Ethereum has become the second-largest cryptocurrency by market cap, thanks in large part to its support for smart contracts, a growing list of decentralized applications (dapps) and decentralized finance (DeFi) platforms.
But it faces a problem: It’s slow and expensive to use, with consistently high transaction fees. While Ethereum awaits the rollout of planned upgrades to the network to address these issues, scaling solutions have emerged to make Ethereum transactions faster and cheaper.
What is Optimism?
Optimism speeds up Ethereum transactions and reduces their cost by placing them on another blockchain using advanced data compression techniques.
The special sauce for Optimism’s scaling methodology is in its name: it uses a technique called Optimistic rollups, whereby multiple transactions are “bundled” into a single transaction, placed on another blockchain, and receipts are fed back into the main Ethereum blockchain.
Optimistic rollups is a type of aggregation that “optimistically” assumes that all operations on the aggregation are valid. This saves time as individual transactions do not need to be presented with direct proof of their validity. Verifiers on the collection have one week to question the entire collection if they believe it contains fraudulent data.
A dashboard in Dune Analytics shows that Optimism has reduced Ethereum transaction fees (also known as gas fees) by a staggering 129 times. It is supported by DeFi platforms such as Synthetix and Uniswap. According to Dune Analytics, Optimism provides approximately $740 million in on-chain value as of March 2022, up from just over $1 billion in January.
Optimism was introduced in June 2019 and a testnet was released in October 2019. The rollout of an alpha mainnet didn’t happen until January 2021, and it took until October 2021 for Optimism to launch a compatible version of the Alpha mainnet.
How Optimism Works
Optimism is basically just a big list of operations that add up. All of its consolidated blocks are stored in an Ethereum smart contract called the Canonical Transaction Chain.
Unless a user sends their transactions directly to the Canonical Transaction Chain, new blocks are generated by something called a sequencer. This sequencer instantly confirms valid transactions, then creates and executes blocks at layer 2 of Optimism, a blockchain that sits on top of the L1 blockchain, in this case Ethereum.
These blocks are batches of ‘aggregates’ Ethereum transactions. The sequencer further compresses this data to reduce the size of the transaction (and thus saves money), then sends the transaction data back to Ethereum.
Optimism’s middleware is designed to mimic Ethereum’s code as much as possible. For example, it uses the same virtual machine as Ethereum and charges the same for gas.
Since Ethereum and Optimism are very similar under the hood, you can send any ERC-20 token (a cryptocurrency that complies with the Ethereum token standard) between the two networks.
What Makes Optimism So Special?
Optimism is best understood as one of several solutions that attempt to solve Ethereum’s state bloat problem. The Ethereum network is ready to explode, and until upgrades to the main blockchain save the day, scaling solutions like Optimism are allowing the decentralized financial industry to grow and remain available to those who cannot afford the high transaction fees.
The protocol is not the only scaling solution to use optimismistic aggregations. Arbitrum and Boba Network also use this technique to help Ethereum users save on fees. Zero-knowledge aggregations, another popular aggregation type, are also used by Loopring, Immutable X, and ZKSync. Like
Arbitrum, Optimism does not have a native cryptocurrency to pay its gas fees. It uses ETH just like Arbitrum. Like Arbitrum, Optimism is in beta and not yet fully decentralized.
How to Use Optimism?
To use Optimism, you need to deposit your ETH or ERC-20 tokens into the Optimism token bridge. This allows you to trade on Ethereum via Optimism. When you’re done, you can convert your tokens back to the Ethereum mainnet.
To deposit your Tokens, you must deposit them through the Optimism Gateway. You can connect to the Gateway through a Web3 wallet such as MetaMask. The deposit takes around twenty minutes and MetaMask offered us a fee of $18 to transfer 1 ETH.
Optimism advised that withdrawing the funds would cost one week and $52.72. This delay is a feature of Optimism’s one-week challenge period in the Optimismistic roundup.
After depositing with Optimism, you can use them in supported decentralized applications. For example, Uniswap lets you trade through Optimism to save on fees. All you have to do is select Optimism from the networks menu; then you can trade normally.
The Future of Optimism
Optimism has ample funds to further its work; In March 2022, it closed a $150 million Series B funding round led by Andreessen Horowitz and Paradigm, with an initial value of $1.65 billion. The roadmap includes updates to the Optimism protocol, such as next-generation fault-tolerant, fragmented aggregations, and a decentralized sequencer.
This last one is very important: While the project is in beta, the team maintains a degree of control over the sequencer, which is the technology responsible for generating blocks in Optimism.
Optimism has historically been more centralized than Ethereum, whose developers, for example, lack the ability to pause the blockchain or Whitelist certain validators.
However, Optimism took a big step towards decentralization in April 2022 by launching a DAO called the Optimism Collective to fund public goods and manage protocol. It has also started airdropping newly created OP tokens to Optimism users and others that can help drive the DAO and the decentralized future of Optimism forward.
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