Briefly describe the principles and current status of Ethereum's second-layer expansion solutions Rollup and Plasma

Finance is the easiest scenario for blockchain to land. In the past year, we have seen various decentralized financial products in the Ethereum ecosystem, many of which have the shadow of traditional financial products, such as decentralized lending, trading, derivatives, etc. Finance pursues efficiency. The Bitcoin network has a transaction processing capacity of 5 transactions per second and Ethereum has a transaction processing capacity of 15 transactions per second. Compared with the Visa network's average of 2,000 transactions and a peak efficiency of tens of thousands, they seem to be products of different eras.

The TPS (transactions per second) of blockchain has largely limited the popularity of blockchain, and thus limited inclusive finance. Recently, a new term called DeFi postmodernism has emerged, but I think the modern era of DeFi has not yet arrived. The popular DeFi in the past six months may only be BC. Limited by TPS, the transaction processing mechanism of the highest bidder makes the Ethereum network expensive and congested during the DeFi boom. When it was most congested, the gas value exceeded 1000 gwei, and it became common for a single transaction to cost tens or hundreds of dollars. Such transaction costs also exclude many people from the door of DeFi.

Faced with the current problem of extremely limited scalability, the Ethereum community and developers have proposed two solutions, Layer2 and sharding (an important upgrade of Eth2). Layer2 literally means the second-layer network. In contrast, the current Ethereum mainnet is also called the first-layer network (Layer1). The second-layer network is a system based on the current Ethereum mainnet.

The Layer2 solution is mainly to reduce the burden on Layer1 and move a large amount of Layer1 computing requirements to Layer2; sharding is from a more basic perspective, increasing the number of Layer1 to achieve the purpose of increasing basic bandwidth. Eth2 is expected to be implemented in 4 phases in total. It is currently in the start-up phase of the Phase 0 deposit contract. The specific information about Eth2 will not be expanded in this article. We will continue to follow up on the latest progress of Eth2. This article will introduce the common solutions and major progress of Layer2.

When DeFi was congested, Layer2 was hyped as one of the saviors to solve the congestion, and the price of related concept tokens also rose all the way. Behind this, how does Layer2 solve the problem of low efficiency in Ethereum transaction processing?

We know that the current Ethereum transaction processing capacity is mainly limited by block size and block time. Block size determines the number of transactions that a single block of the current Ethereum network can accommodate; block time determines that a block can be generated every 12 seconds on average.

There are many mainstream Layer2 solutions at present. This article focuses on Plasma and Rollup. Rollup can be further divided into Optimistic Rollup and ZK Rollup. These solutions solve the problem of limited Ethereum transaction processing capabilities from different angles.

Plasma

Plasma is the first solution in the Ethereum community that attempts to solve network processing problems. It was proposed as early as 2017 and was highly anticipated.

Before introducing Plasma, we need to first understand the concept of "sidechain". Since the Ethereum mainnet is not easy to expand, developers thought of creating an independent blockchain connected to the mainnet, that is, a sidechain, to achieve the expansion of the mainnet by efficiently processing transactions on the sidechain. The potential problem of the sidechain is security. As an independent blockchain, the sidechain needs to have its own miners and build up sufficient computing power to ensure security. Sufficient computing power and miners who do not do evil are a considerable threshold for current blockchains other than Bitcoin and Ethereum.

Unlike side chains, Plasma processes Layer2 transaction data and submits it to Layer1, and adds an exit mechanism for fraudulent proofs. In this way, Layer1 computing power is used to ensure the security of Layer2.

In theory, Plasma can increase Ethereum's TPS to 1-9k. As a result, Plasma has received widespread attention. However, in subsequent development, more practical problems were exposed:

1. It takes too long for users to withdraw funds

2. All users are required to monitor all transactions on the Plasma chain

Later, the development of Plasma stagnated and progressed slowly. However, we have recently observed that some projects have continued to explore and make breakthroughs based on Plasma. The progress of related projects will be introduced below.

Rollup

Rollup is the Layer 2 solution that is currently receiving the most attention and is most likely to be implemented. As mentioned above, the number of transactions that can be included in each block of the Ethereum network is limited, and Rollup improves TPS by bundling and compressing thousands of transactions, and then synchronizing the processed and concise data to the Ethereum main network, solving the problem of limited network transaction processing capacity.

The difference between Rollup and Plasma is that Plasma synchronizes the results of transaction processing to Layer1. We cannot directly upload the data to Layer1 to understand the information of each transaction, while the transaction data synchronized to Layer1 after Rollup compression processing contains the basic information of each transaction.

From the above description, we can also understand that the Rollup solution improves transaction processing capabilities linearly. The more transactions that are packaged and compressed, the larger the packaged data will be. In actual tests, Rollup can increase TPS by 100 times. Under the current Ethereum network (i.e. the first generation of Ethereum), the TPS can reach up to 2k, which is the average processing capacity of Visa; after combining with Eth2's sharding, the theoretical TPS can reach 20k+, which is close to or exceeds the peak level of the Visa network.

Depending on how to ensure the correctness of compressed data, Rollup can be divided into ZK Rollup and Optimistic Rollup.

ZK Rollup

ZK Rollup ensures security through the cryptographic technology of zero-knowledge proof zk-SNARKs. ZK is the abbreviation of zero knowledge.

Zero-knowledge proof: The prover can convince the verifier that a statement is correct without providing any useful information to the verifier.

ZK Rollup = Transaction Compression + Zero-Knowledge Proof (zk-SNARK)

The core idea of ​​ZK Rollup is to reach a transaction consensus off-chain and ensure the security of off-chain transaction status through zero-knowledge proof, while compressing transaction data and finally synchronizing the data to the main chain.

By comparing the following figures, you can more intuitively understand how zero-knowledge proof compresses transaction data:

The purpose of compressing transaction data is achieved by processing the signature information in each transaction with zero-knowledge proof. The current ZK Rollup solution can increase the TPS of the current Ethereum network by 30 times, reaching a processing capacity of about 500 transactions per second.

However, since the process of creating zero-knowledge proofs for smart contracts is long, the current zero-knowledge proof algorithm is not friendly to general smart contracts. The current ZK Rollup solution is more suitable for scenarios such as ordinary transfer transactions.

Optimistic Rollup

Because ZK Rollup cannot support smart contracts well and it takes a long time to generate zero-knowledge proofs, the Optimistic Rollup solution was proposed in June 2019. This solution removes zero-knowledge proofs and adds a penalty mechanism to ensure data security (slightly lower than the ZK Rollup solution) while more conveniently supporting general smart contracts.

The Optimistic Rollup solution uses OVM (Optimistic Virtual Machine), which is a fully functional environment that is basically compatible with EVM (Ethereum Virtual Machine). Through OVM, it is easy to port DApp to Layer2, and it also makes it unnecessary for project parties to deploy various Layer2 expansion solutions. Instead, they only need to connect to OVM to use various Layer2 structures.

Therefore, Optimistic Rollup is currently more suitable for DeFi applications. This solution can increase the TPS to 100, and can be further increased to 500 through BLS signature aggregation technology.

Adoption of each solution

Currently, the main teams based on the Plasma solution are OmiseGo (OMG), whose Plasma MVP has been launched on the mainnet, and Tether (USDT issuer) has confirmed that it will cooperate with it.

Teams based on the ZK Rollup solution include Matter Labs, Hermez, etc. Taking the most widely adopted Matter Labs team as an example, the zkSync developed by it has been launched on the mainnet, and it is expected to launch a universally compatible Solidity code in 2021. Current ecological cooperation projects include Curve, Gitcoin and Balancer.

The team based on the Optimistic Rollup solution is mainly Optimism. The OVM they developed was launched on the test network on September 25, and has reached ecological cooperation with Uniswap, Synthetix and Coinbase Wallet.

Photo by Nick Fewings on Unsplash

What will happen in the future? As one of the most effective ways to solve the scalability problem of Ethereum, Layer2 needs to be continuously optimized and developed. Hopefully, when Layer2 becomes more popular and adopted, it can help the current Ethereum network upgrade from a narrow path to a wide lane, allowing more people to use DeFi products and experience decentralized finance. Later, when Eth2 sharding goes online, we look forward to seeing the Ethereum network grow from ground transportation to a sea, land and air transportation system.

By then, we may truly enter the modern era of DeFi.