Rollups Stealing the Spotlight from the Lightning Network
Rollups have recently emerged as the next major narrative in the Bitcoin scaling space, drawing attention away from the once-dominant Lightning Network. Rollups offer a promising solution by acting as an off-chain layer two that bypasses the liquidity constraints inherent in the Lightning Network.
Unlike Lightning, where users require someone to allocate or “lend” funds in advance to receive money, rollups provide a more flexible and scalable approach to Bitcoin transactions.
Originally designed for Ethereum and other Turing-complete blockchains, rollups are now being adapted to the Bitcoin ecosystem. However, the ultimate goal for Bitcoin rollups lies in future capabilities that Bitcoin does not yet support—namely, the ability to verify Zero Knowledge Proofs (ZKPs) directly on-chain.
Rollup Architecture: How Do They Work?
The fundamental architecture of a rollup revolves around a single account, or in Bitcoin’s case, a UTXO (Unspent Transaction Output), which holds the balances of all users participating in the rollup.
The UTXO contains a commitment in the form of a merkle root, which is a cryptographic structure that represents all current balances of the accounts involved in the rollup.
Key elements of this structure include:
- A merkle root that commits to the current balances of all users.
- Account authorization through public/private key pairs.
- Users can exit the rollup without permission by proving their account’s inclusion in the merkle tree.
To propose an off-chain transaction, users must sign the transaction using their private key, just like a traditional Bitcoin transaction. The beauty of rollups lies in the fact that users can unilaterally exit the rollup at any time by crafting a transaction that proves their balance is part of the merkle tree.
The Role of Zero Knowledge Proofs (ZKPs)
Rollup operators are responsible for updating the merkle root of account balances on-chain.
However, they must include a ZKP to validate the changes made to off-chain accounts. This ensures that all changes are authorized by the account holders and prevents malicious updates by the operator.
Without the ZKP, the transaction would be invalid and rejected by the Bitcoin blockchain.
The ZKP plays a crucial role in maintaining the integrity of the rollup system. By verifying that all changes are authorized and accurate, users can trust that their funds are safe from dishonest operators who might attempt to steal or reallocate money.
The Challenge: How Do Users Access Their Data?
One of the primary challenges with rollups is ensuring that users can access their branch of the merkle tree to withdraw their funds whenever they want. If only the merkle root is posted on-chain, users need a way to reconstruct their account details from the tree.
There are two main approaches to address this issue: proper rollups and validiums. Each has its advantages and drawbacks.
Proper Rollups: Storing Data on the Blockchain
In a proper rollup, the necessary information is stored directly on the Bitcoin blockchain each time new off-chain transactions are confirmed. However, it’s not practical to store the entire merkle tree on-chain. Instead, only the data required to reconstruct the tree is included.
There are two ways to handle this:
- Naive Implementation: This approach involves adding a summary of all accounts and their balances to the blockchain. While this ensures that all data is available, it takes up a lot of block space.
- Advanced Implementation: In this version, a balance diff is used, which only records the accounts that have had changes. This allows users to track the changes and reconstruct the merkle tree over time.
By using a balance diff, blockspace and transaction costs are significantly reduced. This ensures that users can still access the information they need to withdraw without incurring excessive costs or data overhead.
Validiums: Offloading Data to External Systems
Validiums offer a different approach by offloading the data to an external system instead of the Bitcoin blockchain. While this method saves block space and allows for greater scalability, it introduces new challenges in terms of data availability and security.
In a validium, the data required for users to withdraw is stored on an external system, often another blockchain. However, this creates a reliance on the external system to ensure the data remains available.
Data Availability and Security Challenges
Validiums introduce subtle but significant security risks.
When data is posted directly on the Bitcoin blockchain, the consensus rules of Bitcoin guarantee its availability and correctness. In contrast, when data is posted to an external system, Bitcoin’s blockchain cannot verify its availability. At best, it can only confirm that a ZKP was posted.
However, a ZKP cannot verify whether the data was broadcast and made publicly available to users. This opens the door to data withholding attacks, where the operator commits to publishing data but fails to make it accessible, leaving users unable to withdraw their funds.
The Dilemma: Blockchain or External Data Availability?
The core dilemma for rollups revolves around choosing between two paths for data availability:
- Posting Data to Bitcoin: This ensures security and sovereignty but introduces a hard limit on scalability. Every rollup update requires block space, and the total number of rollups is constrained by the block size.
- Using an External Layer: This removes the scalability ceiling but comes with security trade-offs. External systems are vulnerable to data withholding and manipulation, which can compromise user funds.
If Bitcoin is used for data availability, it becomes impossible for the rollup state to change without the necessary data being atomically posted to the blockchain. This guarantees user safety and protects their ability to withdraw. However, the trade-off is the hard ceiling on scalability—Bitcoin’s blockspace is finite, and rollups are bound by that limit.
On the other hand, external data availability removes these scalability limits, but it also introduces new risks. Block producers on external systems could theoretically hold Bitcoin rollup users’ funds hostage by producing a block without making the necessary data available.
Conclusion: The Rock and Hard Place of Bitcoin Rollups
Rollups present an exciting frontier in the evolution of Bitcoin scaling, but they come with their own set of challenges. The fundamental choice between on-chain data availability and external systems represents a trade-off between security and scalability.
While using Bitcoin’s blockchain guarantees data security, it also limits how far rollups can scale. In contrast, external data availability layers offer greater scalability but introduce risks that could compromise user funds.
As the development of rollups on Bitcoin continues, finding the right balance between these two approaches will be critical. Whether through proper rollups or validiums, Bitcoin’s future scaling solutions will need to navigate this delicate trade-off to ensure both security and efficiency for users.