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Optimism is what is known as a Layer 2 solution – a secondary framework protocol built on top of an existing blockchain system, whose main goal is to solve transaction speed and scaling issues faced by its parent blockchain.
The Optimism platform utilizes a so-called optimistic rollup – meaning that it takes advantage of the consensus mechanism of its parent chain – in this case Ethereum, stores its data blocks in a special smart contract on Ethereum, and is designed to support the bridging of assets between Optimism and Ethereum and vice versa.
Optimism, describes the four main concepts around which the project is built as simplicity, pragmatism, sustainability, and optimism. Simplicity represents the network’s design composed of the minimum requirements for a secure, scalable, and flexible L2 system, while at the same time the Optimism team believes simplicity also provides for higher security as “every line of code (…) is an opportunity to introduce unintentional bugs”.
Pragmatism, the second core concept of the Optimism project, represents the vision that the blockchain should have use cases solving real-world needs and problems. The sustainability of Optimism is meant to represent the team’s idea of not taking shortcuts to scalability. Lastly, Optimism is the notion around which the whole project is built – more precisely the team describes their common optimism about the Ethereum vision as what moves the project forward.
More technically, the Optimism network is built around the Optimistic Rollup construction, which is a type of L2 construction that runs on top of the Ethereum base layer, which enables it to run an Optimistic Virtual Machine (OVM) compatible with the Ethereum Virtual Machine (EVM) that gives dApps an opportunity to run anything Ethereum can.
Block production on the Optimism blockchain is managed by a single party named “sequencer”, which provides instant transaction confirmations and state updates, constructs and executes L2 blocks, and submits user transactions to L1.
Transactions received by the sequencer are immediately accepted or rejected in the order they have been received. If determined as valid, a transaction is given the status of a pending block, which is periodically submitted along with numerous other transactions in a large batch to the Ethereum mainnet for finalization. This process significantly reduces transaction fees on the Ethereum blockchain.
Optimistic Rollups’ batches of transactions or state commitments are published on the Ethereum network without any proof of validity, instead, they are considered pending for a predetermined period of time, currently set to seven days, during which their validity can be challenged. During this time users can’t withdraw funds, which is why withdrawals on L2 optimistic rollup solutions take days.
If challenged, a state commitment can be invalidated through a fault-proof process, which underwent its biggest update in November 2021 with the Ethereum EVM Equivalence OVM update. With the update, the fault-proof mechanism had to be temporarily disabled, meaning that Optimism users currently need to trust the sequencer node to publish valid state roots on Ethereum. The end of the upgrade on the fault-proof mechanism was at first expected to happen within the first half of 2022, however, it has since been pushed back to late 2023, its progress can be followed here.
The new fault-proof mechanism is named Cannon and is designed to allow an L2 validator to simply follow the L1 chain and monitor it for transaction batches and output commitments by re-running the batches locally and verifying that the state they obtain matches the sequencer node’s output commitment. Once a validator finds a difference in the output they can challenge the results on L1, where Cannon has to prove or disprove the validity of the challenged batch of transactions. The technical details of how that happens are available on the GitHub documentation webpage of the project here.
The OVM 2.0 upgrade as it is known in the Optimism community, mainly focuses on decentralizing the sequencer. As a first step in achieving this, the team describes the rotation of the sole sequencer. Although the mechanics behind this are not yet fully designed, the two components involved are said to be, an economic mechanism to create a competitive market for sequencing, and a governance mechanism preventing sequencers from prioritizing short-term profits over the network’s health. Later the sequencer will be split into multiple sequencers by adopting a standard BFT consensus protocol.
In 2022 Optimism introduced a series of updates such as a batch compression, referring to the process of optimizing the size of files in order to provide its users with lower gas fees. The algorithm used in the compression is Zstandard and it was developed by Yann Collet at Facebook. Thanks to these implementations, the gas fees on the Optimism mainnet were lowered by 20%.
To learn more about optimistic rollups and how they differ from Zero-Knowledge rollups check out DeFi Teller’s dedicated educational video on the topic.
Optimism can be used in the deployment of smart contracts just like Ethereum. Users wishing to interact with the Optimism network need to have a wallet Optimism supports such as MetaMask. Currently, MetaMask requires a manual connection to new Ethereum-based networks before allowing its users to interact with them. Just like Ethereum, Optimism has its own testnet called Kovan. The Optimism testnet requires transaction fees when deploying smart contracts, which are paid in ETH. Developers can use the Paradigm Multifaucet to get ETH for various testnets, including the Optimism Kovan testnet.
The OVM supports well-known development environments such as Hardhat, Brownie, and Truffle; details on their configuration can be found on the Optimism documentation webpage.
Optimism fees consist of two parts – the L2 execution fee and the L1 data, or security, fee. The Optimism L2 execution fee is similar to Ethereum’s gas fees, it is required by the virtual machine in exchange for the computation and storage provided to users. With the latest update of the OVM, the current fees Optimism charges for L2 execution, fluctuate with time and congestion and can always be checked on the public Optimism dashboard, but transactions typically use the same amount of gas as they would on Ethereum.
The Optimism fees charged for submitting user transactions to the Ethereum mainnet is the primary discrepancy between Optimism and Ethereum. Due to the high gas costs on L1, the data fee dominates the total cost of a transaction on L2. It is based on four factors – the current gas price on Ethereum, the gas costs to publish the transaction to Ethereum, a fixed overhead cost denominated in gas, currently set to 2,100, and a dynamic overhead cost scaling the L1 fee paid by a fixed number, currently set to 1.24.
The Optimism native token, OP, has a total supply of 4,294,967,296 tokens distributed as follows: 20% are used for retroactive public goods funding, 25% are reserved as ecosystem funds such as governance, partner, seed, and unallocated funds, 19% are currently being airdropped to eligible members, 17% are given to investors, and 19% are given to the Optimism core contributors. While Investors and core contributors are subject to at least two years lock up, community-held coins can be sold within the first year of the launch of the token.
OP was proposed with the introduction of the Optimism Collective – the new governance body of Optimism. It is governed co-equally by two major groups referred to as houses – The Citizens’ House and the Token House. The first is tasked with governing public goods funding, its citizenship will be represented by non-transferrable NFTs. The second group is represented by the OP token holders and governs, protocol upgrades, project incentives, and more.
Furthermore, there is also an Optimism Foundation established to help in maintaining the project and its development, controlled by the Collective, whose current leadership includes, two of the founders of Optimism – former CEO @jinglejamOP, and former Chief Scientist @ben_chain, as well as @evabeylin from The Graph Foundation, @abbey_titcomb from the Radicle Foundation, and Brian Avello from the Maker Foundation.
Optimism was founded in 2019 by Jinglan Wang, Karl Floersch, and Kevin Ho. Jinglan Wang is currently the CEO of the Optimism team and has past experience in Handshake, Nasdaq, as well as the MIT Bitcoin Club. She was also the Executive Director of the Blockchain Education Network. Karl Floersch the CTO of the Optimism team has past experience as a researcher for the Ethereum Foundation, as well as a blockchain Engineer at ConsenSys, and a frontend developer at 3Rings Media. Kevin Ho, currently serves as a Protocol Product Manager at Optimism, his Linkedin profile currently lists only one former occupation – hacker at Cryptoeconomics.study.
In February 2022, a critical bug was reported to the Optimism team by a Whitehat hacker through the company’s bug bounty program, for which they were paid $2 million. The vulnerability in Optimism’s fork of the Ethereum Geth client software made it possible for a potential attacker to create ETH tokens on Optimism by repeatedly calling a SELF-DESTRUCT function of the smart contract. Days following the confirmation of the bug, the Optimism team had patched the vulnerability, published a detailed breakdown of the incident, and paid out the bounty to the whitehat.
As reported by DeFi Teller, in June 2022, Optimism experienced a devastating exploit, resulting in the loss of 20 million Optimism governance tokens (OP) valued at over $17 million. The incident unfolded when Wintermute, a market maker partnered with Optimism, mistakenly provided an incorrect Ethereum (L1) multisig address that had not been deployed on Optimism (L2).
Wintermute acknowledged their "serious error" in a community announcement, admitting that their oversight left the funds vulnerable to exploitation. This prompted an attacker to take advantage of this vulnerability and steal the misplaced funds on the L2 network. Upon discovering the mistake on May 30, Wintermute had promptly notified the Optimism team and offered $50 million USDC as collateral while working with the Gnosis Safe team to recover the funds.
Initially, Wintermute believed that only they could retrieve the funds, scheduling the retrieval for June 7. However, it was later revealed that the assumption was incorrect. Within 24 hours of Wintermute's notification, an individual well-prepared for the situation initiated a replay attack by leveraging the Gnosis Safe MasterCopy 1.1.1 deployment from the Ethereum mainnet. Using the previously deployed contract, the attacker created vaults in batches of 162.
The hacker subsequently sold 1 million OP tokens for ETH and withdrew the funds to the Ethereum mainnet via Synapse and Hop bridges. To further obfuscate their tracks, they utilized tornado cash on the mainnet. As a result of the exploit, the market value of OP tokens experienced a significant decline, with the price falling below $1 and experiencing a nearly 14% decrease within a 24-hour period.
Despite this challenging situation, the attacker turned into a Whitehat hacker and used their extensive technical expertise to rectify the exploit and return the compromised funds, while keeping 2 million OP tokens in the form of a bounty reward. This incident highlighted the intricacies involved in securing layer-2 protocols and the importance of robust technical oversight to prevent such vulnerabilities.
The Optimism ecosystem includes projects such as Lyra – an AMM for options trading, Synthetix – project designed to create digital assets capturing the value of real-world assets, Quixotic – an NFT marketplace, Perpetual Protocol – decentralized perpetual swaps platform, and numerous other projects.
Optimism has been forked by many L2 solutions such as Metis Andromeda and Boba Network. There is also an Optimism implementation deployed on the Gnosis Chain with which Gnosis functions as the L1 and Optimism as the L2.
In the near future, the project aims to focus on four key areas: developing a next-gen fault-proof system, implementing a multi-proof approach for enhanced security, creating a decentralized sequencer, and establishing Layer-1 governed fault proofs.
https://community.optimism.io/
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Last updated: Aug 22, 2023
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