As Bitcoin evolves to meet growing user demands, incorporating rollups is crucial for expanding the network's capabilities and enabling wider adoption. Rollups, which bundle multiple transactions into a single on-chain transaction, address scalability and efficiency concerns in the Bitcoin ecosystem, significantly increasing transaction throughput, reducing congestion, and lowering fees, while preserving the network's security and decentralization.
There are two different types of rollups: sovereign rollups and smart contract rollups. The main difference is that a sovereign rollup is its own layer 1 sidechain, while a smart contract rollup is a layer 2 chain. Currently, sovereign rollups can be implemented on Bitcoin today, while smart contract rollups are still being developed.
A sovereign rollup is an independent layer one blockchain that stores its blocks inside the blocks of another parent blockchain such as Bitcoin or Ethereum. It is important to emphasize that it's a separate layer one blockchain. Sovereign rollups possess several features, including equal double spend resistance and data availability to the parent chain, as they store their blocks within the parent chain's blocks. Additionally, sovereign rollups can independently change their consensus rules, allowing for hard forks without affecting the parent chain. However, this independence means they lack a secure bridge to the parent chain. Some examples of current sovereign rollups on Bitcoin are Rootstock (RSK) and Liquid.
A smart contract rollup is a layer 2 or higher blockchain that stores its blocks inside of another parent blockchain, like a sovereign rollup. However, it also has a secure bridge to its parent blockchain, which is enforced by a smart contract on the parent blockchain. Similar to a sovereign rollup, a smart contract rollup can have a custom execution environment that differs from the parent chain's execution environment. There are two examples of smart contract rollups: optimistic rollups and validity rollups (ZK-rollups). Optimistic rollups rely on the assumption that all transactions are valid unless proven fraudulent. In contrast, validity rollups use zero-knowledge proofs to ensure transaction validity and privacy.
Currently, validity rollups (ZK-rollup) are the most promising solution for scaling Bitcoin. Why?
Validity rollups complement other scaling protocols, such as Lightning or Validia chains, by creating more throughput for transactions on the layer one blockchain. With Lightning, on-chain transactions are required to open a channel, and additional on-chain transactions may be needed to rebalance or settle the channel, as well as close it. Validity rollups can support up to 250,000 transactions per block, allowing for more on-chain transactions to manage Lightning channels or other layer 2 protocols, like Validia chains.
In terms of programmability, validity rollups give developers the ability to experiment with new smart contract languages and applications without changing Bitcoin layer one. For example, one could build new self-custody protocols using vaults or account abstraction on a validity rollup without making any changes to Bitcoin layer one. Similarly, new types of peer-to-peer financial transactions, such as pooled borrowing and lending, or new collective custody models, such as smart organizations, can be built on validity rollups.
Because Validity rollups use zk-SNARKs, they are also more private without affecting the transparency and audibility of the layer one blockchain. A validity rollup that has opt-in end-to-end encryption for Bitcoin transactions would encrypt the sender address, recipient address, transaction assets, and amounts, keeping the details of the transaction private and shielded from public view.
Validity rollups are the type of rollup that is most aligned with Bitcoin values. They are cryptographically secure, trustless, and could have mathematical security assumptions that are no different from the mathematical security assumptions used in Bitcoin, depending on the type of proofs used. This would enable more self-custodial Lightning users without having to increase the block size limit on layer one or make any other invasive layer one changes.
When implementing rollups, it's essential to weigh their benefits and risks. Fortunately, examining rollups on other blockchains can help us understand their workings and impact. While concerns exist that adding this layer may compromise Bitcoin's security and increase fees, studying rollups on Ethereum shows that these fears have not materialized. Compared to the Bitcoin Taproot upgrade, implementing rollups should be simpler since rollups are better understood, and we have real examples to assess their benefits and risks.
Overview of the benefits of rollups on Bitcoin:
Complementary to other scaling protocols: rollups can improve transaction throughput on the layer one blockchain, allowing for more on-chain transactions to manage Lightning channels or other layer 2 protocols like Validium chains and sidechains.
Programmability: Validity rollups provide developers with the opportunity to experiment with new smart contract languages and applications without changing Bitcoin layer one. This flexibility enables the creation of innovative self-custody protocols, peer-to-peer financial transactions, and collective custody models like decentralized autonomous organizations (DAOs).
Enhanced privacy: Transactions on Bitcoin can be made more private by employing advanced blockchain privacy technologies within validity rollups without affecting layer one transparency and audibility.
Scalability: Validity rollups can support up to 250,000 transactions per block, compared to the current maximum of around two to three thousand transactions per block, allowing for more self-custodial Lightning users without increasing the block size limit on layer one.
Security: Rollups maintain the same level of security and decentralization as the parent chain, while also offering additional security features such as equal double spend resistance and data availability to the parent chain.
Lower fees: By bundling multiple transactions into a single on-chain transaction, rollups can significantly reduce transaction fees for users.
Easier implementation: Implementing rollups is expected to be less complex and easier compared to other Bitcoin upgrades, such as the Taproot upgrade.
In summary, by bundling transactions and increasing throughput, rollups offer a way for Bitcoin to scale to gain adoption and more use cases. Validity rollups, in particular, are the most aligned with Bitcoin values. In the next Rollup article I will dive deeper into Validity rollups.
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