What is Optimism? How does it work?

Ethereum is the top smart contract blockchain, however, scalability is an issue. High throughput and low transaction fees are essential for dApps, DeFi protocols, and NFTs. One common Layer 2 protocol is Optimism, which addresses these concerns.

Optimism addresses Ethereum’s scalability and pricey transactions. Ethereum’s network failed to keep up with DeFi, dApp, and NFT demand, raising transaction prices and slowing processing. Optimism relieves Ethereum of some transactional load by processing it on its blockchain.

This guide explains optimism, its benefits, and its pitfalls. Understanding optimism is essential to adapting to blockchain technology, whether you’re a developer building on Ethereum or a user using dApps and DeFi protocols.

What is Optimism?

Optimism, an Ethereum-built L2 blockchain launched in 2019, processes transactions in batches utilising optimistic rollups. Users can access cheap, near-instantaneous transactions. Applications that employ Ethereum apps can be quick, stable, scalable, and secure with Optimism. 

Users and developers may leverage Ethereum’s robust security guarantees while saving money and time using Optimism. This governance token can be bought or traded on Coinbase and other exchanges.

Built by Ethereum developers for Ethereum developers, Optimism is fast, stable, and scalable L2. Optimism’s EVM-equivalent architecture scales Ethereum apps reliably. Optimism is expanding Ethereum’s present to support its future through retroactive public goods funding to develop a sustainable ecosystem.

Optimism offers similar functionality to Ethereum, but at a 10x lower cost. Like Ethereum, Optimism users can purchase, trade, accumulate, and mint NFTs and engage with DeFi applications.

How does Optimism work?

Optimism utilizes a technology known as rollups, specifically Optimistic rollups, to enhance Ethereum’s scalability and efficiency.

Rollups bundle, or “roll up,” data from hundreds of transactions—such as NFT mints, token swaps, and other activities—into a single transaction on the Ethereum mainnet (Layer 1). This bundling process drastically reduces the blockchain transaction or “gas” fees, as the cost of processing is distributed across many transactions instead of each transaction bearing the full cost individually.

The “Optimistic” Aspect

The term “Optimistic” in Optimistic rollups signifies the assumption that transactions are valid by default. This is akin to the principle of “innocent until proven guilty.” 

Here’s how it works:

Bundling Transactions: Multiple transactions are collected and rolled up into a single batch.

Submitting to Ethereum: This batch is then submitted to the Ethereum mainnet.

Challenge Period: After submission, there is a designated time window during which any of the transactions in the batch can be challenged.

Fraud Proofs: If someone suspects that a transaction is invalid, they can submit a “fraud proof.” This involves running the transaction’s computation using the available state data to verify its validity.

Gas Reimbursement: Optimism reimburses the gas fees required to execute these fraud proofs, ensuring that validators have no financial disincentive to keep the network honest.

Features of Optimism

Optimistic Rollups

As said, the Optimistic blockchain allows transactions to be “rolled up” into a single transaction that is validated and paid on the Ethereum mainnet. Users pay less gas since this scaling method minimises Ethereum mainnet demand.

Fully Compatible

Optimism blockchain enables Ethereum smart contracts and dApps, a major feature. Optimism runs on the Ethereum Virtual Machine (EVM), so developers can deploy it using Vyper and Solidity without compromising code.

Instant Confirmations and Withdrawals

It usually offers rapid confirmations and withdrawals without centralised agents or bridges. Different uses affect confirmation speed. Due to the fault-proof verification methodology, deposits from Ethereum to Optimism take 15 minutes, but asset transfers may take the whole Challenge Window (7 days).

Decentralised governance

With its native token, OP, Optimism allows community engagement and decision-making. By sponsoring and supporting public goods, the Optimism Collective community hopes to make Ethereum and crypto more sustainable and inclusive. Token holders, builders, and users make it a diversified and active ecosystem.

Interoperability with The Superchain

Optimism wants to introduce the Superchain, a more powerful blockchain interoperability architecture. The Optimism mainnet can establish a single chain with Bitcoin, Polkadot, or Cosmos. Users, developers, and protocols have a more smooth and secure cross-chain experience without sacrificing scalability, compatibility, or decentralisation. Due to societal and technical obstacles, the Superchain is still in development.

Pros and Cons of Optimism

 Pros:

Scalability:

Optimistic rollups, off-chain computation, and status storage solve Ethereum’s scalability difficulties. This greatly reduces the Ethereum mainnet load, allowing it to process more transactions.

Cheaper Deals:

It significantly reduces petrol fees by combining transactions. This makes Ethereum blockchain transactions cheaper while maintaining security and trustlessness.

Ethereum-compatible:

It integrates perfectly with Ethereum’s architecture, giving developers and consumers a familiar experience. This interoperability eases the transition for Ethereum projects and promotes uptake.

Cons:

Slow Transactions:

It’s prolonged withdrawal times are a drawback. This delay is caused by the security mechanism that lets validators report invalid transactions. This waiting period can be difficult for individuals who need their payments quickly.

Minimal Smart Contract Function:

It boosts transaction efficiency but has smart contract constraints. Users may need the Ethereum mainnet or other blockchain options for dApps with complex smart contract functionality.

Security Risks:

It’s fault-proof technique ensures transaction legitimacy but poses security problems. Attacks could target the system’s reliance on validators to detect and challenge fraudulent transactions.

Is Optimism (OP) a good investment?

If you want to evaluate Optimism as an investment or make investment recommendations, start with the price history above. Since the OP coin has only been in existence and traded on an open market for a short time, past performance does not promise future results.

Cryptocurrency exchanges and markets are notoriously unstable, making long-term token price predictions difficult. The decision to invest in Optimism or associated technologies is never easy.

OP currencies and Optimism may influence Ethereum development in the future because they are used throughout the ecosystem. Due to the project’s ecosystem development, crypto enthusiasts may keep investing in Optimism (OP), which could lead to price rises.

Conclusion

Optimism improves Ethereum transactions with seamless interoperability with the Ethereum main chain, greater scalability, and lower fees. It bundles transactions efficiently via optimistic rollups, reducing Ethereum network congestion and making transactions cheaper. Ethereum needs this scalability increase to accommodate a burgeoning ecosystem of dApps and DeFi protocols.

However, like any technology, optimism has downsides. Users who need their funds quickly may find its security procedures’ lengthy withdrawal times annoying. The restricted smart contract functionality may force users to use the Ethereum mainnet or other blockchains for more complicated applications. Despite these limitations, Optimism’s benefits are enormous and enable Ethereum adoption.

As Ethereum popularity rises, it will be intriguing to see how it adapts to user needs. It might revolutionise Ethereum by solving scalability and cost difficulties, making it a key player in blockchain technology. It’s development and refinement may help Ethereum remain a dominant decentralised application and financial system platform.