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Understanding Optimism: Ethereum’s Layer-2 Scalability Solution

Optimism is an Ethereum-compatible layer-2 project that aims to solve Ethereum’s scalability issues while functioning similarly to the Ethereum blockchain. Led by The Optimism Collective, an organization of dedicated communities, Optimism provides users with a variety of decentralized applications (DApps), such as decentralized exchanges and other decentralized finance (DeFi) applications.

The Optimism Collective and OP Stack

The Optimism Collective governs Optimism and covers all its branches, including OP Labs, OP Chains, and the Optimism Foundation. The project is designed to work similarly to Ethereum, providing users with a variety of DApps. The standout function of Optimism is its use of optimistic rollups.

Optimistic Rollups: The Key to Scalability

Optimistic rollups are a scalability solution presented by Ethereum developers. They function similarly to zero-knowledge rollups but differ in a few key ways. By existing on top of Ethereum as a layer-2 solution, Optimism processes transactions off of the mainnet, reducing congestion, lowering transaction fees, and providing a gas fee reduction.

Optimistic rollups are used by many Ethereum scalability solutions today and are Optimism’s method of transferring transactions from Ethereum to its layer-2 solution. An optimistic rollup involves a user depositing funds into smart contracts compatible with the layer-2 solution. A sequencer, which is a node that acts similarly to a validator on Ethereum, processes these transactions and rolls them up into a single block. Eventually, the sequencer sends that block to the layer-1 solution as a single transaction, also known as a state commitment.

Optimistic rollups are considered optimistic because all transactions within the rollup are automatically assumed to be valid. This lack of validation is part of what makes the transaction throughput—the amount of transactions processed per second—so fast. Validation is one of the key contributors to long transaction times on other networks. However, users can challenge a state commitment anytime via a “fault proof” process. If a challenge succeeds, the state commitment is removed from the chain and replaced by another one. Users currently have seven days to challenge a state commitment before it is considered final.

The OP Stack: A Foundation for Scalability

The OP Stack is an open-source, evolving set of software that serves as Optimism’s foundation. It includes multiple layers, such as the governance, settlement, and derivation layers, all focused on transaction processing and network development. Ethereum serves as its consensus and transaction execution layers, providing Optimism with a secure foundation upon which to build.

Bedrock is the OP Stack’s current iteration, which offers a set of tools for developers to build their own layer-2 blockchain. Said blockchain can take advantage of optimistic rollups. However, Bedrock is just the start of Optimism’s community-driven development goals. The Optimism organization plans to evolve Bedrock into a superchain, providing a foundation for developers to build their own chains. From there, every blockchain harnessing the superchain’s power can all receive the same upgrades, bridge between one another and participate in the same governance—a form of layer-2 interoperability.

Governance in Optimism: The Citizens’ House and the Token House

Governance is one of the most important parts of any blockchain ecosystem, ensuring developments are properly considered and implemented. The Optimism Collective is governed by two groups: the Citizens’ House and the Token House.

The Citizens’ House is Optimism’s approach to funding the various projects on its network. It comprises citizens who vote on distributing funding through the project’s retroactive public goods funding (RetroPGF). Citizens receive non-transferable nonfungible tokens (NFTs) to mark their position, known as soulbound tokens, which are permanently bound to a citizen’s wallet.

The Token House is Optimism’s main governance method. Members of the Token House are in charge of submitting and voting on proposals to improve the network. Token House representatives are expected to engage in community meetings, provide regular project feedback, and participate in reflection periods between voting sessions. Participation requires a large time commitment, and representatives who find themselves without enough time to participate can choose to delegate their responsibilities.

The OP Token: A Governance and DeFi Token

An OP token is the primary way for users to participate in the Optimism network. The OP token is the network’s primary governance token and the main way to interact with the Optimism ecosystem. OP tokens abide by Ethereum’s ERC-20 token standard and are typically acquired through trading or airdrops. Users can also earn OP tokens by participating in the network in one of the project’s governance houses or by processing transactions as a sequencer.

DeFi on Optimism: A Scalable Solution

Decentralized finance avenues offer users various ways to use and profit from their token holdings. Similar to other layer-2 scaling solutions, Optimism offers a variety of decentralized finance applications. Users can play games, trade on decentralized exchanges, acquire NFTs, and invest in other DeFi platforms by utilizing the OP token. However, users must bridge their existing assets onto the Optimism network to participate. Fortunately, they should experience fast withdrawals due to Optimism’s use of optimistic rollups.

In conclusion, Optimism is a promising layer-2 scalability solution for Ethereum, offering a secure, scalable, and interoperable solution for developers and users alike. By utilizing optimistic rollups and a community-driven development approach, Optimism aims to solve the scalability issues plaguing many blockchain projects today.