Ethereum researcher Polynya: Why monolithic L1 blockchain is a dead end?

Original author: Polynya
Original editor: Nanfeng, Unitimes

I have never written an article about “Optimistic Rollups vs. ZK-Rollups”. They are both great. My articles are all about opposing the highly inefficient, unscalable, insecure, inresilient monolithic L1 blockchains that we have seen ridiculous allocations of capital to. My sole purpose is to see blockchain scale to global ubiquity in a technologically, economically, and socially sustainable way. Not only are monolithic L1 blockchain networks unsustainable, they will never actually be able to deliver the throughput required — and will be orders of magnitude off the mark. But that is no longer a question — we need modular execution layers & data availability sampling to scale blockchains . This has never been clearer. The sooner we realize this and move to this approach, the better off the blockchain industry will be. Yes, this is just my opinion. As always, please treat this article as an amateur stream-of-consciousness rambling rather than a professional research article.

Monolithic L1 blockchains are (still) extremely inefficient

I started writing about Rollups in 2020 and published a blog post about this time last year when the mainstream narrative was “Cardano/other L1 smart contract platforms are coming and users will migrate from Ethereum to other L1 networks overnight.” The narrative after that was “L2 networks are a temporary stopgap and the only way to scale is L1 networks.” However, even with the most modest testing in late 2021, the narrative of these alternative L1 networks has collapsed at an alarming rate:

Binance Smart Chain (BSC) made its system requirements higher due to state bloat. As a result, nodes started to desync, causing many issues. The problem here is that they specified very low system requirements at the beginning - but they did not inform people that system requirements would increase exponentially with state bloat . Now, they are making reckless network changes without adequate auditing or testing. Of course, switching to Erigon and having multiple chains will provide incremental benefits, but there will always be serious limitations.

Solana made no such mistake, they were very open about very high system requirements from the beginning. Now, I am by no means critical of Solana for its various failures and issues, as much of this is due to it being an early beta product . Bugs and issues due to missing features are always going to be present in beta projects, whether it’s Rollups, dapps, or monolithic L1 networks, and I just hope the developers fix them. But the problem is that over time, as Solana matures, gets tested and bugs are ironed out, and a fee market is implemented, it will need to deliver an incremental throughput at a huge cost in technical and economic sustainability. Solana is inherently unscalable . Optimistic Rollups are a much better solution than Solana, and will mature quickly.

Polygon PoS is arguably the most adopted chain after Ethereum. Now, Polygon PoS is indeed a “commit chain” rather than an alternative L1 chain, but it is still a monolithic chain and is subject to the same inefficiencies as L1 networks . Polygon PoS reached its limits and was affected by spam transactions, raising their minimum gas price. But even after that, there were still many projects sending spam to it, causing the gas price to rise by more than $0.1. To be clear, this is a much better result than Solana or Cardano , where 99% of transactions will fail during congestion and only tiny MEV robots will succeed . It is commendable that unlike other monolithic blockchain projects, the Polygon team has very publicly acknowledged these limitations and invested all their energy into ZK-Rollup - which will actually achieve high scalability. Actions speak louder than words, and the Polygon team’s actions to invest $1 billion in zero-knowledge technology are commendable.

Speaking of Cardano , they are also a very early beta product and, like Solana, must implement a fee market . Cardano's system requirements are still very low. Lately, I've seen a growing interest in Rollups in the Cardano community, which is great to see! However, all of this is in vain until Cardano itself implements data availability sampling.

We’ve seen many other projects fail to live up to their hype. Fees on the Avalanche C-Chain skyrocket whenever blockspace saturates — I mean, that’s a fundamental characteristic of monolithic blockchains . Subnets lead to fragmentation of security or decentralization, and will suffer from the same severe limitations (i.e. skyrocketing fees). As for Avalanche’s “online purging”: we’ll see, but this seems to implement Geth’s “offline purging” and make it prune at a much higher frequency. This could be a great addition to Geth, but it definitely doesn’t solve the fundamental limitations of state bloat . We’ve seen the failure of Harmony, etc. But I also want to highlight these projects that are building scalability solutions for the next generation: data availability sampling from Ethereum, Tezos, Celestia, and Polygon Avail; proofs of validity from Mina and Aleo; and the many Rollups that are out there , and it seems like there’s a new one every week! It’s clear that we’ve entered the era of “modular architectures” — few people are seriously building new monolithic L1 blockchains. In a pinch, “proto-modular” projects like Polkadot and NEAR are mid-term solutions that don’t solve many of the above problems but still maintain sustainability and security. If you don’t care about sustainability and security, then Dfinity/ICP are building interesting stuff.

I also want to make it clear that there is a path forward for monolithic L1 blockchains: upgrading to next-generation technology . For example, Avalanche could implement a "data availability sampling subnet" at the bottom layer that is validated by the entire validator set and introduce a modular execution layer. Unless this is a priority on their roadmap, I will continue to push this narrative until this transition is pervasive across the industry.

Now, not every chain has to be a Rollup or have some form of modular design. There is still a place for sovereign L1 chains in situations where security is not important and when you want to implement some new features that are difficult or impossible to implement in Rollups. Of course, this is largely a niche market, but it is real. The Cosmos ecosystem is doing a good job of this, and Polygon Edge is also building compelling solutions, although I would like to see these chains proven to be valid and IBC (interchain communication) evolve to verify validity proofs. The same is true for "bridges" across L1 blockchains . But even L1 cross-chain bridges that are proven to be perfect in terms of validity, such as the " Mina <> Ethereum bridge " that the =nil; Foundation is building, still need to assume that the more vulnerable chain (i.e. Mina chain) cannot be attacked ; in contrast, Rollups "bridges" can provide complete security guarantees, even if the more vulnerable Rollup chain is attacked, you can still inherit the security of the more powerful chain.

Finally, timing is important to discuss. Currently, Optimistic Rollups are not ready yet, so it still makes sense to use these non-beta monolithic L1 blockchains. It should be noted that both Optimistic Rollups and monolithic L1 chains have different levels of maturity/instability , so you have to evaluate them on a case-by-case basis. But I won’t discuss this in this post, my only interest is how blockchains can scale massively and sustainably in the long term . But Optimistic Rollups are maturing rapidly and have a clear path to becoming a sustainable solution. It only takes engineering work to make it happen - it’s very likely that at least one Optimistic Rollup will be fully decentralized, have data compression, have a highly liquid “bridge”, and scale in a year’s time. Once Optimistic Rollups are ready for prime time, it’s game over for all monolithic L1 blockchain networks.

In the past, I have taken a very long-term view, and therefore, I may have discussed ZK-Rollups from a more positive perspective. I have always believed that ZK-Rollups will be the end game, and that all Optimistic Rollups will either transform into ZK-Rollups or use validity proofs to replace their fraud proof systems. But this may be 3 years away.

The conclusion of the first part of the article above is that monolithic L1 blockchains are a dead end . The evidence on this point is overwhelming, so I want to emphasize this point thoroughly. The following is the second part of this article, which will be mainly centered on Ethereum, because Ethereum is the home of all Rollups innovation and Ethereum has the most ambitious scalability roadmap.

Optimistic Rollups vs. ZK-Rollups

Now, let’s talk about Optimistic Rollups and ZK-Rollups. By the way, I recently learned about Obscuro (a TEE Rollup) and Urbit’s Naive Rollup. The design space of Rollups is a blank canvas, so there can be many types of Rollups! But here, I’m specifically talking about secure Rollups based on fraud proofs (Optimistic Rollups) and validity proofs (ZK-Rollups).

Transaction Fees

Let's start with application-specific Rollups : Clearly, ZK-Rollups are leading in this regard . Solutions such as Loopring and zkSync are popular in the payment field, and their ERC-20 Token transfer fees are around $0.10. At the time of writing, the fixed fee on ZigZag , a decentralized exchange based on ZK-Rollup technology, is $0.28, including gas fees and transaction fees. Meanwhile, the decentralized derivatives exchange dYdX platform has no user-facing gas fees, but we can calculate the platform's transaction fees: on days with high trading volume, they pay $0.08 in gas fees to Ethereum for each transaction; on days with low trading volume, it is around $0.10.

Now, it is very likely that Optimistic Rollup will be able to offer fees in this range - in fact, the ERC-20 transfer fees for Hubble (an L2 network based on Optimistic Rollup), which the Worldcoin project plans to use, are currently below the $0.10 range . Let's move on to smart contract Rollups - why are the current fees on the Optimism and Arbitrum networks so high? At the time of writing, according to Lefees.info, the token exchange fee on Optimism is $0.85, while Arbitrum is $1.35, which is really too high!

The answer is simple: these Optimistic Rollups themselves are not optimized, and most of the early dApps projects deployed on Optimistic Rollups are forked versions of the original projects on Ethereum and are not designed for Optimistic Rollups. Recently, Aave V3, which is optimized specifically for Optimistic Rollups, has successfully reduced fees by about 10 times!

But there are more optimizations to come. Signature aggregation/compression will directly save about 1,000 gas per transaction. Basic compression of calldata can directly save 2.5 times, and more advanced solutions will appear. As Optimistic Rollups and the dApps deployed on them are optimized, transaction fees for Optimistic Rollups will easily reach the range of $0.01-$0.10.

Wait, this is before The Surge phase in the Ethereum development roadmap (i.e., greatly improving the scalability of Rollups through sharding) arrives! If the Ethereum Shanghai hard fork upgrade in late 2022 (which will be the first upgrade after the Ethereum merger) goes well, the first step will most likely be the introduction of " blob-carrying transactions " (a new transaction format proposed by Vitalik), which will reduce the cost of calldata to approximately zero, and Optimistic Rollups will actually become cheaper!

Today, ZK-Rollups have high fixed costs. Currently, ZK-Rollups are cheaper because their call data costs exceed this fixed cost; however, as call data costs become negligible, transaction fees will be completely dominated by the fixed costs of ZK-Rollups. ZK-Rollups are much more expensive to run .

Obviously there are many different proof systems out there with different costs, but a common estimate is $0.01-$0.02 . This would be a minimal cost for ZK-Rollups . However, Optimistic Rollups are free to go even lower if they wish: since 99% of the cost of a full-blown Optimistic Rollup is the cost of calling data, they can access ~5200 TPS of blobspace at negligible cost.

Incidentally, Optimistic Rollups will also be cheaper than Validiums (which keep their data availability off-chain) because this minimum cost also applies to Validiums! I believe zkPorter (which is a Validium) has transaction costs between $0.01-$0.03, and Optimistic Rollups can cost much less than that. Personally, I would not recommend using this for transaction quality reasons, but in this case, Optimistic Rollups will end up with higher "profits" that can be redistributed to stakeholders or used for public goods financing, development, etc.

Eventually, of course, ~5200 TPS will saturate, and if there is significant demand beyond that, call data costs will start to rise again. However, by then, Danksharding will be launched, first scaling this space to 125,000 TPS, and then to millions of TPS over a period of years. (By the way, the “TPS” number is meaningless when discussing Rollups, but it is useful for illustration purposes.) In the long run, call data costs will definitely not be the bottleneck - the bottleneck will be Rollups themselves. To reiterate, the bottleneck will be Rollups themselves, not Ethereum.

Long term, as ZK-Rollups mature and we have ASIC provers, the cost of ZK-Rollups will become negligible . At that point, the advantages of ZK-Rollups — most notably instant withdrawals (no waiting) — will win out. For some use cases with highly compressed state deltas (like dYdX), they will soon be much cheaper than Optimistic Rollups.

Finality

Speaking of which, a common misconception is that Optimistic Rollups have a 7 day finalization period. But in reality, Optimistic Rollups will achieve the same finality as L1 faster than ZK-Rollups. We have seen Optimistic Rollups commit a batch of transactions every 5-10 minutes, so this is the delay. The 7 days is to ensure that this finality is maintained, assuming that at least one entity will maintain this finality. As Optimistic Rollups scale, these transaction batches will be committed more frequently , and when reaching about 20 TPS, Optimistic Rollups can commit every block, at which point the finality of Optimistic Rollups will be equal to that of L1. Since ZK-Rollups have a much higher fixed cost, committing every block will require more activity (>100 PTS) to achieve. However, with this blob transaction EIP (Ethereum Improvement Proposal) proposed by Vitallik, ZK-Rollups can be redesigned to submit some proofs to blobs, so this may not be a problem.

So, what are these 7 days for Optimistic Rollups? Because the challenge period is 7 days, there is one type of transaction that does have a 7-day finalization period, which is withdrawing from Optimistic Rollups to the L1 chain. For some cases, such as cross-chain NFTs, this may be a challenge. However, we have seen many "bridges" launched on Optimistic Rollups, and as Optimistic Rollups mature, activity & liquidity will increase, and this 7-day challenge period will no longer be an issue . The bigger problem is that ZK-Rollups support many new use cases and cross-Rollup activities that are not possible on Optimistic Rollups.

For example, with Danksharding, ZK-Rollups can call L1 synchronously, and I even speculate that if we implement L1 pre-confirmation through crLists, some degree of composability between different ZK-Rollups will be possible! Optimistic Rollups are excluded from these novel and innovative scenarios. Addendum: While Optimistic Rollups can conduct private transactions, ZK-Rollups will be able to conduct such transactions at a much lower cost.

Throughput

Application-specific Rollups are fairly lean and can scale massively. If I remember correctly, StarkEx demonstrated 9,000 - 18,000 TPS back in mid-2020. However, for smart contract Rollups, the situation is more challenging. We've seen that StarkNet is only able to achieve lower throughput than dYdX or Immutable X, and has made throughput optimization a top priority. Because both Optimism and Arbitrum are based on EVM clients, they a) have battle-tested codebases and b) relatively optimized clients. A few days ago, I asked how far the EVM can scale before parallelism is needed, and Alexey Sharp suggested that Erigon can scale to 500M Gas/sec. Therefore, there is a lot of room for optimized EVM-based Optimistic Rollups, and more room can be provided through multi-threaded clients or multiple instances/recursive Rollups.

This is the crux of our argument: because Optimistic Rollups have an honest minority assumption, you can't push the system requirements too tight. To be clear, because this is an honest minority assumption rather than the honest majority assumption of monolithic L1s, Optimistic Rollups can be more secure than any monolithic L1 blockchain. But you still need to have a limit, and this limit needs to be lower than ZK-Rollups by default, because ZK-Rollups can be easily verified with validity proofs.

But there is a solution for Optimistic Rollups - stateless clients . I saw this on the Optimism roadmap, but I can't remember where. With stateless clients, verifying Optimistic Rollups is very easy, and verifying transactions will be very simple with the right tools. In addition, because it is easy to reconstruct the state of the Rollup directly from L1, Rollups are more aggressive than L1 by relying on state expiration. Once statelessness and high-frequency state expiration are achieved, Rollups will have overcome the serious problem of state bloat! In addition, you also have new solutions like Fuel V2, which is parallelized through a system similar to UTXO (Unspent Transaction Output).

That being said, ZK-Rollups remain a more elegant solution to achieve maximum throughput for the network, via recursive validity proofs. It’s very possible that, as StarkNet itself matures, we see application-specific ZK-Rollups built on top of it to achieve massive throughput, and that StarkNet as a whole scales far beyond any Optimistic Rollups. However, the trade-off is atomic composability — unless the wizards of the ZK-Rollups team figure this out soon!

Summarize

Ultimately, it’s all about timelines.

For application-specific chains, ZK-Rollups are already the best solution for most cases . This will be very obvious to anyone who has used dYdX, zkSync, Loopring, or Immutable X. There will be some tradeoffs, but all of them will be finalized by the end of the year (e.g. dYdX V4).

Smart Contracts: Monolithic L1 chains have another year to stay relevant. The writing is on the wall for these monolithic L1 chains, and there is no other way but to urgently move to using fraud proofs, validity proofs, and DA (data availability) proofs.

Optimistic Rollups will scale faster than ZK-Rollups . Much of the codebase for Optimistic Rollups is mature, and once sequencing and upgradability are decentralized, Optimistic Rollups will be ready for mass adoption. By the end of 2022, Optimistic Rollups may have gas fees of less than one cent, be fully decentralized, and have essentially the same security and finality as Ethereum L1, with sufficient liquidity for fast withdrawals. And with the implementation of statelessness and state expiry in 2023, Optimistic Rollups will continue to improve.

ZK-Rollups will continue to evolve, mature, and be tested, optimizing proving times, moving to GPU provers, and eventually ASIC provers. Their novel virtual machines and sequencer nodes will also mature and scale over time. By the end of 2023, I expect ZK-Rollups to catch up and replace Optimistic Rollups. But Optimistic Rollups will continue to be useful until 2024/25, by which time I expect most Optimistic Rollupsor will be ZK-Rollups, or at least replace their fraud proof systems with proofs of validity.

I have said many times that my time frame is 5-10 years. But Rollups and DAS (Data Availability Sampling) are advancing so rapidly that I now believe the end is nigh and will happen within 5 years.

Thanks to Reddit user u/proof_of_lake for proofreading.