Description: What are rollups in crypto, how do they work, what are their benefits and risks, what are their use cases, and what is the future of layer 2 scaling? Find all the details in our article.
With the spreading of projects built on blockchains, the need for faster, cheaper, and more efficient networks has also increased. Even besides privacy issues of the Ethereum network, its infrastructure is jammed up to the neck with high gas fees and network congestion. In response, developers are starting to embrace Layer 2 scaling solutions, with rollups becoming increasingly popular.
Rollups are a technique for bundling multiple transactions into a package that can be processed off-chain, providing an order of magnitude improvement in scalability while still maintaining security. In this article, we’ll cover what are rollups, how does rollup work, and why they seem to be leading the pack when it comes to defining the future of blockchain scalability.
Ethereum’s scaling issues were already evident by the end of 2017, when CryptoKitties took the network by storm. Plus even a slight increase in operating creates unbearable congestion. The problem was exacerbated during the 2020–2021 DeFi and NFT craze, and gas fees skyrocketed to unsustainable levels. Seeking cheaper and faster alternatives, many users moved to new Layer 1 (L1) blockchains such as Solana, Harmony, Terra, and Fantom.
In spite of all difficulties, though, Ethereum maintained the trust of the users from its excellent security and decentralization. Instead of giving up on the network, developers focused on layer-2 scaling technology that would increase throughput and lower costs without compromising the core value proposition of Ethereum. This gave rise to the rollups.
Rollups are Layer 2 scaling solutions that process transactions off-chain and then simply broadcast the compressed data back to Ethereum. This has the result of making the network far less congested and transaction fees dramatically lower, while preserving the security assurances of the Ethereum chain.
You can think of Ethereum as a worldwide computer, where every transaction must be computed by thousands of nodes in the network. Although it brings us great security, it does not allow for fast transmissions. Rollups move most of the computation off-chain and allow Ethereum to simply verify the end results; they are more scalable than what we have, yet without giving up trust.
Rollups are Layer 2 scaling technology that performs transactions off the main Ethereum chain (Layer 1) but posts transaction data or proofs to Layer 1. This enables rollups to retain Ethereum’s high security level, all while dramatically scaling transaction capacity and reducing gas fees.
Rollups tend to balance scaling, decentralization, and security. While L1 trust is maintained by posting the compressed transaction data or cryptographic proofs into Ethereum. Rollups in crypto, unlike sidechains, don’t need to depend upon their own validators, so they are secure.
With rollups being adopted for Ethereum’s roadmap, they are emerging as the ultimate long-term infrastructure for scalable and secure blockchain applications.
| Feature | Rollups | State Channels | Sidechains |
|---|---|---|---|
| Security | Inherits from Ethereum (L1) | Depends on participants | Has its own consensus mechanism |
| Data Availability | On-chain | Off-chain | Off-chain |
| Use Case Suitability | General-purpose (DeFi, NFTs) | High-frequency, low-latency | Custom dApps, gaming |
| Fraud Proofs / Validity Proofs | Yes (ZK or fraud proofs) | No | No |
| Examples | Arbitrum, Optimism, zkSync | Raiden Network | Polygon PoS, Gnosis Chain |
Rollups can be further broken down into optimistic rollups and zk-rollups, but there are other subtle flavors, including validiums and volitions, that present different spectrums of trade-offs regarding data availability, security, and scalability.
This is a straightforward explanation of each:
ZK-rollups (Zero-Knowledge Rollups) leverage validity proofs (such as SNARKs or STARKs) to make cryptographic claims about the correctness of off-chain transactions. Those proofs are submitted to Ethereum to achieve instant finality with no challenge period.
With optimistic rollups, you assume that a given transaction is valid until evidence is presented to the contrary. There is a challenge period within which anyone, upon noticing any malicious campaign, can submit a fraud proof. If no fraud is discovered, the transaction is approved.
Like zk-rollups, Validiums produce validity proofs for transactions that occur off-chain. Although data is not stored on-chain, which somewhat helps in scaling, a degradation in trustlessness is observed.
Volitions employ both approaches to enable the user to opt for on-chain or off-chain data availability for any given transaction. They allow them to strike a balance between security and scale depending on the use case.
| Feature | zk-Rollups | Optimistic Rollups |
|---|---|---|
| Validation Method | Leverage zero-knowledge (ZK) validity proofs to verify validity | Consider transactions valid and give the benefit of the doubt unless fraud proof is being posted by someone |
| Proof Type | Cryptographic (e.g., SNARKs, STARKs) | Game-theoretic |
| User Experience | Fast withdrawals & confirmation | Slow withdrawals (can be solved with liquidity bridging) |
| Security Inheritance | Receives Ethereum security without any delay | Receives security upon expiring of the challenge period |
| Cost Efficiency | Highly effective for long term; a bit complicated initially | Less expensive and easier to initiate early |
| EVM Compatibility | Low, but improving with zkEVMs, e.g., zkSync and Scroll | High (Arbitrum & Optimism are compatible with the EVM) |
| Developer Maturity | Newer, technically complex to build | More mature, ready to port existing dApps |
| Best Use Cases | High-frequency trading, payments, privacy-preserving apps | General-purpose dApps, DeFi, early-stage deployments |
Crypto rollups have a lot to offer for blockchain scalability and efficiency. This construction processes transactions off-chain and occasionally publishes them back to the main chain. This preserves the bandwidth of the main chain, which results in faster transactions, lesser fees, and increased transaction capacity, especially conducive to decentralized applications (dApps). Besides, rollups can improve privacy via zero-knowledge proofs (in zkrollups) and inherit the security of the main chain.
Here is a closer look at those advantages:
Still, at a minimum, rollups are a potent recipe for helping blockchain networks scale up, increase transaction throughput, drive down costs, and bolster the security and privacy toll that’s an absolute must for the future of decentralized applications and the broader blockchain industry.
This Layer-2 scaling technology for blockchains is limited by interoperability, the user experience, potential centralization risk, and developer adoption. Although providing scaling advantages, it is still non-trivial to enable such seamless communication across different rollups, substantially ease the asset bridging between these layers, or even address the security risks of the centralized sequencers.
Here's a more detailed breakdown:
With demand for Ethereum at an all-time high, blockchain rollups have quickly advanced from theoretical technology into practice and are now driving some of the most popular applications on the blockchain. Offering low fees, fast transactions, and Ethereum-level security, rollups are the bedrock of real-world Web3 infrastructure, especially in DeFi, gaming, and NFTs.
DeFi is among the first and largest of the rollup technology adopters. High gas fees on the Ethereum mainnet, in particular, have long proved a prohibitive barrier to entry, particularly for smaller users. Rollups solve this by allowing for high-throughput, low-cost transactions that don’t compromise this trustlessness.
Primary DeFi rollup use cases:
With EIP-4844 (proto-danksharding) on the Ethereum roadmap and even further down the line, full data sharding and layer 2 rollups will become cheaper and more efficient still. This will probably cause even faster adoption in all industries and Ethereum’s Layer 2 ecosystem as the “go-to” place for Web3 innovation.
Rollups improve scalability by moving transactions off-chain, adding new security challenges that must be accommodated. These include the latter’s potential attack vectors in its smart contracts, dependence on sequencers, and data availability issues. Here's a more detailed breakdown:
Overall, though rollup blockchains provide a number of scalability advantages, they introduce new security requirements that must be considered, especially in terms of design, implementation, and long-term monitoring.
The future of blockchain layer 2 rollups is indeed looking rosy; they are surging full-throttle towards global adoption. With fast, low-cost transactions, rollups are expected to continue being an important technology for DeFi and NFT ecosystems not just on Ethereum but on other chains as well.
Just as rollup tech is advancing at lightning speed, we expect a similar development path in financial applications and marketplace infrastructure. They will also become more complex, transacting higher volumes and more complex applications.
It’s not just compliance; interoperability will become enriched as a result, which means a more connected Web3 world. This in turn might result in a “multi-rollup” architecture across Ethereum and other L1s, where a medley of rollup variants, zk-rollup, and optimistic rollup cater to niches such as DeFi, gaming, NFTs, or general-purpose dApps.
Ethereum’s journey to mass adoption was not without significant obstacles, but rollups present an attractive way forward. Rollups are cutting costs, accelerating transactions, and maintaining security, and with that, the next wave of blockchain innovation has arrived.
If you are a developer creating scalable dApps or a user in search of faster and cheaper transactions, rollups are the future.
So, now that we have taken a look at what is a rollup crypto, we can say that it’s time to implement them! They are the most powerful scaling blockchain solution for Ethereum now.
