1.5.2024
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Rollups are coming to Bitcoin. Projects like BitcoinOS are using this technology to solve the Bitcoin scalability problem and introduce new use cases.
In this guide, you will learn about Bitcoin rollups, how they work, the different types, and how they can impact the future of Bitcoin.
Rollups are scaling solutions that reduce the burden of Layer 1 blockchains by processing transactions off-chain. They “roll up” or batch multiple transactions into a single batch, which is then posted to the base layer.
Rollups spread the on-chain transaction costs across the batch of transactions instead of incurring an on-chain fee for each transaction individually. By storing the entirety of transactions within the witness space (which on Bitcoin has a 75% discount vs. non-witness space) and through the use of compression techniques, rollups reduce transaction fees without compromising on security, as transactions are eventually stored on the main chain.
While rollup technology has been more popular within the Ethereum ecosystem, it is now also being implemented on Bitcoin due to off-chain protocols like BitcoinOS.
Rollups promise to improve Bitcoin’s transaction throughput and reduce transaction fees. This increased efficiency can help attract more users to the Bitcoin network and support use cases such as DeFi and asset issuance.
Bitcoin rollups are categorized into three different types. Let’s take a look at each one.
As the name suggests, optimistic rollups optimistically assume by default that all transactions are correct. The rollup operator batches multiple transactions into a single rollup block and posts the summary of this block to the base layer in a state update transaction. This means no time is wasted confirming the validity of transactions.
Once a state update is posted on the main chain, anyone can challenge the accuracy of the state update using a fault proof during the challenge period. Optimistic rollups use fraud proofs to detect fraudulent state updates.
If a state update is found to be invalid, the submitted state update is reverted, and the rollup smart contract updates to the previous state. The protocol also penalizes the block validator for submitting an invalid state update. If the state update's validity isn’t challenged, the rollup block is considered final, and its state is retained.
Withdrawals from optimistic rollups can take a week (or another specific period) due to this dispute resolution period.
It should be noted that only BitVM-based optimistic rollups are possible on Bitcoin today. These have some limitations compared to optimistic rollups built on chains with native, fully expressive smart contracts (e.g., EVM-based optimistic rollups).
Unlike optimistic rollups that use smart contracts to confirm rollup execution, sovereign rollups use nodes. These rollups are called “sovereign” because they also function as their own settlement layer. They use the base layer only for data availability (DA). That makes sovereign rollups different from optimistic and validity rollups that rely on the Layer 1 blockchain for data availability, consensus, and settlement. As a result, smart contract rollups (optimistic and validity) only handle the execution of transactions.
On the contrary, sovereign rollups execute and settle transactions and shift the role of data availability and consensus to the base layer. Once the rollup transactions are submitted to the DA layer, the nodes are responsible for verifying their correctness. Nodes reject invalid transactions and determine the correct rollup chain.
Validity rollups, such as zero-knowledge (ZK) rollups, use smart contracts deployed on the base layer to maintain their state. Additionally, they use validity proofs to prove that a rollup contract is correct. Like other rollups, validity rollups batch and execute transactions off-chain. The rollup operators then submit validity proofs for each batch to the base layer.
The validity proofs prove that the state change (the result of executing a batch of transactions) is accurate without disclosing any information about those transactions. Once the validity proofs are submitted to the base layer, the rollup smart contract deployed verifies them before the final settlement.
Unlike optimistic rollups, validity rollups don’t have a dispute resolution period. As a result, there are no delays when moving funds from the validity rollup to the base layer.
Now, let’s take a look at how rollups can improve Bitcoin’s scalability.
Rollups increase efficiency by reducing the parent chain’s transactional overload through off-chain transaction processing and offering cheaper transactions.
The on-chain fee savings come from storing the entirety of transactions in witness space, which on Bitcoin has a 75% discount compared to non-witness space, and from using compression techniques that are possible with rollups but not base layer transactions, such as state diffs and full-block signature aggregation.
Validity rollups specifically can, in some instances, offer transaction confidentiality to users who would like to have more privacy when transacting. Regular Bitcoin transactions are pseudonymous, meaning they only offer partial anonymity. With validity rollups, however, users can enjoy enhanced anonymity because validity proofs don’t reveal any information about the transactions in a batch other than stating that they are valid.
Rollups can compress transaction data, considerably reducing the amount of data that must be stored on-chain. This enables more transactions to be processed in a single block while increasing Bitcoin’s transaction storage capacity due to the reduced size of the batches.
Moreover, executing transactions off-chain helps minimize the base layer’s computational load, thereby alleviating network congestion and speeding up transaction processing.
BitcoinOS is a superchain of interoperable Bitcoin rollups with near-trustless BTC rails, providing a smart layer on which multiple interoperable and composable rollups can be hosted.
That means each rollup will be able to communicate with other rollups, enabling users to switch seamlessly between different applications built on rollups. This feature will be game-changing because it will provide a shared economy to projects and their users. The off-chain protocol also offers expressive smart contracts that are EVM-compatible and capable of supporting a wide range of dapps.
BitcoinOS is arguably the most viable protocol for scaling Bitcoin, as it improves efficiency and transaction speeds, while also offering interoperability and enhanced programmability.
BitcoinOS is currently being developed by Sovryn. The team is working hard to launch the protocol on the Bitcoin mainnet as part of the current roadmap. BitcoinOS will use “sovryn” rollups that don’t require smart contracts on the base layer to operate.
