Optimism: Scaling Ethereum with Optimistic Rollups (and a Focus on Public Goods)

Optimism is a leading Layer 2 scaling solution for Ethereum, designed to make transactions faster, cheaper, and more accessible. Like Arbitrum, it uses Optimistic Rollups to achieve scalability while inheriting the security of Ethereum. However, Optimism distinguishes itself with its strong commitment to funding public goods and fostering a collaborative, community-driven ecosystem. This article will explore what Optimism is, how it works, its key features, its unique approach to funding public goods, and its role in the broader Ethereum landscape.

What is Optimism? A Layer 2 for a More Optimistic Ethereum

Optimism, often referred to as Optimism PBC (Public Benefit Corporation), is a Layer 2 scaling solution built on top of Ethereum (Layer 1). Its primary goal is to address Ethereum’s scalability challenges, specifically the high gas fees and limited transaction throughput that can hinder the user experience, particularly during periods of high network activity.

Optimism achieves this by utilizing Optimistic Rollups, a technology that processes transactions off-chain (off the main Ethereum blockchain) and then periodically submits a summary of those transactions to Ethereum. This off-chain processing drastically reduces the computational and data storage burden on the Ethereum mainnet, enabling significantly higher transaction speeds and lower costs.

How Optimism Works: The Mechanics of Optimistic Rollups

The core technology behind Optimism is Optimistic Rollups. Here’s a simplified breakdown of the process:

1. Transaction Submission: Users submit transactions to the Optimism network.
2. Off-Chain Execution: An Optimism sequencer (a specialized node) receives and executes these transactions in a separate, off-chain environment. This environment is designed to be highly compatible with the Ethereum Virtual Machine (EVM).
3. Batching and Compression: The sequencer groups multiple transactions together into a “rollup block” and compresses the data to minimize the footprint on Layer 1.
4. Submission to Ethereum: The sequencer periodically submits the rollup block (or a compressed summary) and a state root (a cryptographic hash representing the state of the Optimism chain) to a smart contract on Ethereum.
5. Optimistic Assumption: Like other Optimistic Rollup implementations, Optimism assumes that the transactions processed by the sequencer are valid.
6. Challenge Period: After the rollup block is submitted to Ethereum, a “challenge period” (typically around a week) begins. During this time, anyone can challenge the validity of the block by submitting a “fraud proof” if they believe the sequencer has acted dishonestly.
7. Fraud Proof Resolution: If a fraud proof is submitted, the Optimism smart contract on Ethereum verifies the proof. This involves re-executing the disputed transaction(s) on Layer 1. If the proof is valid, the rollup block is reverted, the sequencer is penalized (losing their staked ETH), and the challenger is rewarded.
8. Finality: If no valid fraud proof is submitted during the challenge period, the rollup block is considered final, and the state changes are permanently recorded on Ethereum.

Key Features of Optimism

Optimism offers several key features that make it an attractive scaling solution:

• EVM Equivalence: Optimism aims for EVM equivalence, meaning it strives to be fully compatible with the Ethereum Virtual Machine (EVM) at the bytecode level. This is a higher level of compatibility than simply being EVM compatible, and it makes it extremely easy for developers to deploy existing Ethereum smart contracts to Optimism without any modifications.
• High Throughput: Optimism significantly increases Ethereum’s transaction throughput, enabling thousands of transactions per second.
• Low Fees: Transaction fees on Optimism are substantially lower than on Ethereum Layer 1.
• Security: Optimism inherits the security of the Ethereum blockchain.
• Developer-Friendly: Optimism provides developers with familiar tools and resources, making it easy to build and deploy dApps.
• Decentralized Sequencer: Although current versions rely on a single Sequencer, there are plans to decentralize.

Optimism’s Unique Focus: Funding Public Goods

Beyond its technical capabilities, Optimism stands out for its commitment to funding public goods. Public goods are things that benefit everyone but are often underfunded because they are non-excludable (people can’t be prevented from using them) and non-rivalrous (one person’s use doesn’t diminish another person’s use). Examples in the digital world include open-source software, educational resources, and core infrastructure.

Optimism addresses this through a mechanism called Retroactive Public Goods Funding (RetroPGF).

Retroactive Public Goods Funding (RetroPGF):

This innovative approach involves the Optimism community (specifically, the Optimism Collective, a DAO) retrospectively rewarding projects and individuals that have provided significant value to the Optimism ecosystem and the broader Ethereum community. The funding comes from a portion of the sequencer’s revenue. This creates a positive feedback loop:

1. Sequencer revenue is generated from transaction fees on Optimism.
2. A portion of this revenue is allocated to RetroPGF.
3. The Optimism Collective votes on how to distribute these funds to projects that have created public goods.
4. This funding incentivizes the development of more public goods, further enriching the ecosystem and attracting more users and developers, which in turn generates more sequencer revenue.

The Optimism Collective: Governance and Community

Optimism is governed by the Optimism Collective, a decentralized autonomous organization (DAO) composed of two houses:

• The Token House: Composed of OP token holders. They vote on protocol upgrades, incentives, and other governance decisions.
• The Citizens’ House: Focused on allocating RetroPGF funding. Membership is based on non-transferable NFTs (“soulbound” tokens).

This two-house structure aims to balance the interests of token holders with the broader goal of funding public goods.

Optimism vs. Arbitrum

Optimism and Arbitrum are both leading Optimistic Rollup solutions for Ethereum. The primary technical difference lies in their fraud-proof mechanisms. Optimism initially used a single-round interactive fraud proof, while Arbitrum uses a multi-round interactive fraud proof. While single-round proofs are conceptually simpler, they can be more expensive to execute on Layer 1. Optimism has been transitioning to a new fault-proof system called “Cannon”. The choice between Optimism and Arbitrum often comes down to specific project needs and preferences.

The Future of Optimism

Optimism is a major player in the effort to scale Ethereum and make decentralized applications more accessible. Its focus on EVM equivalence, its commitment to public goods funding, and its strong community support position it well for continued growth and adoption. The ongoing development of its technology, including improvements to its fraud-proof system and the eventual decentralization of the sequencer, will be crucial for its long-term success.

Conclusion: Optimism – Scaling Ethereum and Funding the Future

Optimism offers a compelling vision for a more scalable and equitable Ethereum ecosystem. By combining the power of Optimistic Rollups with a unique commitment to funding public goods, Optimism is not only making Ethereum faster and cheaper but also fostering a collaborative environment that benefits the entire community. As Layer 2 solutions continue to evolve, Optimism is well-positioned to be a major force in shaping the future of decentralized applications.