Vitalik’s 2020 Recap and 2021 Outlook:
Vitalik shared his blog post reflecting on Ethereum’s 2020 and looking ahead to 2021. 2020 was a year of rapid growth for Ethereum, with DeFi becoming a major use case. Vitalik predicts that 2021 will see continued growth in DeFi, as well as the emergence of new applications such as DAOs and NFTs.

An Incomplete Guide to Rollups:
Vitalik’s blog post on rollups provides an overview of this scaling solution for Ethereum. Rollups are a type of Layer 2 scaling solution that allows transactions to be processed off-chain and then batched together and submitted to the Ethereum blockchain. This can significantly reduce gas fees and increase transaction throughput. Vitalik discusses the different types of rollups, including optimistic rollups and ZK-rollups, and their advantages and disadvantages.

Social Recovery Wallets:
Vitalik also discussed his blog post on social recovery wallets. Social recovery wallets allow users to recover their funds if they lose their private key. This is done by assigning a group of friends or family members as guardians who can help the user recover their funds. Vitalik believes that social recovery wallets could make cryptocurrencies more accessible and user-friendly.

Scalability Solutions Overview:
Layer one scaling increases the blockchain’s transaction processing capacity, while layer two scaling moves work off-chain to reduce the need for on-chain processing.

Channels:
Channels are ideal for optimizing one-to-one interactions. Payments are made off-chain and settled on-chain in one transaction when the final payment is published. The smart contract enforces the interaction game and prevents fraudulent behavior. Challenges are resolved by providing Merkle branches.

Plasma:
Plasma is a clever construction suitable for non-fungible tokens and asset transfers. Each unit of an asset is assigned a unique ID, and transactions are stored in a Merkle tree based on the ID. Merkle roots are published on-chain, and withdrawals require publishing an operation and providing the Merkle branch. Challenges are resolved by providing Merkle branches.

Rollups:
Rollups are a hybrid scaling solution, combining features of layer one and layer two. Computation and most data are moved off-chain, but some data is published on-chain for every transaction. The on-chain data addresses game theory issues related to data availability and enables fraud proofs for computation.

Rollups and Their Advantages:
Rollups, such as plasma and channels, address the issue of scalability by relying on the concept of owners. If an owner misbehaves, the system can fail, but only in the direction of the owner losing the asset. Rollups offer a strong guarantee that the state will be processed correctly, making them suitable for general-purpose applications where asset mapping to owners is not feasible.

Core Idea and Mechanism of Rollups:
A rollup involves a smart contract on-chain that maintains a state and a Merkle hash of all the state inside the rollup. Anyone can publish a batch, a collection of transactions, along with the previous and new state roots. The rollup contract trusts the batches by default, and nodes in the network verify their correctness.

Optimistic Roll-ups:
Trust but verify approach: the rollup contract trusts the batches by default and accepts their results. Nodes run full computations and can challenge incorrect batches. If a challenge is correct, the batch is reverted, and the submitter loses their deposit. Withdrawals take one week, but a third-party market can provide instant withdrawals at a cost.

ZK Roll-ups:
Use validity proofs (ZK-SNARKs) to directly prove that the post-state root is a correct result of executing the batch on the pre-state root. Instant withdrawals without collateral requirements. No requirement for always-online honest nodes to publish fraud proofs. Higher data efficiency compared to optimistic roll-ups.

Complexity, Generalizability, and Costs:
Optimistic roll-ups are simpler in technology and easier to generalize for full general-purpose EVM computation. ZK roll-ups have lower per transaction on-chain gas costs but higher off-chain computation costs.

Long-Term Outlook:
Vitalik Buterin believes that optimistic roll-ups will likely win in the short term for general-purpose EVM computation due to their simplicity and ease of implementation. However, he expects ZK roll-ups to eventually dominate all use cases in the long term due to their advantages in instant withdrawals, scalability, and data efficiency. Teams working on optimistic roll-ups should start considering strategies for transitioning to ZK-based solutions in the future.

Advantages of ZK Rollups Over Optimistic Rollups:
Scalability: ZK rollups offer greater scalability than optimistic rollups, providing a 570x scaling gain compared to 77x in optimistic rollups. Data Requirement: ZK rollups require less on-chain data for state updates, while optimistic rollups require more data for full computation verification.

Current Advantages of Optimistic Rollups:
Simplicity: Optimistic rollups rely on clean EVM verification and simple fraud-proof verifiers, providing a practical advantage in 2021. Compiler Complexity: ZK rollups require a larger and more complex compiler code to convert Solidity or Viper into arithmetic representations, increasing the risk of bugs.

Historical Overview of Ethereum L2 Scaling:
State Channels: State channels allow two parties to make multiple transactions without committing to the blockchain, reducing transaction costs. Plasma: Plasma attempted to extend state channels to one-to-many or many-to-many interactions, but faced challenges due to the data availability problem. Rollups: Optimistic and ZK rollups emerged as a compromise, regularly submitting data to the Ethereum blockchain to solve the data availability problem.

Research and Development Outlook:
Limited Evidence of New Scaling Systems: The dominance of channels, plasma, and roll-ups for over four years suggests that these techniques may represent the current limits of scaling solutions. Mathematical Arguments: Mathematical analysis indicates that channels, plasma, and roll-ups cover the range of possible data publication on-chain, making it unlikely that there are intermediate solutions between them.

Rollups and Capability Gains:
Vitalik Buterin highlights the potential of rollups to increase Ethereum’s capabilities, particularly in allowing off-chain transactions to new users and enabling general-purpose applications.

Heuristic Reasons for Limited Options:
Buterin suggests that there may be a limited number of viable options for Ethereum’s scalability, with rollups, sharding, and Plasma channels representing the most promising approaches.

Gemini Exchange Promotion:
David Hoffman promotes Gemini as a trusted cryptocurrency exchange with various features, including markets for DeFi tokens, instant deposits, fast withdrawals, and industry-leading cybersecurity.

Aave Borrowing and Lending Protocol:
Hoffman introduces Aave, a DeFi borrowing and lending platform on Ethereum, emphasizing its new features in version 2, such as swapping collateral without withdrawing assets.

Practical Use of Rollups:
Ryan Sean Adams highlights the practical applications of rollups, mentioning Loopering and Synthetix as examples of platforms already using them in production.

ETH2 and the Rollup Roadmap:
Adams inquires about the relationship between ETH2 and the rollup roadmap, specifically how ETH2’s sharding of data will impact the scalability of rollups.

Rollup-Centric Roadmap:
Buterin explains the “roll-up-centric roadmap,” recognizing the immediate need for rollups to relieve fee pressure and acknowledging the challenge of implementing sharded computation compared to sharding of data.

Rollup Scalability:
Rollups need data, and the scalability limit of a rollup is determined by the amount of data space the chain has consensus on.

Sharding’s Impact on Rollup Scalability:
With the current Ethereum chain, the scalability limit is around 500 kilobytes per block. With the sharded system, there will be 500 kilobytes for each of the 64 blocks in every slot, resulting in a significantly larger data space. This increased data space could potentially allow rollups to process up to 100,000 transactions per second.

Availability of Sharded Data Layer for Rollups:
The sharded data layer can be made available for rollups before the Ethereum 1 and Ethereum 2 merger. This requires an Ethereum 2 client inside Ethereum 1 and some EIPs on Ethereum 1 to be completed.

Completeness of the Guide to Rollups:
The guide is already outdated as Optimism rollup is now on mainnet for synthetics. Rollup technology is evolving, and new and more clever tricks are likely to be developed in the future.

Purpose of the Guide:
The guide aims to provide a primer on rollups that people can refer to for years to come. It acknowledges that new developments and improvements will continue to enhance the rollup experience.