How does the Rollups solution improve Bitcoin's scalability?

Bitcoin, as the earliest and most popular blockchain, witnesses hundreds of thousands of transactions every day. However, in its initial design, Bitcoin prioritized security within its decentralized framework, which led to the neglect of scalability issues. As a result, people predominantly perceive Bitcoin as a digital asset and a store of value.

While Bitcoin has always been known for its security and decentralization, its limited transaction speed hinders its ability to effectively process a large number of transactions. In recent years, various solutions have emerged to address this issue and allow developers to build on the entire Bitcoin ecosystem. Now, scalability solutions have become not only a focus for other blockchain networks but also for Bitcoin itself.

In the article "Exploring the BTC Layer2 Track and Opportunities," we discussed why Bitcoin needs to scale and introduced relevant Bitcoin Layer2 solutions, such as the Lightning Network and sidechains.

In this article, we will focus on another solution for Bitcoin scaling: Rollups. Compared to the Lightning Network and sidechains, Rollups have the potential to improve Bitcoin's scalability, privacy, and programmability without sacrificing its core value and functionality as a peer-to-peer electronic cash system.

The necessity of Bitcoin Rollup

Rollups are typically associated with the Ethereum network. After transitioning to proof-of-stake in September 2022, the Ethereum blockchain became more centralized. Additionally, many Rollups actually rely on centralized sequencers for transactions on Layer 2. Decentralization does indeed bring higher security, especially in the case of Bitcoin, but with the development of Bitcoin, the contradiction between decentralization and computing power scalability has become more pronounced. The source of this contradiction lies in the increase in the number of users and the computational workload for block validation, and the key to mitigating this contradiction lies in improving the scalability of the blockchain.

As we discussed before, the Lightning Network utilizes technologies like multi-signature and Hash Time Locked Contracts (HTLC) to store data off-chain and batch multiple transactions into one for fast and cost-effective payments. Sidechains create separate chains that do not affect the Bitcoin main chain, allowing Bitcoin to be locked on the main chain and then enabling a large number of transactions to be processed on the sidechain, significantly increasing transaction speed without compromising the security of the Bitcoin main chain. On the other hand, Rollup is an upgrade to the technical architecture or system of the Bitcoin network and involves data optimization on-chain.

Rollups serve as an extension solution for the first-layer blockchain network. They move transactions off-chain where they are processed (usually on the second layer) and bundle multiple transactions into a batch, which is then sent back to the first-layer chain. Smart contracts then validate the batch of transactions and update the blockchain's state.

This chart provides an intuitive representation of the Bitcoin Rollup layering. In this example, there are two L2 Rollups: one dedicated to data availability and the other specialized in high-security payments and contracts. In addition to the L2 data availability Rollup, there are three L3 Rollups, each tailored to different use cases: private peer-to-peer payments, financial contracts, and in-game asset ownership and transfers. As L3 Rollups rely on L2 full nodes for data availability, their security can be considered lower than L2 Rollups that depend on Bitcoin L1 full nodes for data availability security.

Rollups are becoming increasingly popular because they increase transaction throughput while reducing transaction costs. This is because Rollups mean that the blockchain doesn't need to process thousands of transactions individually; technically, they only need to process one transaction. This is particularly beneficial for dApps as they require frequent and fast transactions to operate effectively. That's why Rollups are considered a viable scalability solution for blockchains like Bitcoin.

Currently, the main types of Bitcoin Rollups include ZK Rollup and Sovereign Rollup.

The application of ZK Rollup on Bitcoin

ZK Rollup

ZK Rollup utilizes encrypted "validity proofs" to ensure that new Rollup blocks adhere to the rules of the Rollup protocol. Each time a Rollup block producer creates a valid Rollup block, they submit state update transactions to the parent chain. These Rollup state update transactions contain data about each state transition within the Rollup block, the new Rollup state root after applying the state transitions in the application block, and a proof of data availability and validity that confirms the new Rollup state root is a valid update to the last confirmed valid Rollup state root on the parent chain. Only state update transactions with valid proofs can successfully advance the Rollup state after confirmation on the parent chain.

ZK Rollup packages transaction data into the mainnet along with a validity proof, which proves the validity of these transactions. Upon receiving these transactions, the network directly verifies these validity proofs. If the proofs are valid, it means the transactions are also valid, and users can extract their assets without further delay.

In ZK Rollup, users can recreate and verify all state changes based on the packed data. However, ZK Rollup publishes less data, only the minimum data required to reconstruct account balances and the latest state. This allows ZK Rollup to process more transactions simultaneously, as it reduces the computational and storage resources needed on the main chain, thereby reducing congestion and lowering transaction costs. The speed is also increased because there is no transaction data backlog, resulting in faster and cheaper transactions on the chain.

ZK Rollup's Extension Improvement on Bitcoin

ZKRollup improves throughput. As more transactions on the Bitcoin network need to be proven valid at each Rollup layer, the difficulty of creating the necessary validity proofs also increases. ZKRollup's solution to the computational requirements for creating these proofs is to use recursive proof composition for parallelization. Recursion is essentially "proving the proof's validity," so many computers can prove the validity of different transactions, and these proofs can then be combined into one proof, allowing multiple computers to scale horizontally simultaneously, helping to prove the validity of a transaction. SNARK and STARK proofs can both achieve trustless recursive proof composition.

In terms of application, this recursive proof enables the ZKRollup account model to compress Layer 2 transactions, thereby increasing scalability by accommodating a higher number of transactions. The additional transaction capacity can be used to support more Lightning Network transactions, allowing for an increase in the number of users who can join and use the Lightning Network in a self-custodial manner. This, in turn, expands the Lightning Network.

The applications of Sovereign on Bitcoin

Sovereign rollups

Sovereign Rollups differ from the current rollup designs, whether it's OPRollup or ZK Rollup, in that they do not require the use of smart contracts for execution confirmation, nor do they need a settlement layer. As a result, they are named "Sovereign."

While observing OP and ZK Rollups, they tend to use Layer 1 as the data availability layer and consensus layer. However, Sovereign Rollups solely utilize Layer 1 for data availability, ensuring a more direct connection with the underlying layer. The key distinction of Sovereign Rollup from common Rollups lies in its fork choice rule, allowing it to fork independently from its underlying layer. In contrast, a regular Rollup delegates its fork choice to its settlement layer to ensure the correctness of the Rollup.

Sovereign Rollup's core is a blockchain that publishes its transactions to the data availability layer to achieve consensus and data availability. The data availability layer does not ensure the correctness of Sovereign Rollup transactions. It only orders the transactions and checks their availability. In the past, OP and ZK Rollups relied on Ethereum smart contracts to check the correctness of their transactions, typically through fraud or validity proofs. In contrast, Sovereign Rollup relies on nodes to determine the correctness of transactions. Nodes download all transactions and verify their validity, rejecting any invalid transactions.

Improvement of Sovereign Rollup on Bitcoin

Sovereign Rollup is currently the most popular solution for Bitcoin Rollup, and its main difference from ZK Rollup is that Sovereign Rollup operates independently from the mainnet. ZK Rollup utilizes the mainnet as both the data availability layer and the settlement layer, with relevant data stored and transactions verified by smart contracts on the mainnet. On the other hand, Sovereign Rollup only uses one layer of the blockchain as the data availability layer but does not perform settlement on that layer. Therefore, this approach is more friendly for Bitcoin, which has limited computational power.

In this solution, using the modular framework of Rollup, developers can insert custom execution layers and data availability layers. Sovereign Rollup manages its own execution and settlement while transferring consensus and data availability to the first layer of the Bitcoin mainnet. This approach does not require smart contracts or settlement layers for Rollup validation, and the second layer is not affected by attacks on the first layer of the mainnet, making it more scalable.

In terms of application, Sovereign Rollup could be seen as a "Rollup as a Service" (RaaS). Using Bitcoin's data availability, developers can create Rollups with arbitrary execution environments, inheriting the data and security guarantees of Bitcoin. For example, the modular blockchain Celestia has a product called Rollkit, which is a modular Rollup framework that integrates Bitcoin's Sovereign Rollup data availability layer. With Rollkit Sovereign Rollup, it can run Ethereum Virtual Machine (EVM) on top of Bitcoin, expanding the application of Rollup and opening up a broader market for the Bitcoin ecosystem.

Conclusion

In the ZK Rollup solution, its security strongly depends on its relationship with the main chain. Various applications on ZK Rollups will be able to inherit the decentralization and security of the Bitcoin network and improve the scalability issues of the Bitcoin network's economic model. This relationship provides two key features that other "off-chain" protocols lack: inherited double-spend security and secure two-way bridging. While it can bring benefits to Bitcoin, such as increased transaction throughput, better transaction privacy, and greater flexibility, these advantages are not without costs or risks, as it also entails risks related to Bitcoin software updates and consensus changes.

In the Sovereign Rollup solution, it has its own consensus and can operate independently from the first-layer blockchain, defining its own transaction validation and settlement rules, giving it higher autonomy. However, it is this independence that to some extent compromises the security guarantees of the first-layer blockchain, and implementing Sovereign Rollup upgrades may be more complex due to separate consensus mechanisms. Currently, Sovereign Rollup development is still in its early stages, and as research and exploration in this field progress, the future development of technology to enhance its security is worth our further attention.

The development around Rollups has demonstrated that Bitcoin can become the foundation chain for more operations than before. Overall, whether in Bitcoin or any other L1, Rollups have changed the way we perceive on-chain transaction data, proof verification, and on-chain transactions involving large amounts of data, driving the latest progress in discussions on how we store, read, and utilize on-chain data. This, in turn, provides another dimension to the discussion of Bitcoin scalability, especially as developers attempt to create a complete economic ecosystem on the Bitcoin blockchain. Rollups are still in their early stages, but their potential impact is promising.