Lightspeed - Solving Crypto's Scaling Trilemma

In this episode of Lightspeed which took place on February 21, 2024, Dan, Mert, Steven, and Rachel discuss Arbitrum’s origin story, its development, features, and the future. Read our notes below to learn more.

Background

Mert (Host) – CEO at Helius Labs, Co-Host at Lightspeed
Dan (Host) – Co-Host at Lightspeed
Steven (Guest) – Co-Founder of Offchain Labs
Rachel (Guest) – Tech Lead at Offchain Labs
Arbitrum – a layer-2 built to scale Ethereum

The Origin Story Of Arbitrum

Steven says that in the fall of 2014, an undergraduate seminar at Princeton introduced the initial concept of Arbitrum led by a co-founder. After being shelved for a few years, interest in scaling solutions like Arbitrum grew due to increased transaction volumes in 2017.
He adds that in 2018, Offchain Labs was established as a part-time endeavor that quickly evolved into a full-time commitment with funding secured.
Steven says that Arbitrum is a way to scale a blockchain like Ethereum. The initial Arbitrum paper focused on scalability without directly mentioning Ethereum. The company always intended to build something on Ethereum due toits belief in its technical aspects and community ecosystem.

Solving The Scaling Trilemma

Steven says that Vitalik proposed a rollup-centric future for Ethereum, emphasizing security and decentralization. The blockchain trilemma highlights the trade-off between security, decentralization, and scalability. The community recognized the need to scale Ethereum through a rollup-centric roadmap.
He adds that Ethereum is distinct from other entities. Criticisms of Ethereum were originally features. He embraces a world-centric roadmap for scalability. He advocates for a structured and intentional approach to scaling.

What Is A Rollup?

Steven says that rollups aim to offload computation from Ethereum.
He adds that Optimistic rollups do not provide immediate proof of validity but allow for challenges to ensure correctness. Ethereum acts as a referee in the process, either validating the proof or overseeing the fraud-proof process. Data from off-chain transactions is represented on Ethereum, requiring validation through different proving technologies.

Why Choose Optimistic Rollups vs ZK-Rollups

Steven says that he opted for optimistic rollups due to lower costs, flexibility to support EVM directly, and scalability beyond EVM capabilities. He emphasizes flexibility, cost-effectiveness, and execution capabilities as key factors in selecting optimistic rollups for scaling Ethereum.
He adds that Arbitrum focused on providing scaling solutions rather than starting with a specific technology solution like ZK or optimistic approaches.
Steven says that Arbitrum is mature and decentralized compared to other technologies It is believed that Arbitrum hits the sweet spot in scalability for Ethereum users today, rather than in the future. The importance of having a proof system in place, like what Arbitrum offers, provides developers with more flexibility.

Launching A Rollup Without Proofs

Rachel says that disruptions in the network may not always occur due to intuition about wall locations. Stylus delayed launch to ensure fraud-proof, prioritizing security over quick delivery. Efforts were invested in building fraud-proof systems for innovation sustainability. Choices made during development are informed by the fraud-proof system for long-term benefits.
She emphasizes subtle choices guided by a fraud-proof system to prevent technical debt. It is not possible to predict technical challenges far in advance due to complexity.
Rachel says that continuous upgrades aim at enhancing decentralization without compromising security. Arbitrum’s popularity is attributed to its secure design amidst high-stakes transactions.

Data Availability

Rachel says that data availability nodes provide data as a service. At least two honest nodes are crucial for performing fraud proofs. If only one node is honest, a security trade-off occurs, potentially leading to collusion and data withholding.

Scalability Trade-Offs

Dan says that Ethereum upgrade 4844 is expected to reduce posting costs by three to five times. EigenLayer and other solutions offer significantly cheaper options compared to the Ethereum mainnet.
Rachel says that lower fees from cutting data availability costs may lead to security trade-offs Ethereum’s capacity constraints impact fee predictability. The market price of data is determined by demand and capacity (supply curve). Ethereum’s conservative data allowance aims for low operational costs and accessibility.

Do Sequencers Need To Be Decentralized?

Steven says that the concept of Base rollups involves sequencing transactions at layer-1 rather than using a sequencer on the rollup. Initially, in 2018, the term “Base rollup” was used where sequencing was done by layer-1 inbox without a sequencer. The introduction of sequencers post-2018 brought about centralized sequencing for transaction ordering.
He adds that getting a transaction in sooner is crucial but not being able to see the mempool can lead to uncertainty. The core tenet is to ensure that user experience is not degraded by delays in transaction processing.
Steven says that centralized validation and sequencers are often misunderstood; centralized validation poses concerns while decentralized validation ensures security. The sequencer in Arbitrum orders inputs but does not produce outputs or manipulate data like balances or gas prices.

The Ethereum Rollup Roadmap

Mert says that the debate between a modular roadmap with numerous rollups versus a scenario dominated by two or three major rollups.
Rachel says that Optimistic rollup is the current preferred model for scaling Ethereum. Some prefer the ZK route for scaling Ethereum, allowing for different visions in the market. Decentralization allows anyone to propose their scaling solution, leading to the potential dominance of a few designs in the long run.
Steven analogizes blockchain networks to TV channels, highlighting the need for consolidation in specialized areas. He foresees a self-sharded vision with gaming-focused chains and NFT-focused chains consolidating around specific verticals.
Steven emphasizes consolidation around particular verticals for improved bridging and user experience. He predicts tens of specialized application rollups alongside general-purpose high liquidity chains dominating the market.
He compares bridging between blockchain networks to consumer checkout experiences, emphasizing seamless transitions for users.
Steven says that ZK-based bridging solutions are desired for their efficiency. He emphasizes the importance of developing better bridging solutions based on superior technologies.

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Show Information

Medium: YouTube (Video)
Show: Lightspeed
Show Title: Solving Crypto’s Scaling Trilemma | Arbitrum
Show Date: February 21, 2024