Ethereum Rollups : Why are they needed?

In this post, I'll attempt to offer a more digestible overview of Ethereum rollups - I know there are plenty of oversimplifications on the internet, but I believe many people are sleeping on the revolutionary nature of rollups and I'll try to explain in a simple way why this is where most blockchain activity will live in the near and distant future, and why I am bullish on it.

For a comprehensive technical guide on rollups, I highly recommend reading: An incomplete guide to rollups by Vitalik Buterin

Broadly speaking, traditional blockchains breaks down into:

1. Execution layer: This is where transactions are processed.
2. Data layer: This is where block data is stored for posterity.
3. Consensus layer: This is where the blockchain comes to consensus.

Today, all blockchains have to do all three, which leads to significant inefficiencies. For example, Ethereum and Bitcoin have strong consensus layers several orders of magnitude, more decentralized and secure than any other blockchain. However, their execution and data layers are also strongly bottlenecked by the consensus layer, thus leading to very limited throughput.

Conversely, a blockchain Solana have very strong execution and data layers and offer high transaction per second, but to achieve this they have very weak consensus layers that'll always tend towards centralization. There are, of course, differing compromises to the trilemma for different blockchains - it's a spectrum. But only Bitcoin and Ethereum lie towards the extreme end of massive decentralization and high security.

What if a blockchain could split up duties and get the best of all worlds? This is where rollups are revolutionary.

Think of rollups as a new type of blockchain which divides up work leveraging the strengths of two (or more) different chains. A rollup has its own execution layer to process high TPS, uses the consensus layer of a different chain with a strong consensus layer, and splits up data layer between itself and the different chain. The net result is for the first time ever we get a blockchain experience with high TPS but is also complemented by high security and decentralization.

A simple example is how Apple designs their products but contracts manufacturing to Foxconn because they simply do it better and cheaper? Likewise, rollups do what they do best - fast execution layers; while contracting a portion of data and all of consensus to a different chain that does it better than they ever could.

Currently, Ethereum offers by far the most secure and decentralized consensus layer that can support this construction.

Multi-chain ecosystems - this refers to the general concept of "scaling out" by having different applications live on different chains and using cross-chain-communication protocols to talk between them. This is decentralized and scalable, but it is not secure.

Sharding is a technique that gets you all three. A sharded blockchain is:

Scalable: it can process far more transactions than a single node

Decentralized: it can survive entirely on consumer laptops, with no dependency on "supernodes" whatsoever

Secure: an attacker can't target a small part of the system with a small amount of resources; they can only try to dominate and attack the whole thing.

The key rollups to look out for are Optimism, Arbitrum, dYdX and Polygon - all plan to offer generalized, programmable rollups. All offering thousands of TPS with gas fees so low that they are subsidized by most of these rollups to be effectively zero gas for the end user. There are, of course, significant differences between these rollups, but that's for another post.