What Are Rollups? Understanding Blockchain’s Layer 2 Scaling Solution

It is no secret that the blockchain ecosystem has developed into an incredible global digital force with probably unlimited potential. It is also known that the blockchain technology still has limitations in regards to scalability and interoperability. It’s basically a textbook supply and demand situation, where the “demand” for transactions and processes done on the blockchain is high, but the “supply” of throughput, or processing power, on that specific protocol is low. So the only solution would be to increase the supply to match the demand. The way this is done currently is through scalability solutions such as Layer 2 frameworks, an example of which are rollups.

Rollups - how they work and why they are important to blockchain scalability

Rollups are a Level 2 solution designed to load off computational and storage burden from the main blockchain protocol in an effective way that doesn’t compromise security. This is a necessary tool at this point of blockchain development, which improves throughput and the overall scalability in a protocol. 

Rollups are a crucial part to diminishing the effects of the scalability issue. 

The mechanism of rollups operates parallel to the main blockchain but not directly on it. The way it works is rollups bundle up several transactions into a single batch and process them off the main chain offering a way for blockchain protocols to increase their throughput. After processing is complete the transactions’ final state or proofs are submitted back to the L1 chain. This way most of the processing load is redirected from the main protocol to the Layer 2 blockchain and as a result - throughput improves and transaction fees lower.

In general, rollups don’t rely on the L1 protocol features. The only thing they inherit is the primary chain’s security framework as they don’t have one of their own. Still, their entire process happens without any risk to that security making its method not only effective but also safe. In that regard, even if the Layer 2 environment gets compromised, the on-chain data or proofs ensure correctness and prevent fraud.

Cryptographic proofs and types of rollups

At the core of rollups lie cryptographic proofs. These are mathematical guarantees that ensure the correctness of off-chain transactions before they get recorded with their final state on the L1 chain. They are basically a trustless verification method which facilitates scalability while maintaining security and decentralization. 

There are two main types of rollups implementing two types of cryptographic proofs:

1. Zero-Knowledge (ZK) Rollups
   1. Apply Zero-Knowledge Proofs (ZK Proofs);
   2. Some of the techniques include zk-SNARKs (Zero-Knowledge Succinct Non-Interactive Arguments of Knowledge) and zk-STARKs (Zero-Knowledge Scalable Transparent Arguments of Knowledge) - advanced, don’t reveal data details;
   3. Proof is submitted to the main protocol where it is verified;
   4. Advantage characteristics include immediate finality, enhanced privacy, high scalability and lower costs in the long term;
   5. Disadvantage characteristics include higher complexity and are computationally harder to implement, limited compatibility with some decentralized applications (dApps);
2. Optimistic Rollups
   1. Apply Fraud Proofs;
   2. “Optimistically” assume all transactions in the batch are indeed valid;
   3. Validators post the batch to the main chain without immediate proof;
   4. Incorporates “challenge periods” - specific time frames when participants can challenge or dispute a batch of transactions;
   5. In the case an invalid transaction is detected during a “challenge period” a fraud proof can be submitted;
   6. If the fraud proof is valid, the incorrect batch is rejected, and the system reverts to the last valid state;
   7. Advantage characteristics include better implementation simplicity compared to ZK proofs, higher compatibility with existing smart contracts;
   8. Disadvantage characteristics include delayed finality due to challenge period and potentially higher gas costs when fraud proofs are more frequent;

Cryptographic proofs ensure off-chain computations are trustworthy without the need to re-execute them on-chain. Through them is how rollups inherit the security of the main blockchain and how large volumes of transactions get batched up and efficiently verified. Moreover, all participants can verify the correctness of the system without trusting any intermediaries.

Rollup examples and applications

Rollups are now vastly applied in various areas. Use cases where rollups can be applied include:

1. DeFi Scaling
   1. Enable high-speed, low-cost transactions for decentralized exchanges and lending platforms;
   2. Examples - DeFi platforms like Uniswap and Synthetix are exploring rollup integration;
2. Gaming
   1. Support fast and frequent in-game transactions without large gas fees;
   2. Examples - Axie Infinity, TreasureDAO and LootRealms;
3. NFT Marketplaces
   1. Reduce minting and trading costs for NFTs.;
   2. Examples - TofuNFT (on zkSync), OpenSea (on Arbitrum and Optimism) and Rarible (on Immutable X);
4. Payment Systems
   1. Facilitates microtransactions and cross-border payments;
   2. Examples - Loopring, ZKSync Payments and StarkPay;

Challenges with Rollups

Despite their efficiency, rollups do face challenges. 

• Interoperability: Rollups on different L2 chains often lack seamless communication;
• UX: Bridging assets between Layer 1 and Layer 2 blockchains can be complex;
• Centralization Risks: Some rollups initially rely on centralized sequencers or operators;
• Adoption: dApp developers need to adapt their smart contracts to the specific requirements of rollups;

Recent trends in rollups

Rollups are gaining more and more popularity and with that, new trends and dynamic changes occur in the blockchain and tech worlds. These trends reflect the growing role of rollups in making blockchain applications more scalable, efficient, and user-friendly.

Some of these trends include:

1. Increased Adoption of zkRollups
   zkRollups are in high demand for their ability to improve security and lower fees, especially for DeFi, NFTs, and gaming platforms.
2. Interoperability Across Rollups
   Cross-rollup communication and bridging are becoming more and more common, allowing assets and data to easily move between different rollup networks.
3. Hybrid Rollups
   Some projects are exploring the concept of hybrid models by combining zkRollups and Optimistic Rollups, with the goal to balance scalability with security and lower latency.
4. Layer 2 Ecosystem Growth
   More platforms are now getting started on L2 rollups like Optimism, Arbitrum, and zkSync, expanding the ecosystem beyond Ethereum’s mainnet.
5. Focus on UX
   Enhanced UI/UX, including easier integration with wallets and dApps, helps drive rollup adoption for everyday users.

Breakthroughs in rollup technology

Recent advancements in rollup technology only prove more both the necessity and the usability of that L2 framework and why it is gaining so much traction.

1. zkEVM (Zero-Knowledge Ethereum Virtual Machine) - zkEVM is a major breakthrough in zkRollup technology, enabling full compatibility with Ethereum smart contracts. This allows rollups to scale Ethereum while supporting both the same code and developer tools.
2. Composable and Multi-Rollup Networks - Rollups are becoming more interoperable, enabling decentralized applications (dApps) to easily operate across different rollup networks, creating more flexible Layer 2 ecosystems.

Future of rollups

The future of rollups looks promising and definitely on the fast track to global universal usage. 

It is expected that rollups will continue being the cornerstone of DeFis and NFTs with their ability to process fast and cost-efficient transactions, not only on the Ethereum blockchain, but on others, as well. With the rollups technology scaling and developing as fast as it does, so will various financial applications and marketplace solutions, which will become more complex and capable of even better throughput. 

It is also speculated that interoperability will be enhanced giving birth to a more interconnected global web3 ecosystem. Such, where Ethereum and other L1 blockchains could likely move towards a multi-rollup architecture. The idea behind it is different rollup solutions, like zkRollups and optimistic rollups, would co-exist, each serving specific use cases like DeFi, gaming, NFTs, or general-purpose applications.

Conclusion

What we can take away from all of this is that rollups as an L2 scaling solution seem to be on the right track as a technology that can really assist the improvement of the disadvantages of blockchains. Rollups could also be the future backbone of the Next-Gen Web. 

Although this is a term used before to speculate what the next phase of the Internet could be, rollups present a very realistic chance for blockchains to advance and develop into something bigger, better and globally adopted. As the infamous scalability issues get resolved, rollups would enable dApps to handle even larger volumes of transactions, making them actual feasible alternatives to traditional centralized services and paving the way for the Web3 future.