-knowledge (zk rollups). However, rollups are a separate chain from L1 Ethereum and, therefore, require a bridge solution.

Differences from L1-to-L1 Bridges

As previously discussed, a multi-chain world seems inevitable as no one chain appears to be able to satisfy the needs and concerns of every person on Earth. However, we’ve also covered the issues around L1 communication and composability: 

1. Every disparate blockchain needs to bootstrap its own security
2. Secure, frictionless bridging between chains is incredibly difficult

In general, there are two types of bridges: trusted and trust-minimized. Trusted bridges depend on a counterparty consensus, usually an external validator set, while a single complete node can secure trust-minimized bridges.

Chains require two things to construct trust-minimized bridges: the same data availability (DA) guarantees and a mechanism to read each other's fraud or validity proofs. Because L1s don't meet the previous requirement of shared DA, they can't create trust-minimized bridges with each other. They rely on each other's agreement to communicate, significantly reducing security.

In contrast, rollups connect with Ethereum in a manner that minimizes the need for trust. They are “trust-minimized” because the smart contract on the L1 acts as a light client receiving block headers and validating by fraud/validity proofs. Ethereum has access to a rollup's data and conducts its on-chain fraud and validity proofs. This access and proof process are why rollups can have as little as one node but still maintain the same trust assumptions as the Ethereum base layer. 

Rollups don't require validators; instead, a set of sequencers to produce blocks. The base layer provides the secure validator set, circumventing the security bootstrapping problem.

Additionally, rollups that share a settlement layer can build trust-minimized bridges between them because their state transitions can be easily verified through the settlement layer via full nodes.

Different Kinds of Rollups

While there exist myriad ways to deploy an execution layer, Layer 2 (L2) smart contract rollups on Ethereum have traditionally been the most prevalent. These layers span a spectrum of sovereignty, on one end of which we have enshrined rollups, and on the other, sovereign chains and rollups. Although definitions for these designs remain somewhat contentious, this discussion will employ the classification system proposed by the Ethereum community.

This figure depicts the various rollup kinds and the functions that are done on each layer.

Source

Enshrined Rollups: Embedded Security at the Expense of Flexibility

Nestled within the vast spectrum of rollup variants, enshrined rollups stand as a unique intersection of innovation and practicality. These rollups exhibit consensus integration at Layer 1 (L1), offering a distinctive contrast to their Layer 2 (L2) counterparts—smart contract rollups—that operate outside of consensus. The term "enshrined" speaks to the embedding of the rollup's logic into the protocol of the Layer 1 blockchain itself. This enshrining of the rollup into Layer 1 positions its operation under the governance of the L1 blockchain's consensus rules, veering away from a distinct set of rules or smart contract.

However, this model’s drawback is its sluggish upgrade capability, as any improvements necessitate the underlying blockchain's consensus process. At present, Tezos is the only protocol exploring this path.

The modus operandi of enshrined rollups is rooted in off-chain computational work, with the computation results posted onto the Layer 1 blockchain. A cadre of validators manages these off-chain computations, tasked with processing transactions and producing proofs that attest to the computation's correctness. These proofs are posted onto the L1 blockchain, where they undergo a validation process facilitated by the blockchain's consensus mechanism. The successful validation of these proofs culminates in their acceptance and subsequent incorporation into the blockchain's state.

This unique operational mechanism provides a significant boost to transaction throughput. By offloading the computational work, the Layer 1 blockchain is left with the less resource-intensive task of proof validation. This reallocation of computational responsibilities enables the L1 blockchain to process a larger volume of transactions, translating into greater efficiency and throughput.

Enshrined rollups open new avenues for enhancing blockchain systems, offering distinct advantages. An uptick in transaction throughput is arguably the most direct benefit, achieved by transitioning computations off-chain. Additionally, enshrined rollups inherit the security properties of the Layer 1 blockchain, reinforcing their security profile. In terms of decentralization, enshrined rollups maintain a balanced architecture by transitioning computations to a set of off-chain validators. This effectively minimizes resource requirements for node operation, thus encouraging greater network participation. Furthermore, enshrined rollups, when designed with compatibility in mind, can seamlessly interact with existing L1 blockchains and associated applications.

Like any technological innovation, enshrined rollups present a balanced palette of pros and cons. On the positive side, they promote scalability, bolster security, uphold decentralization, and facilitate interoperability with existing Layer 1 blockchains. However, they introduce a layer of complexity that could potentially hinder their understanding and adoption. The operation and security of enshrined rollups also rely heavily on Layer 1. Therefore, any security compromise within L1 could negatively impact the enshrined rollup. Additionally, the inflexible nature of enshrined rollups—stemming from their embedded logic in the L1 protocol—may pose challenges in terms of upgradability when compared to other rollup types.

Sovereign Rollups: Complete Control and Data Availability

A sovereign rollup operates independently from its settlement layer, which traditionally manages state updates and facilitates inter-communication within the blockchain. Instead, this form of rollup relies entirely on a Data Availability (DA) layer, effectively increasing its operational independence and functionality. A sovereign rollup doesn't depend on the base layer to validate its transactions. It can also fork without permission.

For blockchain novices, envisioning the process can prove challenging, particularly with DA layers incapable of processing smart contracts—such as Celestia. Nevertheless, such systems are surprisingly functional, with transactions posted directly to Celestia. The pivotal factor to consider here is that data, once posted, does not undergo computation on Celestia, but finds a home in the block headers—unique identifiers of distinct blocks on a blockchain.

Source

This transfer of data is directed towards the rollup's namespace within Celestia, essentially serving as the rollup's smart contract. Merkle trees, which house the transaction data, are subsequently sorted by namespaces. The key advantage of this lies in the ability of any rollup on Celestia to download only data relevant to their respective chain. Consequently, full or light nodes present on the rollup form a peer-to-peer network, downloading blocks to ascertain and verify the sequence of block data on Celestia.

From this, it becomes clear that the canonical history of the chain is determined by local nodes confirming the validity of the rollup's transactions. This creates a reassuring security infrastructure, where full nodes acting as monitors of the rollup's namespace can provide security to light nodes. Interestingly, data availability sampling renders light nodes equivalent to full nodes, a characteristic highlighting the unique dynamism and versatility inherent to this form of blockchain technology.

Source

Unquestionably, sovereign rollups present an intriguing proposition. Their independence enables the operation of specialized nodes and layers, optimized for a range of purposes—capabilities that are far from achievable on monolithic or semi-monolithic chains. A practical demonstration of this can be observed with Optimistic Rollups, where instead of verifying fraud proofs within a settlement layer contract, fraud proofs are distributed among nodes in the peer-to-peer network on the rollup. This approach could potentially expedite dispute resolution periods, offering a more efficient alternative to conventional, slower settlement layers.

At the crossroads of innovation and decentralization, sovereign rollups are redefining how blockchain technology is structured and implemented. From an investor or user perspective, these cutting-edge developments stand poised to enhance blockchain-based platforms' versatility, efficiency, and security, marking a significant step forward in our collective blockchain journey.

Bonus: Vitalik Buterin's Framework: Deciphering Trust Models

Vitalik Buterin, co-founder of Ethereum, presents a framework to understand the different trust models based on blockchain security assumptions. The framework underscores the importance of validators, their behaviors, incentives, and potential ramifications if those assumptions fail. The more significant the proportion of trustworthy validators required, the less secure the system becomes.

Here's a distilled overview:

1. 1 of 1: Pure centralization. This represents a single point of control and, consequently, a single point of failure.

2. N/2 of N (Honest Majority): This model assumes that a majority of participants are honest. It's the principle behind most PoW and PoS mechanisms.

3. 1 of N: Here, the system requires only one honest participant. It's the fundamental principle behind fraud proofs, where just one honest actor can flag malicious activity.

4. 0 of N: A model that demands no trust in any participant, representing the pinnacle of decentralization. It relies on intrinsic mechanisms like block validations or validity proofs.

Final Thoughts

The transformative journey of blockchain from a purely decentralized ledger to sophisticated Layer 2 solutions like rollups showcases its adaptability. By amalgamating the advantages of established Layer 1 blockchains with the scalability of rollups, the future of blockchain promises enhanced throughput without compromising security. As the technology matures, refining these trust models will be integral to fostering broader adoption and ensuring the enduring resilience of blockchain networks.