Let’s start with a quick recap about Blockchain, Ethereum and Rollups.
A blockchain is a distributed digital ledger that is decentralized, recording transactions across several computers (nodes) in a visible, secure, and tamper-resistant manner. It is effectively a chain of blocks, each with a list of transactions. It is transparent, secure and utlises the consensus mechanisms like Proof of Work (PoW), Proof of Stake (PoS) to agree on validity of those transactions.
Ethereum is an open-source, decentralized blockchain platform that extends the basic capabilities of a blockchain by enabling the execution of smart contracts. It was proposed by Buterin in 2013 and launched in 2015. Ethereum’s native cryptocurrency is called Ether (ETH).
Layer 1 and Layer 2 Blockchains
Layer 2 blockchains are secondary protocols or networks built on top of existing primary blockchains (referred as Layer 1, such as Ethereum). They aim to enhance the scalability, speed, and efficiency of blockchain networks by processing transactions off-chain or by utilizing alternative consensus mechanisms. to solve problems like high transaction fees, network congestion, and slower transaction confirmation times.
Rollups
Rollups, in the context of blockchain technology, refer to a layer 2 scaling solution designed to improve the scalability and efficiency of blockchain networks.
So, what are these all about?
Picture a scenario of you wanting to write a letter to each of the 5 members of your family. This would involve crafting individual letters for each family member and incurring a separate shipping fee for each letter—a potentially expensive endeavor.
However, to reduce shipping cost and reduce wastage of paper, you decide to consolidate these separate letters into a single envelope. This analogy draws parallels with the concept of optimizing processes in various domains, including the world of technology and blockchain.
A rollup is a form of scaling solution that functions by executing transactions off-chain, outside of Layer 1, while recording transaction data on Layer 1. This approach allows the rollup to expand the network’s capacity while still maintaining security through Ethereum’s consensus mechanism.
In summary, Rollups process and bundle multiple transactions off-chain and then submitting a single aggregated transaction to the main blockchain.