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What Are Rollups and How Can They Work on Bitcoin?

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Conceptual image depicting Bitcoin rollups
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Bitcoin is not only the oldest blockchain, it’s also the most popular as it sees hundreds of thousands of transactions every day.

But Bitcoin, as you probably know by now, was designed to be a simple blockchain that prioritized security within its decentralized framework. That, in turn, gave way to a scalability problem that has led to the perception of Bitcoin solely as a digital asset and a store of value.

In recent years, various solutions – like Bitcoin layers – have emerged to address the issue and allow builders to develop an entire Bitcoin ecosystem.

Now, scaling solutions have been a focus not just of Bitcoin, but of other blockchain networks as well. 

And one of the most talked about solutions has been rollups.

Bitcoin’s scaling dilemma

By now, you’ve probably heard about the limitations of Bitcoin.

Bitcoin is a decentralized, secure, and trustworthy blockchain, but it has always faced a scalability problem. And honestly, that’s because in prioritizing security, the blockchain actually has limits to its design.

Most newer layer 1 blockchains – Ethereum and Solana, for example – were actually designed to develop smart contracts and entire sets of decentralized applications (dApps). 

Bitcoin, however, was designed to be a censorship-resistant, peer-to-peer payment platform. It wasn’t meant to accommodate entire flywheel economies that settled on its layer 1. 

Block size, for example, has been a factor. Thanks to the Segregated Witness (SegWit) update, the effective block size has been increased to 4MB. But that’s accommodating for SegWit data, as the base transaction block is still 1MB.

It is also well-known that restrictions of Bitcoin’s block size and block time means it is only capable of processing about three to seven transactions per second. That, and limited throughput also means high demand for a limited supply of block space, which can cause fees to increase when network congestion is high.

Finally, Bitcoin’s scripting language makes smart contract logic difficult to implement, which impacts the creation of dApps on the blockchain.

Of course, the emergence of Bitcoin layers like Lightning and Stacks have allowed the blockchain to scale and accommodate for additional use cases, as well as upgrades like Taproot, sidechains, and other scaling systems. 

Rollups are yet another scaling system.

Rollups: a scaling solution

Rollups are scaling solutions for layer-1 blockchain networks.

They take transactions off-chain, process them there (usually on a layer 2), and bundle multiple transactions into one batch that can be sent back to the layer 1 chain. A smart contract then validates that batch of transactions, and that updates the state of the blockchain.

Rollups are becoming increasingly popular because they increase transaction throughput while reducing transaction costs. This is because rollups mean that blockchains don’t need to separately process thousands of transactions, they technically only need to process one.

This is especially useful for dApps, which require frequent and fast transactions to operate efficiently. That’s why rollups have been cited as a viable scaling solution for blockchains like Bitcoin.

We’ll begin by covering the two most common types of rollups: optimistic rollups and zero-knowledge rollups.

Optimistic rollups

With an optimistic rollup, users can challenge the submitted state of a main chain via a dispute resolution mechanism. The rollup operator – who has aggregated multiple transactions into a single rollup block – basically submits a summary of the block to a verification game on the main blockchain.

In the verification game, any user can challenge the summary by submitting proof that the summary is incorrect. Such a challenge is called a fraud proof.

If the proof is valid, then the submitted state is reverted and the rollup contract is taken back to a previous state. If no one challenges the summary, the rollup block is considered finalized and the submitted state is maintained.

In fact, these types of rollups are considered “optimistic” as they assume the submitted state is correct until proven otherwise. 

Zero-knowledge rollups

ZK-rollups (also known as validity rollups), however, function by using zero-knowledge proofs to establish that a rollup contract is correct. 

Zero-knowledge proofs basically allow a “verifier” and a “prover” to discern that a piece of information is true without revealing the specific information itself. This enables the rollup to verify the correctness of the off-chain transaction aggregation without revealing any sensitive information about the transactions in the batch.

ZK-rollup operators, who are in charge of bundling the transactions together, will generate a proof of validity for every batch of off-chain transactions that they handle.

The validity proof is then submitted to the layer 1 blockchain to prove that the state update is, in fact, correct. So unlike optimistic rollups, there is no need for a dispute resolution mechanism.

Sovereign rollups

More recently, other types of rollups have emerged. This includes sovereign rollups.

While ZK and optimistic rollups both use smart contracts to confirm the rollup execution, sovereign rollups don’t need smart contracts. Nor do they need a settlement layer, hence the name “sovereign.”

If you look at optimistic and ZK rollups, they tend to use L1s as both the data availability layer and consensus. Sovereign rollups, however, only use the layer 1 for data availability, ensuring that they have a more direct connection to the base layer. 

While sovereign rollups are still in early stage development, the case is being made that they’re actually the most secure of the three rollups we have mentioned in this article. This is mostly because given the absence of smart contract use, sovereign rollups won’t necessarily experience the bugs that can be associated with smart contracts.

Rollups on Bitcoin

Speaking of risks, there’s a key reason why Bitcoin could actually address security concerns associated with rollups: its highly decentralized nature.

Rollups are generally associated with the Ethereum network. The Ethereum blockchain, some would argue, became more centralized after the blockchain’s transition to proof of stake in September 2022. Plus, many rollups actually depend on centralized sequencers for transactions on L2s.

We’ve already discussed the kind of security a more decentralized system can bring, especially where Bitcoin is concerned. Rollups, however, are still experimental, so much remains to be seen in terms of their security.

In fact, much remains to be seen in terms of applying rollups to Bitcoin in general.

Validity rollups on Bitcoin, for example, became a fairly big topic for discussion in October 2022 when John Light published a research report on how they could be applied to Bitcoin’s L1. The suggested changes that he proposed included recursive covenants and opcodes that would help with verifying rollup transactions.

A Bitcoin covenant is a mechanism in the Bitcoin protocol that allows users to add additional conditions or rules to a transaction. These conditions can be used to enforce certain behaviors or restrictions on the use of bitcoins involved in the transaction. Examples of Bitcoin covenants include time locks and multi-sig transactions. The goal is to create more complex – but also more secure – transactions on the Bitcoin network.

A recursive covenant is when a transaction is restricted, but the restriction is conducted in a way that limits another transaction, and then another in a chain of transaction restrictions. In the case study laid out in Light’s research paper, the end result of a recursive covenant would basically make sure that the owner of a rollup transaction on BTC needs to confirm that a withdrawal transaction is valid before they can exit the script.

In March 2023, the idea of sovereign rollups on Bitcoin also became a point of discussion when Rollkit announced a research integration that stored the rollup data directly on the Bitcoin blockchain. They did so with the use of Taproot transactions, as inspired by the recent Ordinals protocol.

The Future of Rollups on Bitcoin

The development around rollups has allowed them to expand beyond an Ethereum scaling solution. As we have seen in recent cases, they have also helped make the case that Bitcoin can be the base chain of more operations than previously assumed. In general, rollups are still in their infancy, whether on Bitcoin or any other L1. The potential impact they have, however, is promising.

Discussions about implementing rollups on Bitcoin have increasingly gained traction. In August 2023, Chainway took yet another step towards enabling ZK rollups on Bitcoin with the open-sourcing of their data availability adapter (DA adapter), which made Bitcoin compatible with the Sovereign SDK. Just a week later, Kasar Labs and Taproot Wizards also announced the open sourcing their own DA adapter for Bitcoin, demonstrating that a greater number of Bitcoin builders and users are diving into the potential that rollups could unlock for BTC.

Rollups have already changed how we perceive on-chain transaction data, proof verifications, and how we execute transactions on-chain involving large amounts of data.

They're just the latest in driving forward the discussion of how we store, read, and utilize data on-chain.

This, in turn, has lent another dimension to the Bitcoin scalability discussion, especially as developers are trying to create entire flywheel economies on the BTC blockchain.