Rollups, the main actor of blockchain scalability and data access

Since the inception of DLT (Distributed Ledger Technology), layer1 solutions have been proposed as the foundational layers for the future of the new open economic system provided by blockchain technology. However, cracks in feasibility have begun to appear in major blockchain networks like Ethereum. Network congestion impedes innovation by increasing transaction fees and negatively impacting DApp production on Ethereum. Consequently, scalability issues arise, and layer2 solutions are emerging to safeguard networks like Ethereum from becoming inefficient in the future.

What are layer2 solutions and how will it relieve network congestion?

Important layer2 solutions include rollups, sidechains, state channels, State Rent, and hybrid solutions that incorporate one or more of these layer2 solutions. All of these initiatives aim to reduce the load on layer1 chains. For instance, State Rent requires users to pay rent for all transactional data they store on Layer1. Consequently, only important data is retained, and Layer1 will dispose of unused, unimportant data, thereby mitigating the load on the network.

State channels heavily rely on the security of smart contracts, as they serve as escrows to maintain the correct state between the two transacting parties. Consequently, malicious activity may occur when a user submits an outdated state to the system, potentially rendering transactions mutable instead of maintaining the immutable nature guaranteed by Layer1 blockchain technologies. One prevention method could be to restrict updates to existing smart contracts so that the code cannot be altered. However, this assumes that bugs are not persistent in the employed smart contracts, making it difficult to offer the same security benefits as Layer1.

Sidechains operate their separate blockchain in parallel to the mainnet, making it efficient to process transactions without relying on full nodes of Layer1 to store the transactions made on the sidechain. Sidechains use a technique called SPV (Simple Payment Verification), where validator nodes of Layer1 anchor checkpoints to the mainnet and let smart contracts verify the validity of the checkpoints. This ensures that transactions processed on the sidechain are legitimate and not tampered with.

Rollups, unlike sidechains, still rely on Layer 1 for transaction validity, but they offload transaction processing off-chain, creating a more efficient transactional process. From a security standpoint, rollups rely on the security provided by Layer 1 and do not require their own consensus mechanism or block production. Therefore, rollups leverage the security of the mainnet while being more efficient and feasible for business use cases such as cloud storage solutions, which require not only reliability but also speediness and low-cost structures.

There are two versions of rollups: Optimistic rollups and ZK rollups. Optimistic rollups validate transactions off-chain and only validate transactions on-chain when disputes arise. Additionally, optimistic rollups have a dispute resolution period, giving network users time to rule out fraudulent transactions. In comparison, ZK rollups offer a different philosophy by validating transactions off-chain through mathematical verifiable proofs and only anchoring the bundled data on-chain as a final step to validate the transactions. Consequently, a system is designed where trust is automatically incorporated into every transaction on the Rollup while still reaping all the security benefits the mainnet has to offer and minimizing transaction fees in the process.

Due to the minimization of transaction fees and alleviation of network congestion, rollups present competition with centralized cloud providers such as AWS. Customers using rollups are assured a higher level of trust than any centralized organization could offer, and they receive fair pricing for their digital infrastructure costs. The data availability layer provides clients peace of mind, ensuring data availability 24/7 without being subject to maintenance issues of centralized storage providers. Additionally, rollups can be blockchain-agnostic, allowing implementation across various blockchain ecosystems. This enhances the usability of rollups and establishes data access layers for every blockchain ecosystem, as clients may need to access data stored on different mainchains.

Rollups as the future of Layer2 solutions

Rollups can be utilized for many different business use cases, offering an enhanced version of what virtual machines are to cloud computing. Through rollups, traditional data storage solutions can be transformed to align with the narrative for authenticity and immutable data structures, providing clients with the ability to achieve true data security and a highly reliable cost structure. Blockchains offer much greater security potential than the digital infrastructure where web2 currently operates, and users can verify the execution of transactions themselves on-chain.

Though this does not rule out the feasibility of other Layer 2 solutions, as they also provide a gateway to leverage the security provided by Layer 1 but in a different fashion. Sidechains offer a more global approach to the scalability problem of Layer 1, storing mainnet transactions on the sidechain to minimize congestion. Additionally, sidechains serve as independent blockchain environments, providing a sandbox for experimental testing, fostering alternative token economies, supporting specialized applications, and enabling cross-chain interoperability. These capabilities make sidechains versatile platforms for innovation and ecosystem development within the broader blockchain landscape.