Optimism: Everything to Know

By  Beluga Research August 16, 2023

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Summary

  • Optimism is a layer 2 scalability solution that aims to help Ethereum scale by allowing transactions to be processed privately off-chain
  • It uses Optimistic Rollups to batch transactions and post summaries to Ethereum
  • This allows for faster and cheaper transactions of dapps and decentralized finance protocols
  • Optimism aims to be the most widely used rollup for scaling Ethereum

Overview

Optimism is a layer 2 scalability solution that aims to help Ethereum scale using Optimistic Rollups to allow transactions to be processed privately off-chain. They are then submitted to Ethereum periodically in batches. This increases transaction throughput and reduces costs by settling transactions separately from execution.

Optimism processes numerous transactions by batching and submitting summary states to Ethereum. This allows for thousands or even tens of thousands of transactions per second. Transaction fees are minimized as users only pay for a single transaction to post the batch rather than each transaction. Optimism is fully compatible with Ethereum smart contracts. Developers can easily port existing Ethereum applications to Optimism.

A Brief History

The idea for Optimism was born out of the need to scale Ethereum. Optimism was founded in 2019 by Jinglan Wang, Karl Floersch and Kevin Ho. This group was previously involved in developing Plasma, another L2 scaling solution for Ethereum. The team introduced Optimistic Rollups as a research project in 2019. The team launched the first testnet, Unipig, in collaboration with Uniswap later that year.

In 2020, the team released an EVM-compatible testnet. It allowed developers to deploy existing Ethereum applications on Optimism without any code changes. Optimism launched its first public testnet in 2020, called Optimistic Kovan. The testnet allowed developers and users to interact with the OVM and test its functionality and compatibility. In March 2021, Optimism opened its mainnet to more projects, including Uniswap, Chainlink and MakerDAO. It also announced a $25 million Series A funding round led by a16z. The Optimism team revealed Cannon, the network's next-generation fault-proof system, in March 2022.

On May 31, 2022, Optimism released its native token (OP). It also launched a community platform, Token House. Optimism has been overgrowing since its launch. In January 2022, it processed over $1 billion in transactions. By April 2022, that number had grown to over $5 billion.

What is Optimism?

Optimism is a layer 2 scaling solution for Ethereum that uses optimistic rollups. Optimism is based on optimistic rollups. This layer-two scaling technique bundles many transactions and submits them to the Ethereum mainnet as a single transaction. It stores the entire state and data off-chain. This way, Optimism can reduce the load on the mainnet and increase the scalability and efficiency of the network. Optimism uses the Optimistic Virtual Machine (OVM), a fully compatible replica of the Ethereum Virtual Machine (EVM). The OVM allows smart contracts and dapps to run on Optimism without any modifications. The OVM also supports all the features of Ethereum, such as account abstraction.

Optimism relies on fraud proofs to ensure the security and validity of off-chain transactions. Fraud proofs are a mechanism that allows anyone to challenge any invalid transactions on Optimism. Proof of fraud is provided to the mainnet for this purpose. If a fraud-proof is submitted within a specific period, the mainnet will revert the invalid transaction and penalize the fraudster. The transaction is valid and finalized if no fraud-proof is submitted within the challenge period.

Optimism has a throughput of up to 10,000 transactions per second. It aims to provide interoperability with existing Ethereum infrastructure and tools. Optimism has processed over $10 billion in transactions and has over 100,000 active users. Users can interact with Optimism using wallets like MetaMask, Ledger or Trezor. Users can easily switch between Optimism and Ethereum using bridges like the Optimism Gateway.

Getting Started

  1. Compatible wallet. Install a compatible wallet, such as MetaMask, Ledger or Trezor.
  2. Connect wallet. Connect the wallet to the Optimism network.
  3. Transfer ETH. Transfer some ETH from the Ethereum mainnet to Optimism using Optimism Gateway.
  4. Wait for the transaction. Wait about 20 minutes for the deposit to be confirmed on both networks.
  5. Use Optimism. Users can now use Optimism to interact with various dapps and protocols that support it.

Unique Aspects

  1. Full compatibility with Ethereum. Optimism uses the OVM to enable smart contracts and dapps to run without any modifications. This means developers can use the same languages, tools and frameworks as on Ethereum. This also means users can use the same wallets, interfaces and bridges as on Ethereum.
  2. Instant confirmations. Optimism uses a sequencer. It is a node that batches and orders transactions on Optimism before submitting them to the mainnet. The sequencer provides instant confirmations to users by broadcasting transactions to other nodes on Optimism. This way, users do not have to wait for block confirmations on the mainnet, which can take up to 15 seconds or more.
  3. Minimal withdrawal delays. Optimism uses fast withdrawals. Fast withdrawals enable users to sell withdrawal claims to liquidity providers. These providers will pay them upfront in exchange for receiving funds later. This way, users can receive funds within minutes or hours instead of waiting for a week or more.
  4. Interoperability with other rollups. Optimism supports cross-rollup communication. This allows users to transfer funds and data between different rollup networks, such as Optimism and Arbitrum. Cross-rollup communication works by using bridges, such as Optimism Arbitrum Bridge.

Advantages

  • Lower fees. Optimism reduces gas fees for transactions by moving most of the computation and storage off-chain. It relies on the mainnet for security and finality. This means users can save up to 99% on gas fees compared to Ethereum mainnet.
  • Faster transactions. Optimism increases the transaction speed and throughput using a sequencer. This means users can enjoy instant confirmations and higher scalability. This is compared to the Ethereum mainnet, which can process up to 15 transactions per second or less.
  • Higher usability. Optimism enhances the usability and user experience of Ethereum by providing full compatibility with Ethereum. It also provides minimal withdrawal delays and interoperability with other rollups.
  • Greater security. Optimism ensures the security and validity of off-chain transactions by using fraud proofs. This allows users to trust Optimism as much as users trust the Ethereum mainnet.
  • Higher innovation. Optimism enables innovation on Ethereum by providing a scalable and efficient platform for smart contracts and dapps. Developers can create and deploy more complex and diverse applications on Optimism. Optimism also supports meta-transactions, transactions sponsored by someone other than the sender.

Disadvantages

  • Centralization risks. The Optimism team currently runs the sequencer, which introduces centralization risks, such as censorship, downtime or corruption. The Optimism team plans to decentralize the sequencer by allowing other nodes to participate in sequencing.
  • Withdrawal delays. Optimism uses a challenging period. The challenge period is currently set to one week. Users must wait one week to withdraw funds from Optimism to Ethereum mainnet unless they use fast withdrawals. The challenge period is necessary to ensure security but limits users' liquidity and flexibility.
  • Limited availability. Optimism is currently in the public testnet phase, which means it is not fully launched or open to the public. Only a few projects and users can access Optimism at this stage, such as Uniswap, Synthetix, Chainlink and MakerDAO. The Optimism team plans to launch its public mainnet shortly, allowing any project or user to deploy and use the OVM.
  • Compatibility issues. Optimism uses the OVM. However, minor differences and limitations exist between the OVM and the EVM, such as gas metering, contract size and opcode support. These differences and limitations may cause compatibility issues for some smart contracts and dapps deployed on Optimism.
  • Higher complexity. Optimism increases the complexity and difficulty of developing and using Ethereum. This is due to adding another layer of abstraction and logic to the system. This means that developers have to understand and follow the rules of the OVM and the Optimism network.