Optimism is a layer 2 blockchain that acts as a scaling solution for Ethereum. It processes several transactions on its blockchain and posts them in batches on Ethereum, providing fast speed and low fees. It is designed so that users can send arbitrary messages between smart contracts on Optimism and Ethereum, which makes it possible to transfer assets, including ERC-20 tokens, between the two networks.

Overview

Optimism operates as a scaling solution for Layer 1 networks by employing a process known as rollup. It collects transaction data from the main chain, consolidates it into batches, and settles them. These batches of data are then transmitted back to Ethereum's mainnet, where they undergo validation as additional data blocks. By bundling hundreds of transactions into these batches, Optimism significantly reduces the fees required for settlement compared to executing them directly on the Ethereum network. ^[1]

Optimism leverages Optimistic Rollups, a cryptographic technique that utilizes smart contracts as bridges between Layer 1 (L1) and Layer 2 (L2). This technique incorporates a mechanism known as "fraud proof," which ensures the integrity and security of the transaction process. ^[1]

Optimistic Rollups

Optimism utilizes a technology known as rollups, specifically Optimistic rollups. Rollups are named as such because they combine the information from numerous transactions, including non-fungible token (NFT) mints and token swaps, into a single transaction on Ethereum's mainnet (referred to as layer 1). By consolidating multiple transactions into one, the cost of the blockchain transaction, also known as "gas" fee, is significantly reduced to just a single transaction. This cost is conveniently shared among all participants involved. ^[2]

The term "Optimistic rollups" stems from the approach taken in processing transactions. In this method, transactions are assumed to be valid unless proven otherwise, operating under the principle of "innocent until proven guilty." A specific timeframe is allotted during which potentially invalid transactions can be contested by presenting a "fraud proof" and conducting the transactions' computations based on the available state data. Optimism covers the gas expenses required for running the fraud proof computation. ^[2]

Block Storage

Optimism utilizes a specific smart contract on Ethereum called the CanonicalTransactionChain (CTC) to store all of its blocks. The CTC maintains a list of blocks in an append-only manner, ensuring that new blocks can only be added to the existing list. The CTC's code includes mechanisms that prevent the alteration of the current list of blocks by subsequent transactions on the Ethereum network. ^[3]

Block Production

The "sequencer" is the entity responsible for managing block production on Optimism. Its role is to contribute to the network by providing the following functions: ^[3]

1. Facilitating instant transaction confirmations and updates to the network's state.
2. Constructing and executing layer-two blocks, which enhance scalability and efficiency.
3. Submitting user transactions to the underlying layer-one Ethereum network.

Unlike traditional systems with a mempool, the sequencer operates differently. Transactions are accepted or rejected immediately upon receipt, following the order in which they are received. When a transaction is sent, the sequencer verifies its validity (including whether it includes a sufficient fee) and incorporates it into the local state as a pending block. These pending blocks are then grouped together and periodically transmitted to the Ethereum network for finalization. ^[3]

The primary objective of this batching process is to reduce overall transaction fees by distributing certain fixed costs across all the transactions within a single batch. ^[3]

Block Execution

Optimism nodes operate by directly downloading blocks from the CTC (Commitment To Compliance) append-only contract. These nodes consist of two key components: the Ethereum Data Indexer and the Optimism Client Software. ^[3]

The Ethereum Data Indexer is specifically designed to reconstruct the Optimism blockchain by retrieving blocks published to the CTC contract. It serves as the data transport layer responsible for this task. ^[3]

The Optimism Client Software closely resembles Geth, which is a popular client implementation for Ethereum. This similarity in design ensures that Optimism aligns closely with Ethereum's structure. Both Optimism and Ethereum utilize the same Ethereum Virtual Machine (EVM), share a common account and state structure, and employ the same gas metering mechanism and fee schedule. ^[3]

Fault Proofs

When utilizing an Optimistic Rollup, the process involves directly publishing state commitments to the Ethereum network without the need for requesting proof of their validity. However, in the event of a challenge to a state commitment, fault proofs are requested. If the challenge is successful, the challenged state commitment is subsequently removed and eventually replaced by another valid commitment. ^[3]

Superchain

The Optimism Superchain is a unified network of chains built utilizing the OP Stack. It merges Optimism mainnet and other L2 chains, known as OP Chains, into a single network of OP Chains. ^[7][8]

OP Stack

The OP Stack introduces an architectural framework dedicated to creating Layer 2 chains. Its main objective involves modularizing all aspects of Layer 2 into standardized open-source modules, catering to various Layer 2 chains. The OP Stack develops an open-source code library containing standardized modules that facilitate the construction of Layer 2s. This enables anyone to easily set up a Layer 2 chain using these resources. ^[8]

Bedrock Hard Fork

In June 2023, Optimism completed its Bedrock upgrade, moving closer towards becoming a Superchain. The upgrade aimed to improve the functionality of the chain by cutting deposit-confirmation times from 10 minutes to 1 minute, and lowering gas fees by 40%. Bedrock also is supposed to improve proof modularity for its OP Stack, which is an open-source platform for developers where they can build customizable blockchains with Optimism. The improvements to the OP stack mean that both validity proofs and fault proofs can be used. In addition, Bedrock has made Optimism into a multi-client ecosystem, meaning there would be at least two options for the client software used to run the network.^[12]

OP Token

On May 2023, Optimism introduced its OP token, which was made available through an airdrop to a total of 231,000 eligible addresses. The airdrop allowed these addresses to claim 214 million OP tokens at no cost. This distribution accounts for 5% of the overall token supply, which amounts to 4.29 billion tokens. ^[2]

Holders of the OP token gain participation rights within The Optimism Collective, which consists of two governance tiers: Token House and Citizens' House. While Token House is currently operational and oversees technical decisions concerning Optimism, the role of Citizens' House involves governing decisions related to funding public goods. During its initial stages, Optimism itself raised funds on Gitcoin, a prominent platform for funding public goods. ^[2]

Tokenomics

Out of the scheduled total supply of 4.29 billion tokens, 20% was allocated to retroactive public goods funding, 17% to investors, 19% to core contributors, and 25% to the ecosystem fund. The remaining 19% consisted of airdrops, with 5% being designated for the initial airdrop. The remaining 14% was set aside for future airdrops. ^[4]

The Optimism Foundation

The Optimism Foundation is a nonprofit organization dedicated to foster the growth and development of the Optimism Collective. ^[9]

"We pledge to uphold the values of Ethereum by producing infrastructure that promotes the growth and sustainability of public goods. " - Philosophy of the Optimism Foundation

The Optimism Collective

The Optimism Collective is a group of companies, communities, and individuals collaborating to incentivize public goods and establish a sustainable future for the Ethereum ecosystem. The governance is composed of two houses: the Token House and the Citizens’ House. ^[10]

Token House

The Token House consists of OP holders who are responsible for submitting, discussing, and voting on diverse types of Optimism Collective governance proposals. OP holders have the option to vote directly or delegate their voting power to a third party known as "delegates." These delegates can represent multiple OP holders during the voting process. ^[11]

Citizens’ House

The Citizens' House comprises Optimism citizens with the responsibility of allocating rewards to public goods providers through a process known as "retroactive public goods funding" (RetroPGF). The selection of citizens occurs via entries in the AttestationStation smart contract, and their main role is to ensure fair compensation for contributions made by public goods providers. ^[11]

RetroPGF represents an innovative approach to funding public goods that have already been delivered. Instead of relying on upfront grants or donations, RetroPGF empowers citizens to allocate rewards based on the actual value that public goods providers have contributed to the community. This incentive encourages providers to continue creating value, as they know their efforts will be duly rewarded. ^[11]

Funding

Optimism secured $150 million in a Series B funding round. The funding was led by crypto investors Paradigm, headquartered in San Francisco, and Andreessen Horowitz, resulting in a valuation of Optimism at $1.65 billion. ^[1][6]

Worldcoin

In July 2023, World ID, the identity protocol of Worldcoin, was announced to be available on OP Mainnet. TFH's World App, the first wallet that enabled transactions using Worldcoin, digital assets, and stablecoins, was also migrated to OP Mainnet. After the announcement of Worldcoin, transactions on the Optimism network surpassed Arbitrum's daily transactions. ^[5]