What Are Ethereum Offchain Scaling Solutions?

Ethereum is the most used blockchain protocol as of December 2021. However, as the network is heavily congested, it faces difficulties such as high transactional costs and delayed operations. Meanwhile, alternative blockchain ecosystems continue to grow, making the competition stronger.

At the same time, different projects offer various solutions for scaling the Ethereum network. There are several ways to achieve this, by taking operations out of the main chain. This way, the solutions achieve higher efficiency, requiring lower costs.

Currently, the most popular offchain scaling technologies that projects work on are:

Sidechains
Rollups

They are based on different technical architectures and apply different methods to help Ethereum face challenges.

What Are Sidechains and How Do They Work?

Scaling solutions called sidechains are independent blockchains that are Ethereum-compatible and run in parallel. Sidechains have their own security systems relying on consensus mechanisms and interact with Ethereum through a cross-chain bridge.

These solutions allow easy movement of assets between the chains using smart contracts. While using sidechains, there are two transactions that occur on the main chain, deposits, and withdrawals. The others, such as peer-to-peer payments, NFT mints, and transfers, DeFi lending, and borrowing, and more occur on a sidechain.

Due to Ethereum compatibility, sidechains are able to run many of the same Ethereum-based decentralized applications (dapps).

Sidechains have similarities with other blockchains, that can interoperate with Ethereum. However, unlike other protocols that are created to compete with Ethereum, the purpose of sidechains is to increase the network's capacity. Currently, the most popular Ethereum sidechains are Polygon (previously Matic) and Gnosis Chain (previously xDAI chain)

Polygon uses the Proof of Stake consensus mechanism. It provides speedy and inexpensive transactions and allows developers to launch dapps. The protocol has a native token, MATIC. Polygon in its turn presents various solutions that developers can select from. Among them are Polygon Hermez, Polygon SDK, Polygon Zero, Polygon PoS, and others.

Gnosis Chain also is secured by Proof-of-Stake. It is a stable payment blockchain protocol with two tokens: the stablecoin xDAI which is 1:1 pegged to DAI and the stake token STAKE. Gnosis Chain has a high scalability capacity and its architecture allows transactions at low costs.

What Are Rollups and How Do They Work?

Compared to sidechains, rollups exist on the Ethereum blockchain in the form of smart contracts. They rely on Ethereum and don't have separate consensus methods. These solutions were called "rollups" as they gather transactions into one block. What rollups do is to implement storage and computation off-chain, and send optimized transaction data to Ethereum. Thus, they reduce the congestion of the main blockchain, making it possible to carry out fast transactions at reduced costs.

By processing transactions off the main chain, rollups help to solve scalability issues. Rollups are compatible with Ethereum Virtual Machine (EVM), which means they allow Ethereum developers to migrate their decentralized applications to a new environment.

There are two ways to secure that data inputs are correct. Accordingly, there are two types of rollups: optimistic rollups and zero knowledge (ZK) rollups.

Optimistic Rollups

Having an execution system similar to EVM, Optimistic Rollups allow developers to move to the environment easily. Security in these offchain scaling solutions and their provided data is achieved by the network validators. In the case of

Optimistic rollups, the network assumes submitted results are correct until proven otherwise. Operators and users can dispute data correctness by presenting fraud-proof. A number of leading DeFi projects, such as UniSwap, Synthetix, Curve, 1inch, Aave, Badger, Chainlink already use Optimostic rollups. The two leading projects currently that provide optimistic rollups technology are Arbitrum and Optimism.

Zero-Knowledge (ZK) Rollups

Unlike Optimistic Rollups, ZK solutions require initial proofs that data is correct. Using ZK rollups, Ethereum accepts transactions only when the cryptographic proof gets validated. This type of scaling is entirely based on math and eliminates the need to monitor transactions checking the possibility of fraud. ZK Rollups are considered to be the most secure Ethereum scaling solutions.

The majority of them use cryptographic proof called Zk-SNARK (Zero-Knowledge Succinct Non-Interactive Argument of Knowledge). Among the most popular ZK rollup solutions are zkSync, Starknet, and Polygon Hermez.

What Can Rollups Achieve?

It's important to take into account that Optimistic Rollups, as well as ZK rollups, have their advantages and drawbacks. They are in the early stages of development and the future perspectives of both are quite promising. Currently, Optimistic rollups are easier to use, meanwhile, ZK rollups require complex techniques, and offchain computation costs can be expensive. On the other hand, zero-knowledge solutions can allow lower gas costs as data only needs to be verified, without additional processes.

Ethereum founder Vitalik Buterin sees rollups as long term solution for the network. In his paper "An Incomplete Guide to Rollups" he says rollups are projected to be the key scalability solution for the network for the future. According to Biterin, rollups can improve the speed of transactions by 23X, making it surpass 1000-4000.

Wrapping Up

Ethereum and blockchain technology continue to progress with the booming industries of DeFi, NFTs, decentralized media, and other use cases. The Ethereum ecosystem has played a central role in the blockchain industry, making industry development possible. It offers benefits such as high security, robust technical architecture, and a wide range of development tools. By switching from Proof-of-Work to Proof-of-Stake, working on scalability issues, and other improvements, Ethereum is expected to present exciting news in the future.