Optimism speeds up Ethereum transactions and cuts their costs by settling them on another blockchain using advanced data compression techniques.
The special sauce to Optimism’s scaling methodology is in its name: it uses a technique called optimistic rollups, whereby multiple transactions are ‘rolled up’ into one transaction, settled on another blockchain, with receipts fed back to the main Ethereum blockchain.
Optimistic rollups are a type of rollup that ‘optimistically’ assumes all transactions in the rollup are valid. This saves time, since individual transactions do not have to be submitted with direct proof of their validity. Validators in the rollup have a week to query the entire rollup if they believe that it contains fraudulent data.
A dashboard on Dune Analytics indicates that Optimism cuts Ethereum transaction fees (also known as gas fees) by a staggering 129 times. It’s supported by DeFi platforms like Synthetix and Uniswap. Per Dune Analytics, Optimism secures about $740 million of on-chain value, as of March 2022, down from slightly over $1 billion in January.
Optimism was introduced in June 2019, and a testnet was released in October 2019. It wasn’t until January 2021 that an alpha mainnet launched, and it took until October 2021 for Optimism to launch a version of the Alpha mainnet that was compatible with the Ethereum Virtual Machine. An open mainnet launched in December 2021.
Unless a user submits their transaction directly to the Canonical Transaction Chain, new blocks are produced by something called a sequencer. This sequencer instantly confirms valid transactions, then creates and executes blocks on Optimism’s layer 2 — a blockchain that sits atop the L1 blockchain, in this case, Ethereum.
These blocks are the ‘rollups’ — batches of Ethereum transactions. The sequencer compresses this data even further to reduce the size of the transaction (and thus save money), then submits transaction data back to Ethereum.
Optimism’s layer-2 software is designed to mimic Ethereum’s code as much as possible. It uses, for instance, the same virtual machine as Ethereum, and charges for gas in the same way (albeit at a lower rate, thanks to its optimistic rollup solution).
Optimism is best understood as one of several solutions trying to address Ethereum’s state-bloat problem. The Ethereum network is fit to burst, and until upgrades to the main blockchain save the day, scaling solutions like Optimism allow Ethereum’s decentralized finance industry to grow and remain usable by those who can’t afford its high transaction fees.
The protocol isn’t the only scaling solution to use optimistic rollups. Arbitrum and Boba Network also use the technique to help Ethereum users save on fees. Zero-knowledge rollups, another popular type of rollup, are used by Loopring, Immutable X and ZKSync.
Like Arbitrum, Optimism doesn’t have a native cryptocurrency to pay for gas fees. It uses ETH — just like Arbitrum. And like Arbitrum, Optimism is in beta, and is not yet fully decentralized.
Optimism has plenty of funding to carry its work forward; in March 2022, it closed a $150 million Series B funding round led by Andreessen Horowitz and Paradigm, which saw the startup valued at $1.65 billion. Its roadmap includes updates to the Optimism protocol, such as a next-generation fault proof, sharded rollups and a decentralized sequencer.
That last one is important: While the project is in beta, the team maintains a degree of control over the sequencer — the technology responsible for creating blocks on Optimism.
Optimism has historically been more centralized than Ethereum — whose developers do not possess the capability to, for instance, pause the blockchain or whitelist certain validators.
However, Optimism took a big step toward decentralization in April 2022, launching a DAO, called the 'Optimism Collective', to fund public goods and govern the protocol. It also began airdropping newly created OP tokens to Optimism users and others who could help push the DAO — and Optimism's decentralized future — forward.