Rollups: Everything You Need to Know

TL;DR

Rollups are a type of Layer 2 scaling solution for Ethereum that help process transactions off-chain and then “roll up” the data back onto the Ethereum mainnet (Layer 1). They reduce congestion and gas fees by compressing many transactions into one. There are two types: Optimistic Rollups and Zero-Knowledge (zk) Rollups.

What is a Rollup?

A rollup is a technology designed to increase the scalability and efficiency of a blockchain, specifically Ethereum, by moving the bulk of transaction processing off-chain (to Layer 2) and then summarizing or “rolling up” the processed data back onto the Ethereum mainnet (Layer 1).

Here’s how it works in simple terms:

Off-Chain Transaction Processing:
- Instead of processing every transaction directly on the Ethereum blockchain (Layer 1), rollups process them off-chain, on what’s called Layer 2.
Data Compression:
- After these transactions are processed off-chain, only the essential data (a compressed form of the transaction results) is sent back to the main Ethereum network.
Roll-Up to Layer 1:
- All these processed transactions are “rolled up” into a single batch, with only the compressed summary posted back to Ethereum Layer 1. This saves a lot of space and reduces the gas fees significantly.

Think of it as a way to run Ethereum more efficiently by offloading work, then only checking in with the main network for validation.

Understanding Layer 2

Before diving deeper into rollups, it’s important to understand Layer 1 and Layer 2 solutions:

Layer 1: This refers to the base blockchain network, like Ethereum, where every transaction is processed by all participating nodes. While this ensures security and decentralization, it also leads to congestion and high gas fees as more people use the network.
Layer 2: Layer 2 solutions, like rollups, work on top of the Layer 1 network. These solutions handle a lot of the work off-chain to reduce the load on the Layer 1 network. After processing transactions off-chain, Layer 2 solutions send only the essential or compressed data back to Layer 1.

How Do Rollups Work?

User Transactions:
- When users make transactions on a rollup, the transactions are processed off-chain by the rollup’s infrastructure, not directly on Ethereum’s mainnet. This saves time and computational power.
Bundling (Compression):
- Instead of sending each transaction individually to the Ethereum mainnet, the rollup bundles (or “rolls up”) multiple transactions into one batch.
Submitting to Layer 1:
- The rollup posts a summary of the processed transactions to the Ethereum mainnet (Layer 1) for finalization. This summary includes only the compressed transaction data, which reduces the amount of information that has to be stored and processed on Layer 1.
Verification:
- The main Ethereum chain then verifies the rollup’s data to ensure that the transactions are valid, using cryptographic proofs or other mechanisms.

Types of Rollups

There are two main types of rollups: Optimistic Rollups and Zero-Knowledge (zk) Rollups. They work slightly differently but aim to achieve the same goal of making Ethereum more scalable.

1. Optimistic Rollups

How They Work:
- In an Optimistic Rollup, transactions are processed off-chain, and when the results are sent back to Ethereum, the rollup assumes (or is “optimistic”) that the transactions are valid.
- Only if someone challenges a transaction (if they suspect it’s incorrect) is a full verification carried out. This reduces the need for constant verification, saving time and resources.
Advantages:
- Lower computational costs since the network doesn’t constantly check every transaction.
- Easier to implement than zk-Rollups.
Disadvantages:
- There’s a waiting period (usually around 7 days) where challenges can be made before the transactions are fully finalized.
Popular Projects Using Optimistic Rollups:
- Optimism and Arbitrum are the most well-known rollup solutions that use this approach.

2. Zero-Knowledge (zk) Rollups

How They Work:
- In zk-Rollups, instead of assuming transactions are valid, the rollup uses a mathematical proof called a zero-knowledge proof to ensure the validity of every transaction before sending the compressed data back to Ethereum.
- These proofs allow Ethereum to verify that the rollup’s transactions are correct without having to check every detail of the transactions themselves.
Advantages:
- Instant finality—transactions are verified as soon as they are posted to the main Ethereum network.
- More secure and efficient in terms of verification.
Disadvantages:
- Creating zk-Rollups is computationally more complex, making it harder to implement.
- zk-Rollups are not yet fully compatible with smart contracts, although this is an area of ongoing development.
Popular Projects Using zk-Rollups:
- zkSync and Loopring are well-known projects using zk-Rollup technology.

Why Are Rollups Important?

Reduce Gas Fees:
- Rollups reduce the amount of data that needs to be processed by Ethereum Layer 1, resulting in lower gas fees for users. This is especially crucial during periods of high network activity, when gas fees can spike.
Increase Throughput:
- By moving transaction processing off-chain, rollups can handle thousands of transactions per second (TPS), far more than Ethereum’s current limit of around 15-30 TPS.
Scalability Solution for Ethereum:
- Rollups are considered one of the most promising scaling solutions for Ethereum while it transitions to Ethereum 2.0. Ethereum 2.0 promises better scalability through sharding, but rollups offer an immediate way to improve the network today.

Advantages vs. Disadvantages of Rollups

Advantages

Lower Costs: Transactions become much cheaper for users.
Higher Throughput: Rollups can process many more transactions per second than Layer 1 Ethereum.
Security: Rollups still rely on Ethereum for security, meaning they inherit Ethereum’s decentralization and security guarantees.

Disadvantages

Delay in Finality (Optimistic Rollups): There’s a delay before transactions are fully finalized, typically around 7 days, which can be an inconvenience.
Complexity (zk-Rollups): Zero-knowledge proofs are computationally complex, making zk-Rollups harder to implement.
Smart Contract Limitations (zk-Rollups): Not all types of smart contracts are compatible with zk-Rollups yet, though this is changing.

Rollups vs Other Layer 2 Solutions

Rollups are one of several Layer 2 solutions, but they are often compared to others, such as state channels or sidechains. Here’s how they stack up:

State Channels: These allow users to make multiple transactions off-chain, with only the final state being recorded on Ethereum. Rollups are more flexible and efficient since they compress many transactions into one batch.
Sidechains: These are independent blockchains that run alongside Ethereum. However, sidechains don’t inherit Ethereum’s security, whereas rollups do. This makes rollups a safer choice.

Future of Rollups

As Ethereum continues to evolve, rollups are seen as a key part of the scaling strategy. Even with Ethereum 2.0 and sharding coming into play, rollups will continue to play a critical role in scaling Ethereum by providing faster, cheaper, and more efficient transactions. Developers are working to make rollups fully compatible with all types of dApps and smart contracts, which will further boost their adoption.