Ethereum, the world's biggest smart contract platform, promised a decentralized future, but it faced a critical challenge in each previous market cycle: handling the demands of widespread adoption without becoming slow and prohibitively expensive. The limitations were first dramatically exposed in 2017 by CryptoKitties, a seemingly simple game where users bred and traded digital NFT kittens. This popular application clogged the Ethereum network, demonstrating that even relatively low transaction volumes could cause severe congestion.

This issue resurfaced on a larger scale in 2020 and 2021. Increased activity from Decentralized Finance (DeFi) applications and Non-Fungible Tokens (NFTs) pushed gas fees even higher, leading many users to explore less expensive options on other blockchain networks. These instances highlighted that there was a pressing requirement for scaling solutions for Ethereum, and that rollups were the best possible solution.

The Rise and Fall of Alternative L1s

High fees and slow transaction times on Ethereum led many users to explore alternative Layer 1 blockchains (separate, independent blockchains) such as Solana, Harmony, Terra, and Fantom. While some, like Solana, have achieved significant success by prioritizing speed and low costs, others like Harmony and Terra, initially attracted users with promises of lower costs and faster processing. For a time, this strategy seemed to work, with a considerable portion of Ethereum's user base migrating. Recent information, however, indicates a reversal of this outflow for many of these L1s. Key performance indicators on these alternative L1s, including Total Value Locked (TVL), gas fees, and transaction volume, have dropped considerably from their highest points.

This shift back towards Ethereum reflects the difficulties and potential dangers of moving to newer, less-tested blockchains. The Harmony network, for instance, suffered a major blow when its Horizon Bridge was hacked, causing substantial financial losses and eroding user confidence. This exposed weaknesses in the security of some alternative L1s, especially concerning cross-chain communication. The collapse of the Terra ecosystem, caused by the failure of its UST stablecoin, similarly demonstrated the instability that can be present in newer blockchain projects. 

These events served as a reminder of the importance of strong security. Ethereum, on the other hand, has a long history and has proven its security through extensive use and testing. This has made it a trusted and reliable network. Even Solana, despite its success as an L1, is seeing the development of rollup solutions (such as the "Bullet L2" project) to further enhance its scalability and potentially address congestion issues for high-throughput use cases.

While Ethereum has struggled with scaling, its commitment to security and decentralization has kept users loyal. This, combined with the development of rollups, has led to renewed interest in the Ethereum ecosystem. Rollups offer a way to scale Ethereum securely, inheriting its established security while providing increased transaction speeds and lower costs. They present a better option than moving to less established L1s. The growing popularity of rollups, seen in rising TVL and developer activity, shows a clear move towards this secure and cost-effective scaling method. It demonstrates that users and developers prefer building on Ethereum's solid foundation, rather than taking chances with less proven alternatives.

What Are Rollups?

While alternative L1s provided temporary relief, they didn't address the fundamental problem. A different approach was needed – one that built upon Ethereum's strengths rather than bypassing them. This is where rollups come in.

Rollups are a way to improve Ethereum's transaction throughput and lower costs. They achieve this by handling transactions outside the main Ethereum network, yet still depend on its security. They function by combining numerous transactions into a single, larger transaction which is then submitted to Ethereum.

Consider Ethereum as a worldwide, shared computer. Every action on this computer must be checked by thousands of other computers globally. This process makes Ethereum secure, but also slow and costly. Rollups take on much of this processing work off of Ethereum, but keep its foundational security.

How Rollups Work

Rollups make Ethereum more efficient by handling transactions separately, while maintaining its core security features. They gather numerous transactions off the main chain, group them, and compress them. Then, instead of sending every individual transaction to Ethereum, they submit a single, short summary value called a "state root." This state root acts like a cryptographic fingerprint of the entire rollup's state – all the account balances, smart contract data, etc. – after those transactions have been processed. The Ethereum network tracks these state roots, ensuring all rollup changes are verifiable and secure.

Rollups act like independent blockchains that post their actions to another blockchain (in this case, Ethereum). This allows them to benefit from the consensus mechanism and data storage of the main chain. 

Data availability refers to the guarantee that the transaction data underlying a rollup is accessible to anyone who needs to verify the rollup's state. This is crucial for security: if the data were unavailable, it would be impossible to check if the rollup operator was acting honestly.

To ensure the accuracy of state transitions, rollups employ either fraud proofs or validity proofs.

Several elements are involved in rollup operation. To ensure data availability, transaction data, although compressed, is posted to Ethereum. This allows the rollup's condition to be checked by everyone, and the full state of the rollup to be reconstructed if needed. A "sequencer" component manages incoming user transactions quickly, giving users almost immediate confirmation. The sequencer groups transactions, and these groups are compressed to minimize the data stored on Ethereum. The rollup itself keeps a record of account balances and contract conditions, reconstructable from the data made available. Finally, each transaction group includes proof of correct processing.

Caldera’s dashboard demonstrates the current scope: Manta Pacific processes over 130,000 transactions daily, ApeChain over 120,000, and B3 nearly 220,000. In total, Caldera's rollups have handled over 370 million transactions and serve over 10 million distinct wallets.

Real-World Metrics

The numbers clearly show the increasing adoption and use of rollups. The total value locked in rollups, a Layer 2 scaling solution (built on top of Ethereum to improve transaction processing), has exceeded $35 billion USD, representing one-third of the total value across all networks.

In terms of transaction volumes, rollups currently process 13 times the transaction volume of the main Ethereum network.

Types of Rollups

There are two primary kinds of rollups: Optimistic rollups and ZK rollups.

• Optimistic rollups: These rollups used by projects like Arbitrum and Optimism, assume transactions are valid unless challenged. This simplifies their setup, as verification is only needed if a dispute arises. There's a 7-day period for submitting proof of incorrect transactions. While some third-party services offer quicker withdrawals, they come with added trust considerations.

  
  

• ZK Rollups: These rollups use advanced cryptography (zero-knowledge proofs)  to prove the validity of every transaction before it's finalized. This eliminates the challenge period, offering immediate finality, but requires more computational power to generate the proofs. Projects like zkSync and StarkNet are examples of ZK rollups.

The main difference between these two types is their security approach. Optimistic rollups use financial incentives and fraud proofs, allowing time for participants to find and dispute questionable actions. ZK rollups rely on mathematics for security; the cryptographic proofs ensure that only correct state changes can happen. This core difference affects how each type manages communication and asset transfers between chains, while keeping the security of the Ethereum network.

Technical Benefits of Rollups

For users, rollups translate to a dramatically improved experience. Transaction fees are typically 10-100 times lower compared to transacting directly on Ethereum (e.g., a typical token swap on Ethereum might cost $5-$20 in gas fees, while the same transaction on a rollup could cost $0.05-$0.20). Transactions also confirm much faster – often in seconds, rather than minutes or even hours during peak congestion. This makes blockchain applications significantly more usable and accessible for the end user.

This improved user experience directly benefits developers. The increased transaction capacity and lower costs provided by both Optimistic and ZK rollups enable the creation of applications that would be impractical on Ethereum directly, such as high-frequency trading platforms, complex DeFi protocols, and interactive blockchain-based games.

Developers can also move existing Ethereum applications to rollups with minimal code changes, thanks to their compatibility with the Ethereum Virtual Machine (EVM). This scalability doesn't come at the expense of security. By posting compressed transaction data to Ethereum, rollups inherit the same security guarantees that protect billions of dollars in value on the main network. This means developers can build with confidence that their applications are secure, and users can trust their assets and transactions are protected.

Rollups also offer a fundamentally more sustainable economic model. Unlike many Layer 1 networks that rely on token inflation (the continuous creation of new tokens, which can devalue existing ones and isn't sustainable long-term) to fund security, rollups can operate profitably from transaction fees alone. The largest rollups are already generating substantial revenue, demonstrating the viability of this model.

Rollup Platforms

Rollups represent the most effective path to scaling Ethereum, not just for today, but for the future. They allow applications to achieve the transaction throughput needed to attract a large user base, and position those projects for potential value accrual tied to network activity, all while inheriting the robust security of Ethereum.

Caldera is currently the premier platform for launching and managing high-performance, customizable rollups. Unlike generic solutions, Caldera offers extensive customization, letting developers fine-tune every aspect of their rollup, from transaction fee structures to data availability options. This is all achieved with a streamlined, one-click deployment process. 

Importantly, Caldera rollups are designed for interoperability. Consider a scenario where multiple applications – a decentralized exchange, a gaming platform, and a social media app – are all deployed as separate Caldera rollups. Through the Metalayer, these applications can seamlessly interact, allowing users to, for example, transfer assets from the exchange to the game or use their social media reputation within the DeFi protocol. This level of interconnectedness fosters a vibrant ecosystem and reduces operational overhead. If you're building a high-throughput application and aim to take advantage of the expanding Ethereum ecosystem, Caldera provides the tools and infrastructure to launch a dedicated rollup.

About Caldera

Caldera is one of the fastest-growing rollup ecosystems on Ethereum, empowering web3 teams to launch high-performance, customizable, application-specific rollups. Dozens of leading EVM chains, including Manta, Apechain, Kinto, Injective, RARI Chain and Zero Network by Zerion, use our trusted Rollup-as-a-Service platform to enjoy unified connectivity with rollups across all leading frameworks.

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