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Ethereum Rollups – How Do They Work?

Ethereum Rollups – How Do They Work?

By SimpleSwap | SimpleSwap Blog | 31 Jan 2023


The Ethereum blockchain network with its native token appeared in 2015 and immediately ran into optimization problems. The issue of scaling has become one of the most important once after the launch of the platform. Developers are still looking for a solution to this problem, offering various technologies. One of them is called Rollup technology.

Why does Ethereum need rollups?

When Ethereum (ETH) appeared, there were not so many different tokens on the cryptocurrency market as there are now. The number of users was also smaller, and the crypto was treated with more caution and distrust. There weren’t as many articles, videos, price predictions, analytics about crypto as there are now. These assets weren’t popular. Therefore, the coin price was relatively low, the load on the network was small, and the transaction fees were minimal.

The popularity of the network grew and it attracted new users – many interesting projects and coins like DAI stablecoin started to use Ethereum blockchain as a base. So scaling problems began to appear due to the long transaction confirmation time and high fees for the exchange. This led to an urgent search for solutions and upgrading Ethereum to Ethereum 2.0. It is important to note that the tokens themselves were not changed within the network, they were simply transferred to a new, more technologically advanced platform. According to the developers of the Ethereum Foundation, the final transition to system 2.0 is expected to occur in 2023.

The main problems to solve with update to version 2.0:

- low speed of transactions;

- high transaction fees;

- capacity limitation of blocks;

Ways to improve Ethereum scalability 

The first technologies aimed at improving the operation of Ethereum systems were the following models:

  • Status channel (payment channel). 

Users can conduct any number of private transactions outside the main blockchain via a special smart contract. Thus, a third-party payment channel is created, visible only to the sender and recipient. The transaction is confirmed by smart signatures, and only its results appear in the Ethereum protocol. The technology is convenient, but has its own minuses: not all users are able to create such channels. This technology is used by the Raiden Network, Connext and Perun projects.

  • Sidechain

This is a separate blockchain network that allows transactions to be carried out. It is connected to the central network by special two-way channels, for which individual miners are responsible. In fact, the sidechain technology is not a solution for the second layer of Ethereum, as it works separately from the system.

 

  •  Plasma

 

It works a bit similar to the Bitcoin Lightning Network. Thanks to Plasma, all active transactions are transferred to other blockchains and, thus, the main network is offloaded. But the problem remains – if users massively return to the main network then it may not be able to cope with such a flow. Also, the technology does not solve the issue of speed: it takes from 7 to 14 days to withdraw funds from Plasma. Despite all the difficulties, the technology is applied on such projects as Polygon (MATIC), Matic Network, Gazelle, Leap DAO.

All of the above technologies are the first experiments to optimize Ethereum. Now the developers are focusing on improving the Rollups technology – the most successful solution so far.

Rollups technology: principle of work and prospects

Rollups are the core technology for Ethereum's layer 2 protocols. It allows to reduce the calculations in the main Ethereum chain (transactions become almost instantaneous) and thereby minimize the load on the network.

Rollups offer to carry out operations outside the Ethereum chain, and bring back only the results of transactions. Outside the network, a huge amount of data is being checked, and only important things are returned to the blockchain. According to the creator of the Ethereum network Vitalik Buterin, rollups can increase the carrying capacity of ETH hundreds of times.

There are 2 most popular types of Rollups: Optimistic rollups and ZK-Rollaps. Let’s see the differences between these two popular layer 2 scaling solutions. 

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ZK and Optimistic rollups are both based on the principle of moving complex operations outside the main blockchain. They help with the scaling problem and increase the speed of transactions up to 2-4 thousand operations per second (now the speed is about 15 operations per second). Optimistic rollups are considered to be a safer mechanism, as it combines all the strengths of ZK-Rollaps and Plasma's defensive techniques.

Most Rollaps solutions use Zero-knowledge proof (ZKP). This is a unique cryptographic protocol that allows you to verify the transaction without revealing the details of the transaction. To do this, you need to create a special confirmation key. As a result, both parties will have limited data about the operation, but this will not interfere with the main thing – its implementation.

Conclusion

Rollups technology meets all the requirements of the upgraded Ethereum 2.0 system. It will provide a reduction in transaction fees, increase the process of data processing and speed up the transactions themselves. Also it preserves the privacy of users through the implementation of ZKP algorithms. All this will help in resolving the issue of scaling.

If you want to learn more interesting facts about crypto then check out our blog! You might like our articles “Ethereum’s Shanghai Upgrade” and “What Is DAI?”.

The easiest way to buy, sell or exchange coins is to use SimpleSwap services.
SimpleSwap reminds you that this article is provided for informational purposes only and does not provide investment advice. All purchases and cryptocurrency investments are your own responsibility.

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