Optimistic Rollup

Optimistic Rollup is a Layer 2 scaling solution for Ethereum that aims to increase the network’s transactional capacity while maintaining a high level of security.

Here is how Optimistic Rollup works:

1. Transactions Grouping: Transactions are grouped together into a single batch by a Node, which is then submitted to the Ethereum blockchain.
2. Execution Off-chain: Instead of each transaction being processed individually on-chain (which is the case for Layer 1), they are executed off-chain in this batch format. This reduces the computational load on the main Ethereum chain and increases its transactional throughput.
3. Assuming Validity: The system assumes that all the transactions in a rollup are valid (hence “optimistic”) and only a summary of the transaction data is posted to the Ethereum main chain.
4. Fraud Proofs: If someone submits an invalid transaction or state transition, anyone can challenge it by submitting a “fraud proof” to the Ethereum main chain. If the challenge is successful, the original transaction is rolled back and the person who submitted the invalid transaction is penalized. Conversely, the challenger is rewarded.

The major advantage of Optimistic Rollups is scalability – they allow Ethereum to process many more transactions per second than it could on its own. This significantly reduces fees and makes the Ethereum network more usable for a wider range of applications.

However, this technique does introduce some complexity and potential drawbacks. The main one being that if a user wants to withdraw their funds immediately after a transaction, they must wait for a challenge period (often one week) to ensure no fraud proof is submitted against that transaction. This can be a usability issue for some applications.