Thread by @0xRafi

1/ As the @optimismPBC team has dropped news that their mainnet launch has been brought forward, I thought it would be useful to go through what the Optimism ETH Layer 2 solution is, how it works, and what it means for #Ethereum...

2/ The reason for all the excitement is that L2 solutions such as Optimism will help increase Ethereum’s throughput (tx per second), decrease latency (how long a tx takes to be confirmed) and greatly reduce gas fees. All without losing the security of the Ethereum mainnet.

3/ This is the main difference between “side-chain only” solutions (such as @0xPolygon or @xdaichain) and actual Layer 2 solutions. Side-chain solutions have their own consensus mechanism and security, and do not benefit from ETH's Layer 1 security, while L2 solutions do.

4/ So with @optimismPBC what happens is that when a tx is received on the Ethereum mainnet (or L1) the transaction data is stored in L1, but the smart contract computation is processed on a child chain (or L2) and the results of this computation are then sent back to L1.

5/ Since this computation is the most slow and expensive part of a tx, this greatly reduces the demands on the ETH L1, thereby increasing throughput and decreasing fees.
L1 only receives an input, sends it to L2, and receives back the result, with the hard work happening on L2

6/ While there are different existing L2 solutions, Optimism is a “generalised” solution, meaning that any L1 Solidity smart contract (so any existing L1 app) can work on Optimism’s L2 without the need for any additional functionality to be built.

7/ The two main building blocks that allow this to work are Optimistic Rollups and the Optimistic Virtual Machine (OVM).

Rollups are the L1 smart contracts that receive the tx data, send it to L2 and receive the results back.
But the interesting part happens in L2.

8/ On L2, transactions are submitted to a Sequencer (basically an L2 miner) who will immediately respond with a signed receipt guaranteeing execution and ordering of the tx. And what if the sequencer is malicious and doesn’t process the transaction correctly or front-runs it?

9/ In this case the user can present the signed receipt to an adjudicator contract on L1, and if it’s confirmed the Sequencer didn’t fulfill its commitment, the Sequencer is slashed (they lose the funds they have staked). So L2 basically works as a small proof of stake system.

10/ But all this can only work if in case of a dispute, the adjudicator contract on L1 is able to run the computation exactly as if it was on L2, and obtain the exact same results. And that’s where the Optimistic Virtual Machine, or OVM comes in.

11/ The OVM is basically an L2 “adaptor” for L1, ensuring the L1 Ethereum Virtual Machine (EVM) can run L2 computations as if it was on L2. This ensures that any computation made on L2 is verifiable on L1 if needed. And the “if needed” part is also important.

12/ This is actually the reason for the “Optimistic” name. The system “optimistically” assumes that all computations done on L2 are correct, unless disputed. And if they are disputed, the L1 judge comes in to re-run the computations on the Ethereum mainnet and check the results.

13/ To incentivise users to act as “watch towers” and verify computation results, anyone that spots dishonest behavior and disputes it, earns part of the slashed funds from the malicious Sequencer. Even if you are not verifying all your txs, other people will be doing it for you!

14/ The cool part is that once enough Ethereum apps are running on Optimism’s L2, most users will be able to stay on L2 for most of the time, without ever needing to come back to L1 except in case of dispute resolutions, or rare cases where a withdraw would be needed.

15/ And while you may think that this would render the Ethereum L1 useless, the reality is that it will more likely open the door for the Ethereum ecosystem to support new higher throughput applications that couldn’t even be dreamed of with the current network capacity.

16/ Another cool aspect of Optimism is that it has “account abstraction”, meaning every account is a “contract” account that can be changed, so all kinds of conditions for txs can be implemented such as multisig, other ways of paying for gas, etc.

17/ So what’s the status of Optimism adoption today? For starters, @synthetix_io is now running it on private mainnet, and once implementation is completed, Synthetix plans to fully transfer its staking and minting activities to L2, while keeping exchanges live in both L1 &L2

18/@Uniswap ran a gamified proof of concept (Unipig) using Optimistic Rollups in Oct '19, and will be first in line when Optimism mainnet goes live. @chainlink has also announced it will be implementing Optimism Rollups, @coinbase wallet added native support to Optimism testnet…

19/ @compoundfinance is also expected to implement Optimism (though not confirmed), and we know that @RariCapital is also well advanced in integrating Optimism to their platform. The list goes on, and the effects of the Ethereum network speed and costs will be game changing.

20/ To put in figures what this all could mean for us, Synthetix tests reported decreases in gas costs of up to 143x and tx confirmation times as low as 200ms, while Uniswap/Unipig tests reported decreases in gas costs of up to 100x, and tx confirmation times of 169ms.

21/ In case you are wondering, Optimistic Rollups also fit very well into the ETH 2.0 ecosystem. Because ETH 2.0 scaling will happen first for data and only later for computation, Rollups will ensure scalability on the computation side at first, and exist within ETH 2.0.

22/ One last brilliant idea proposed by the Optimism team is the concept of using MEVA, or Miner Extractable Value Auctions, to select Sequencers. But I’m reaching the maximum tweet per thread limit so I’ll leave you with a link for this one: ethresear.ch/t/mev-auction-…

23/ A few links to end on:
Optimistic Rollup presentation: medium.com/plasma-group/e…
Optimism presentation by @kelvinfichter:
Blockcrunch podcast w/ @kevinjho_: blockcrunch.libsyn.com/is-plasma-dead…
Synthetix transition to Optimism: blog.synthetix.io/the-optimistic…

s/o @transmissions11 thanks for the proof read :)