Ethereum Rollups and their Core Functionality

This series of articles explores the technical landscape of Ethereum rollups, offering a clear foundation to help readers understand their core mechanisms and their role in achieving Ethereum’s scalability objectives.

This first part of the series will delve into rollups by providing a definition and their core functionality in scaling Ethereum.

For context, a discussion about rollups should start by describing a blockchain network from the perspective of its structural characteristics.

A blockchain refers to a cryptographic data structure that is immutable and composed of an append-only linked list of blocks. It is a decentralized network of nodes that runs a protocol that maintains the mentioned cryptographic data structure. Blockchains allow users to share data and value securely without relying on an intermediary.

A blockchain has three layers:

• Data Availability Layer: Facilitates the publication and accessibility of blocks and transactions.
• Consensus Layer: Achieves network-wide consensus on the order of blocks and the transactions that make them up.
• Execution Layer: Executes transactions within blocks and maintains the blockchain state.

The above description describes how Ethereum works. A blockchain that follows this mechanism is called a Layer 1 (L1) blockchain.

With these highlights in mind, we now shift to rollups to illustrate why they are important to Ethereum.

What are Rollups?

Rollups are blockchain networks whose chain and state are a derivative of the DA layer of an L1. An Ethereum rollup refers to a blockchain network that relies on Ethereum as a DA layer. Rollups implement only the execution layer and outsource the other functionalities, Data Availability, and consensus to the L1.

When a rollup outsources the functions named above, the L1 DA Layer will contain the global history of rollup transactions. Delegating the consensus functionality means that once the details and order of the rollup’s global transactions have been published to the L1, the integrity of such records becomes the responsibility of the L1.

How Do Rollups Scale Ethereum?

When rollups delegate their DA Layer and Consensus management responsibilities to Ethereum, they position themselves to focus on enhancing the L1’s execution capabilities, thereby enhancing its potential for users and developers. However, this premise only tells half the story. Scaling Ethereum means providing increased technical capacity to service the network’s users and increase its economic value and application landscape. As such, rollups should be tightly compatible and composable with Ethereum.

Characteristics Necessary for Rollups to Scale Ethereum

1. Composability with Ethereum: Rollups effectively scale Ethereum if transferring users, applications, or economic value does not seem like removing them from the L1.
2. Ethereum Virtual Machine (EVM)-Equivalence: An execution model of a rollup is EVM-equivalent if its execution rules comply with EVM’s technical specifications. This characteristic is critical because, at a bare minimum, rollups should provide the native experience of Ethereum’s application layer.

Core Rollup Functionality

The Rollup Lifecycle

The rollup lifecycle refers to the actions set in motion after users submit transactions to the rollup.

1. Users submit transactions.
2. The rollup streams transactions and executes them using a sequencer.
3. The sequencer batches the transactions and publishes them to Ethereum.
4. Rollup nodes monitor Ethereum for published rollup batches, downloading any observed batches.
5. Rollup nodes feed the data through their derivation logic, parsing the batches to produce new L2 blocks to execute.
6. The nodes update their chain data structure.
7. The L1 blocks are finalized on L1 and then on L2. 

Paying for Transactions in Rollups

L1 users pay for on-chain transactions using the native asset, ETH, in Ethereum’s case. Rollups generally leverage denominate transaction fees in ETH. These blockchains prefer this approach because:

• Mature resource pricing: Rollups are EVM-equivalent and inherit the EVM resource pricing system. This approach accurately reflects the cost of transactions in ETH per unit of gas.
• Convenient cost representation for rollups: Rollups perform essential tasks that incur L1 transaction costs. Such costs must be distributed among users proportionately, and doing so in ETH simplifies the amortization process.
• Seamless Ethereum Integration: Using ETH for transaction fees offers a familiar environment for users and developers moving from Ethereum, a necessary consistency for a rollup to be composable.  

Final Thoughts on the First Segment

Ethereum rollups are a transformative step in scaling the Ethereum network, combining the security and decentralization of Layer 1 with enhanced execution capabilities. By outsourcing data availability and consensus to Ethereum while focusing on execution, rollups unlock significant technical capacity, economic value, and application growth. Their seamless integration with Ethereum, EVM-equivalence, and ETH-based transaction fees ensure compatibility and composability, maintaining a familiar experience for users and developers. As rollups mature, they will be pivotal in shaping Ethereum’s scalability, ensuring it remains a robust, user-friendly, and innovative platform for the decentralized future.

The second article in the series will cover Classic and Sovereign rollups and define the process of mapping out the rollup design space. Stay tuned!