Rollups Explained and Highlayer's Optimal Solution

Rollups are a type of layer 2 solution designed to enhance transaction throughput and reduce costs by processing transactions off-chain and then consolidating them into a single batch recorded on-chain. Other layer 2 solutions include plasma, state channels, and sidechains. Rollups however offer the best balance between scalability and extensibility by providing smart contract capabilities while being as censorship resistant as their layer 1 blockchain.

This article explores the mechanism of the two main types of rollups: Optimistic Rollups (ORs) and Zero-Knowledge (ZK) Rollups. We will explore their functionality, advantages, limitations, and how Highlayer addresses the challenges they may pose.

Optimistic Rollups

Optimistic Rollups (ORs) operate on the assumption that all transactions are valid unless proven otherwise. Users submit transactions, which are then processed off-chain by rollup operators. These transactions are batched together and posted on-chain as a summary, with a challenge period during which anyone can contest the validity of the roll-up by submitting a fraud-proof.

This approach significantly reduces the on-chain computation of the underlying blockchain, leading to higher scalability and lower costs. However, the reliance on a challenge period introduces several risks:

• Challenge Period Latency - users must wait for this period to elapse before their transaction is considered final. This introduces latency in transaction finality which can pose issues for time-sensitive applications. 

• Potential for Fraud - malicious actors can exploit the system by submitting fraudulent transactions and hoping that no one challenges them within the set time frame. If this occurs it would undermine the integrity of the roll-up.

• Economic incentives - the security of ORs depends on the economic incentives for participants to monitor and submit fraud proofs. If the incentives are not sufficient, then fewer participants will be willing to challenge invalid transactions, allowing fraudulent activity to go unnoticed.

• Network congestion and costs - submitting fraud proofs incurs costs which may deter participants from monitoring and challenging invalid state transitions. This can lead to a less secure environment. This becomes more problematic at times of network congestion where the challenge process becomes slower and more expensive. Submitting transaction data also congests the L1 network with L2 transactions. 

Examples of Optimistic Rollups are: Arbitrum, Optimism, Base and Blast.

Zero-Knowledge Rollups

ZK-Rollups utilize cryptographic proofs to prove that state transition is the result of valid transactions without relying on a challenge period or fraud proof submissions, unlike ORs. This means finality is reached faster. After users submit transactions, these are processed off-chain by rollup operators. A ZK-proof is generated to attest to the batch's validity and the batch is submitted on the L1 chain for verification of proofs with a L2 network’s smart contract. However, generating these proofs can be computationally intensive, posing scalability challenges and higher operational costs.

The security of ZK-Rollups relies on the roll-up data being submitted to the Layer 1 chain. If data is not adequately available (e.g. due to the security of external data availability solutions like Celestia or Nubit), the integrity of the rollup could be compromised. However, becoming dependent on the layer 1 network for data throughput can impact scalability, due to the limited internet bandwidth of layer 1 operators.

Examples of ZK-Rollups are: Starknet, zkSync, Linea and Scroll.

Highlayer: The Optimal Solution

While OR and ZK-rollups address some of the scalability issues inherent in blockchain technology, they each come with trade-offs. The need for a solution that combines the benefits of both while mitigating their limitations is apparent.

Highlayer’s Sovereign Rollup Architecture

Highlayer’s sovereign rollup architecture, unlike OR and ZK-rollups, has self-evaluation of the smart contract states. This means it does not require a centralized operator to be the source of truth for the smart contract state, as is the case in ORs. This removes the potential for fraud. 

Further, while ZK-rollups have advantages compared to ORs, they require high computational intensity and still necessitate data availability guarantees. This is obtained through a reliance on layer 1, which can pose scalability issues, or a reliance on an external data layer which weakens security assumptions. Highlayer’s SSDAS, on the other hand, provides fast and secure data availability guarantees - this removes the potential for fraud and sudden seeding attacks, while allowing high transaction throughput, scalability and censorship resistance. 

The Main Trade-off of the Sovereign Rollup Architecture

With the use of sovereign rollups, it is not possible to create a native bridge from Layer 1 to Layer 2 networks. In the case of Ethereum, where smart contracts are Turing-complete, Layer 2 networks can utilize this type of bridge. This is a crucial factor for Ethereum’s Layer 2s, as such a bridge enables the trustless transition of liquidity from Ethereum to the Layer 2s.

However, in the case of Bitcoin, where smart contracts are not Turing-complete and the logic is highly limited for security reasons, a native bridge of this kind is not feasible. Consequently, Highlayer opted for a sovereign rollup architecture, which allows for higher throughput, near-instant finality, and negligible costs.

Sequencer Mechanism and Censorship resistance

Highlayer employs a sequencer to aggregate and order transactions quickly. The verification of these transactions remains permissionless, ensuring that the final state is secure and tamper-proof (a concern with the aforementioned rollups). Further, in the event of censorship or failure by the sequencer (e.g. if it gets compromised by malicious actors), transactions can be included through the Bitcoin Network instead, inheriting its censorship-resistant properties.

Conclusion

OR and ZK-rollups were both important advancements in the progress of layer 2 solutions in the scaling of Web3 networks. However, in the era of global scale, several limitations exist, including challenges in scaling efficiency, censorship resistance and the increasing potential for fraud. In our opinion, Web3 networks have deviated from the core philosophy of the Bitcoin network - censorship resistance and decentralization. Highlayer addresses these pain points directly with a suite of technologies to meet the demands of a scalable platform for a Web3 future. 

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