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Cryptocurrencies: why you should know about rollups

Daniel Augot
Research Director at Inria and Co-head of the Blockchain Chair
Key takeaways
  • The “rollup” uses a cryptographic technique known as the Merkle tree: in a single transaction, it can be used to initiate and confirm thousands more.
  • However, this technique cannot work on all cryptocurrencies, such as Ethereum, which does not accept more than 12 transactions per second.
  • This limit on usage drives up costs and makes this type of Blockchain less attractive.
  • Automating transaction systems does, however, raise security issues: it is necessary to ensure that the operator of the rollups is regulated.
  • The aim is to reduce the amount of information per transaction and to push the proof of validity as far as possible towards cryptographic mechanisms.

The world of blockchain and cryp­toas­sets have seen bet­ter days. Indeed, we only need to look at the resound­ing col­lapse of the FTX exchange or the recent Ethereum update – the largest in the young his­to­ry of the cryp­tocur­ren­cy – to under­stand this. Nev­er­the­less, even if this news gets a lot of atten­tion, oth­er devel­op­ments are under­way in the cryp­toas­set world… More dis­creet cer­tain­ly, but no less influ­en­tial in the long run. Among them are rollups: a new tech­nique that researchers iden­ti­fy as being deci­sive for the future of cryptocurrency.

Back to basics 

To bet­ter under­stand the impor­tance of these tech­niques, let’s remem­ber that the blockchain is an inde­struc­tible sys­tem of records that any­one can con­sult at will. More­over, any­one can write on it, which makes the blockchain a con­stant­ly evolv­ing sys­tem. How­ev­er, it would ben­e­fit from becom­ing faster, cheap­er, and more envi­ron­men­tal­ly friend­ly, which is one of the promis­es of future trans­for­ma­tions in this sec­tor. Espe­cial­ly since these improve­ments are becom­ing increas­ing­ly urgent as blockchain is becom­ing more wide­spread across all sec­tors: sports, com­merce, and culture.

How­ev­er, it is not as sim­ple as it may seem due to many obsta­cles, main­ly due to the fact that these promis­ing devel­op­ments must pre­serve the three pil­lars of the blockchain: secu­ri­ty (the net­work must be able to val­i­date the authen­tic­i­ty of trans­ac­tions); decen­tral­i­sa­tion (it must be suf­fi­cient­ly autonomous so as not to be sub­ject to a cen­tral body); and scal­a­bil­i­ty (i.e. its capac­i­ty to process a giv­en num­ber of trans­ac­tions). This scal­a­bil­i­ty is the key­stone of cur­rent research, par­tic­u­lar­ly in cryp­tog­ra­phy. For exam­ple, Bit­coin can only process sev­en trans­ac­tions per sec­ond, com­pared with 24,000 for the VISA sys­tem. It is there­fore under­stand­able that the sim­ple val­i­da­tion of a banal pur­chase can become a dif­fi­cul­ty in the event of mas­sive trans­ac­tions on the network.

To meet these chal­lenges in part, two impor­tant con­cepts have become estab­lished in the field of cryp­tocur­ren­cies: rollup and zero knowl­edge.

What is a rollup? 

The rollup mech­a­nism uses a cryp­to­graph­ic tech­nique called a Merkle tree (or hash tree). The hash trans­forms any input – a text or an image, for exam­ple – into a string of bytes of fixed length and struc­ture. In a sin­gle short trans­ac­tion, this Merkle tree makes it pos­si­ble to com­mit and con­firm not one, but thou­sands of trans­ac­tions with it, some­thing that was not pos­si­ble before.

Merkle Tree, (CC0 : Aza­ghal).

To bet­ter under­stand the impor­tance of the rollup, we need anoth­er essen­tial notion: the block head­er. This block, the one present in the term Blockchain, refers to those links where suc­ces­sive trans­ac­tions between users are stored chrono­log­i­cal­ly since the cre­ation of the blockchain, each of the blocks and their sequence being pro­tect­ed against any modification.

The case of Bitcoin

Even with­in the best-known cryp­tocur­ren­cy, Bit­coin, there is a notion of a block head­er and block con­tent. This head­er con­tains only the root of the Merkle tree, while the block con­tains all trans­ac­tions. This mech­a­nism makes it pos­si­ble, for exam­ple, to design light­weight appli­ca­tions to man­age cryp­toas­sets on smart­phones. These appli­ca­tion pro­grams only use the block head­ers when pay­ing with bit­coins, for exam­ple, because they only weigh a few megabytes each, and do not embed the entire blockchain, which would be tech­ni­cal­ly impos­si­ble to manage. 

It is pos­si­ble to approve thou­sands of trans­ac­tions that can then be ver­i­fied as hav­ing been ini­ti­at­ed. And all at low cost.

These head­ers are gen­er­at­ed by cryp­to­graph­ic hash­ing and val­i­dat­ed by what is called a Proof of Work. This is the main con­sen­sus mech­a­nism of blockchains. The rollup mech­a­nism offers the same secu­ri­ty as Bit­coin’s Proof of Work but, in real­i­ty, the user is only deal­ing with head­ers and does not see the entire­ty of the trans­ac­tions con­tained in the Merkle trees. Here, with very lit­tle infor­ma­tion, it is pos­si­ble to approve thou­sands of trans­ac­tions that can then be ver­i­fied as hav­ing been ini­ti­at­ed. And all this at low cost.

The case of Ethereum

This notion of rollup can be found on oth­er blockchains that include an oper­a­tor: the famous smart con­tracts, and first and fore­most Ethereum. This cryp­tocur­ren­cy is expe­ri­enc­ing an ever-increas­ing demand from users. As a result, trans­ac­tion speeds are falling, while trans­ac­tion fees are ris­ing inexorably. 

With­in Ethereum, smart con­tracts are pro­grams stored in the blockchain that are auto­mat­i­cal­ly acti­vat­ed by each trans­ac­tion. They guar­an­tee the integri­ty, valid­i­ty, and invi­o­la­bil­i­ty of trans­ac­tions, if and only if all the con­di­tions are met. The whole process is auto­mat­ed. How­ev­er, these smart con­tracts, which are exe­cut­ed with each trans­ac­tion, also slow down the val­i­da­tion system.

In a sin­gle oper­a­tion, 1,000 or 10,000 trans­ac­tions can be car­ried out. Today, Ethereum only accepts 12 trans­ac­tions per second.

The idea of inte­grat­ing rollups into Ethereum is based on the same idea as Bit­coin: free­ing up band­width. The rollup oper­a­tor, which is actu­al­ly out­side the blockchain, reg­u­lar­ly updates the root of the Merkle tree in a sin­gle trans­ac­tion filed on the main blockchain. 

This cryp­to­graph­ic mech­a­nism makes it pos­si­ble, with very lit­tle infor­ma­tion, to pro­vide evi­dence lat­er that trans­ac­tions have been car­ried out, to prove their exis­tence in the future. In a sin­gle oper­a­tion, 1,000 or 10,000 trans­ac­tions can be car­ried out. How­ev­er, Ethereum cur­rent­ly accepts only 12 trans­ac­tions per sec­ond, which caus­es trans­ac­tion costs to soar and makes this blockchain less and less attractive.

A question of security

The major chal­lenge raised by this mech­a­nism is secu­ri­ty, as it is nec­es­sary to ensure that the rollup oper­a­tor does not make a mess of things. This process allows him to place a hash on the blockchain that does not imme­di­ate­ly val­i­date a pend­ing trans­ac­tion. The blockchain must be able to cer­ti­fy the hash. Two philoso­phies emerge from this. On the one hand, there are the so-called opti­mistic rollups and on the oth­er hand, the rollups that are some­what inap­pro­pri­ate­ly called zero knowl­edge (ZK) rollups.

Opti­mistic rollups are proofs of fraud issued by agents, usu­al­ly pro­grams, that observe the blockchain and users’ trans­ac­tions. If the hash placed by an oper­a­tor is fraud­u­lent with respect to the appli­ca­tion rules, the oper­a­tor is pun­ished, and the observ­er is reward­ed. All this hap­pens over a long time-win­dow of sev­er­al days. This off-chain process is called opti­mistic because all that is hoped for is that this warn­ing mech­a­nism does not get triggered. 

The oth­er fam­i­ly, ZK rollups, works dif­fer­ent­ly. Every time the rollup oper­a­tor places the root of the Merkle tree on the blockchain, it also deposits proof, in the cryp­to­graph­ic sense, that every­thing is cor­rect. This process uses a major con­cept in cryp­tog­ra­phy called SNARK, which proves that a cal­cu­la­tion has been car­ried out cor­rect­ly. Above all, this proof is very short even if the cal­cu­la­tion is very long. If the cal­cu­la­tion involves 100 mil­lion oper­a­tions, it weighs only a few hun­dred bytes at most. This is a bit of a miracle. 

These two tech­nolo­gies, opti­mistic rollups and ZK rollups, are based on the same phi­los­o­phy: to reduce the amount of infor­ma­tion per trans­ac­tion and to push the proof of valid­i­ty as far as pos­si­ble towards cryp­to­graph­ic mechanisms.

Jean Zeid 

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