Guide to One of Ethereum’s Layer-Two Scaling Solutions

The cryptocurrency industry, in general, became a lot more popular in the past couple of years. This saw the development and launch of hundreds, if not thousands, of decentralized applications (dApps) in various fields, such as DeFi, gaming, learning, trading, investing, and whatnot.

There are many reasons for this, including but not limited to the massive bull run in 2021, the rise of non-fungible tokens, the popularity of memecoins, and more. This saw hundreds of thousands of users flocking to whatever the next trend may be.

Unlike previous cycles, however, this time, we also saw regular users take advantage of on-chain availabilities and interact with various dApps such as Uniswap, OpenSea, and so forth. And while this had a massively beneficial effect on the industry’s growth and valuation, it also highlighted some very critical issues.

Blockchains like Ethereum – where the lion’s share of dApp activity takes place – struggled in terms of affordability, scalability, and even accessibility. Layer one alternatives like Solana also proved to be insufficiently effective in handling the massive load of user requests.

This brought up a topic that’s been largely discussed in the cryptocurrency community for years – scalability. Now that scaling solutions became essentially imperative for the future growth of the industry, projects like Optimism saw the light of day.

Being one of the most popular Ethereum scaling solutions, Optimism aims to solve some of the underlying issues with the network with a particular focus on scaling.

Quick Facts About Optimism

• Optimism’s mainnet went live on December 2021
• Optimism launched its native token (OP) on May 31st, 2022.
• A total of 231,000 addresses were eligible to claim 214 million OP tokens.

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What is Optimism?

Optimism is an Ethereum scaling solution. In essence, its purpose is to help the main network run smoothly by taking some of its transactional load. In technical terms, Optimism is an “Optimistic rollup,” and it’s important to understand what rollups do before diving deeper.

What is a Rollup?

Rollups are one of the multiple scaling solutions intended to help Ethereum achieve a higher transaction throughput.

The Ethereum Foundation explains that they “perform transaction execution outside layer 1, and then the data is posted to layer 1 where consensus is reached.”

The main benefit of this is that it reduces the load on the main network while also guaranteeing the broadcasted information by its native security.

There are two main types of rollups, mainly differentiated by their security models:

• Zero-Knowledge (ZK) Rollups – these run the computation off-chain and then submit proof of validity to the chain.
• Optimistic rollups – these assume that transactions are valid by default and only run computation through fraud-proof if there’s a challenge.

Optimism falls within the second category, and, as you may have probably guessed already, its parent chain is Ethereum.

How Does Optimism Work?

The big idea that makes Optimism interesting to most is the Optimistic Rollup. The following is a brief explanation of the fundamental principles of the concept.

However, the TLDR of it is that an Optimistic Rollup is another way of calling a blockchain that’s designed to take advantage of the security of another network that acts as a parent one.

Block Storage

All of the blocks on Optimism are stored within a specific smart contract that’s built on Ethereum and is called CannonicalTransactionChain – CTC to make it easier. They are helped within a list that’s inside of the CTC, and it’s append-only.

The CTC contains code that guarantees that the current list of blocks can’t be altered by newer transactions on Ethereum. This guarantee can be broken if the Ethereum network itself goes through a reorganization (reorg) and the order is changed.

Block Production

The ‘sequencer’ is the single party that manages block production on Optimism. It helps with the network by delivering the following:

• Instant transaction confirmations and state updates;
• Constructing and executing layer-two blocks;
• Submitting user transactions to layer one.

It has no mempool, which means that the transactions are accepted (or rejected) immediately. This happens in the order they are received. When someone sends a transaction, the sequencer will check if it’s valid (pays a sufficient fee) and apply it to the local state as a block that’s pending. These pending blocks are then batched and periodically submitted to Ethereum’s network for finalization.

The main goal of this batching is to reduce the overall transaction fees by spreading certain fixed costs over all of the transactions within a single batch. Of course, this fee may vary depending on the network load at the time when the transactions were sent to the sequencer.

Block Execution

It’s important to understand that Ethereum nodes download blocks from Ethereum’s network that’s peer-to-peer. Optimism nodes, on the other hand, download blocks directly from the CTC append-only contract.

There are two primary components that make Optimism nodes. These are the Ethereum Data Indexer and the Optimism Client Software.

It’s designed to reconstruct the optimism blockchain from blocks that are published to the CTC contract. It’s also called the data transport layer.

This one closely resembles Geth, which means that Optimism, overall, is very close in its design to Ethereum. This is also because Optimism shares the same Ethereum Virtual Machine (EVM), as well as the same account and state structure and the metering mechanism for gas, and the fee schedule.

Fault Proofs

Using an Optimistic Rollup means that the state commitments are published to Ethereum’s network in a way that’s direct without requesting any proof of the validity of these commitments. Fault proofs are requested when a state commitment is challenged. If it’s challenged successfully, it would be then removed and eventually replaced by another one.

This document provides a more in-depth and technical explanation of the terms and overall process described above. 

How to Bridge Assets Between Layers

With layer-two scaling solutions such as Optimism, being able to swap assets between different layers is obviously of paramount importance.

There are multiple ways you can go about it. First and foremost, you can hop on the official website and use the bridge provided there. This would only require you to have a Web3 wallet such as MetaMask.

From there, you have to select the network that you want to bridge tokens from. This is the supported list:

There are also options to bridge from centralized exchanges, but it’s critical to note that these happen through providers that Optimism has simply linked to – meaning there’s no endorsement, and you should proceed with caution and after making thorough due diligence.

From there, the process is particularly simple, as all you need to do is confirm the amount and sign the transaction in your wallet.

To bridge assets from Optimism, there are a couple of options. You can use a third-party bridge or use the official bridge instead. The following is an example of the latter, but keep in mind that bridging from Optimism to Ethereum takes seven days.

All you need to do is click the arrow in between the value boxes, and this will switch the above transaction. If you haven’t added Optimism to MetaMask, this will also handle it for you. From there, you only have to confirm the amount and sign the transaction:

Governance: Optimism’s Model

The native cryptocurrency of the Optimism ecosystem is the OP token.

Optimism is governed by the so-called Optimism Collective. According to the official website, the collective is:

“… a band of companies, communities, and citizens working together to reward public goods and build a sustainable future for Ethereum.”

That said, the governance of the Optimism Collective itself will consist of two separate houses: The Token House and the Citizens’ House. Let’s break it down.

The Token House

The launch of the OP token and the Token House set forth the beginning of the governance of Optimism. OP itself was distributed to hundreds of thousands of addresses, who engaged in community-oriented behavior through the first airdrop (more on that later.)

In any case, members of the Token House are responsible for deliberating, submitting, and voting on various proposals. To do so, OP holders can either vote directly o choose to delegate their voting power to a third party.

In essence, the Token House votes on proposals of the following types:

• Protocol u grades
• Inflation adjustment
• Treasury appropriations
• Rights protection
• Governance fund grants

The Citizens’ House

At its core, the Citizens’ house is an experimental attempt at a non-plutocratic governance model. It is responsible for retroactive public goods funding.

The above brings us to our next point, which is the OP token.

Introducing the OP Token

The OP token was launched through an airdrop which distributed a total of 5% of the total supply.

That said, qualifying users included:

• DAO voters
• Multi-Sig signers
• Repeat Optimism users
• Gitrcoin donors

If you suspect you are eligible, you can check out any associated wallets on the official claim page.

Many wonder if there will be a new airdrop, and the short answer is – yes. The team has made it clear that it plans to allocate a total of 19% of the supply for this purpose. Here’s what the overall tokenomics of OP look like:

For a more complete look at the economics behind the Optimism ecosystem, please make sure to visit the official website.

Conclusion

Optimism has quickly become one of the most popular Ethereum scaling solutions. Most recently, the Optimism Foundation released a proposal to upgrade the Optimism mainnet to Bedrock, which is a new generation of decentralized Rollup architecture developed by Optimism Labs. Speaking on the matter, the team said:

“We are confident that the post-Bedrock experience will be a positive change for developers in the Optimism ecosystem and have received consistent excitement for the upgrade from our partners. We are committed to making this upgrade a success and are eager to see the results in the months and years to come.”

It’s also very interesting to monitor how the different layer-twos fare in the coming years as the battle between optimistic rollups and ZK-rollups continues.