Arbitrum, Optimism, and Polygon are layer 2 scaling solutions designed to overcome the limitations of the Ethereum blockchain. In this article, we explain the technical background and compare the strengths and weaknesses of these layer 2 networks.
🍒 tasty takeaways
Different on-chain and off-chain solutions are being developed to scale the Ethereum blockchain.
Optimism, Arbitrum, and Polygon are so-called off-chain scaling solutions.
Optimism is an optimistic roll-up that shares the security of the Ethereum mainnet but takes 7 days to finalize transactions.
Arbitrum comes in two forms – Arbitrum One, which is an optimistic roll-up, and Arbitrum Nova. The latter comes with lower fees but is less decentralized.
Polygon comes in two forms – Polygon POS, which benefits from fast transactions, and robust
sidechain-technology. Polygon zkEVM is very secure but requires special hardware.
|Optimism||Optimistic Rollups||Same security as Ethereum, no special hardware required, EVM compatibility||7-day delay for transaction finality, potential transaction ordering issues|
|Arbitrum||Optimistic Rollups (One) & AnyTrust (Nova)||Lower fees with Nova, compatibility with Ethereum||Less decentralized, sequencer privilege on transaction ordering|
|Polygon||Sidechain (PoS) & ZK-Rollups (zkEVM)||Fast transaction finality, EVM compatibility||Less secure and decentralized than Ethereum, special hardware for zkEVM|
Why Does Ethereum Need Scaling Solutions?
The Ethereum network is currently the largest decentralized layer 1 blockchain for smart contracts in terms of market cap and trading volume. And it continues to grow. However, similar to the Bitcoin network, Ethereum still faces some limitations:
Slow transaction speed
Low TPS (transaction per second)
These limitations prevent Ethereum from scaling efficiently. As a result, various solutions or approaches are being pursued to enable scaling.
What Different Ethereum Scaling Solutions Are There?
There are two primary scaling methods:
On-chain scaling: these are changes made on Ethereum’s mainnet. Sharding is an example, where the validators of the Ethereum blockchain are divided into different subsets and each set is responsible for one part of the total data. Sharding breaks up the blocks into smaller, more manageable blocks.
Off-chain scaling: no change needs to be made on the L1 blockchain. There are two main types of off-chain scaling:
Layer 2 solutions: security from the L1 mainnet is utilized. Examples are optimistic rollups, zero-knowledge rollups, and state channels.
New chain creation: security is derived separately from L1 mainnet. Examples are sidechains, validiums, and plasma chains.
Below is an illustration of Ethereum’s scaling solutions:
As we can see, Arbitrum, Optimism, and Polygon are protocols that utilize different technologies to scale Ethereum. Before diving into these protocols, we need to understand the underlying scaling solutions.
What is an optimistic rollup and how does it work?
An optimistic rollup is an off-chain layer 2 scaling solution for Ethereum and is managed by smart contracts. It works by executing transactions off the Ethereum main chain. These transactions are then bundled into different batches and submitted to the main chain.
This approach assumes that these transactions are valid, thus no proof of validity is published. However, after the submission of transactions, there is a period of time during which the results can be challenged if fraud is suspected.
In order to provide incentives for good behavior, both the optimistic validator and the party who submits fraud-proof must provide a bond. This bond is subject to slashing if fraudulent behavior is discovered.
What is a zero-knowledge rollup and how does it work?
Similar to an optimistic rollup, a zero-knowledge rollup (zk-rollup) is also an off-chain layer 2 solution for Ethereum where transactions are executed off-chain and batched. The major difference is that zk-rollup validators must summarize the changes needed for each batch and also produce validity proofs to prove that the changes are correct.
What is a sidechain and how does it work?
A sidechain is not a L2 scaling solution because it is an independent blockchain with its own block parameters and consensus mechanism. It is connected to the Ethereum network via a two-way bridge so users can move their funds between Ethereum and the sidechain.
Sidechains that are EVM (Ethereum Virtual Machine)-compatible can support native Ethereum dApps (decentralized applications) without much trouble. However, due to different consensus algorithms, they do not have the same security level as the Ethereum main chain.
OK, with this settled let’s now look at and compare Optimism, Arbitrum, and Polygon in detail.
What is Optimism?
Optimism is a layer 2 scaling protocol that utilizes optimistic rollups. It is built with the aim to provide instant transactions and low transaction fees while sharing the secure and decentralized characteristics of the main Ethereum blockchain. Its design philosophy is based on four pillars:
What are the pros and cons of Optimism?
Because the transaction data is still stored on the main Ethereum chain, Optimism has the same level of transparency, security, and decentralization as Ethereum.
Fraud-proof computation can be done by regular layer 2 nodes and does not need special hardware.
It is easy to move dApps and smart contracts from Ethereum to Optimism due to its compatibility with EVM.
Transaction finality is delayed for 7 days due to potential fraud challenges. Because of this, when withdrawing crypto users must wait for a week until they receive their assets.
Transaction ordering could be influenced by rollup operators.
Costs of transactions are higher than on sidechains because all transaction data must be posted on-chain.
What is Arbitrum?
Arbitrum has two main public permissionless chains that are both layer 2 running on Ethereum:
Arbitrum One: is an Optimistic Rollup chain. It was then upgraded to use the Nitro tech stack to maintain the same state while lowering fees, having better Ethereum compatibility, and making the code simpler.
Arbitrum Nova: is also built with Nitro and is specially developed for dApps (decentralized applications) such as gaming, social, and Non-Fungible Token (NFT) projects which come with high transaction volumes and demand very low transaction fees. This is achieved using the AnyTrust model which is not an Optimistic Rollup protocol. In exchange for lower fees, its data availability is managed by a fixed permissioned set of entities called “Data Availability Committee (DAC)”.
Users can switch between Arbitrum One and Nova using the Arbitrum bridge. Arbitrum’s governance token $ARB is an ERC-20 token. It has been recently distributed to community members via airdrop.
What are the pros and cons of Arbitrum?
Since Arbitrum One is an optimistic rollup chain, it shares the same pros and cons with Optimism. However, with Arbitrum Nitro, the execution environment is closer to EVM and code can be compiled to WASM.
Arbitrum Nova is built with Nitro and AnyTrust. The main advantage brought by AnyTrust is significantly lower fees. However, Arbitrum Nova is not permissionless and is also not as decentralized as Ethereum when it comes to data availability management. Furthermore, the sequencer, which submits the user’s transactions to the layer 1 chain, has the privilege to order transactions.
What Is Polygon?
The Polygon network includes 2 Ethereum off-chain scaling solutions:
Polygon PoS: is a combination of Proof-of-Stake and Plasma-enabled sidechains. The network’s architecture comprises 3 layers:
Layer 1: a group of smart contracts on the Ethereum main chain.
Layer 2: is called the Heimdall layer which is the PoS layer.
Layer 3: is called the Bor layer which produces sidechain blocks and is based on Geth.
The native cryptocurrency used on Polygon PoS is $MATIC.
Polygon zkEVM: currently in the mainnet Beta phase, it is a layer 2 scaling solution for Ethereum using ZK-Rollups. It is scalable, equivalent to the EVM, and shares the security and decentralization of Ethereum.
What are the pros and cons of Polygon?
The pros and cons of Polygon PoS are reflected in the pros and cons of sidechains:
The technology used for sidechains is mature due to existing extensive research.
The transaction finality is much faster than optimistic rollups because there is no fraud proof challenge period. As a result, users can withdraw their crypto assets almost instantly.
EVM compatibility allows easy expansion of dApps’ ecosystem.
Sidechains do not share Ethereum’s security and decentralization as optimistic rollups do.
Higher trust assumptions are needed for sidechains.
The pros and cons of Polygon zkEVM are reflected in the pros and cons of ZK-rollups:
Reliance on cryptographic algorithms on security instead of the honesty of rollup validators.
Transaction finality is faster and users experience no withdrawal delays.
Data that is needed to recover the off-chain state is stored on the Ethereum main chain, which ensures decentralization, censorship resistance, and security.
Special hardware is needed for validity-proof computation, which could reduce decentralization.
The ordering of transactions can be influenced by sequencers.
Compared with optimistic rollups, the cost of computation and verification of validity proofs is higher and the technology is more complex.
Arbitrum vs Optimism vs Polygon
In order to make the Optimism, Arbitrum, and Polygon easier to compare, we have summarized the most important technical data in the following graphic:
At the moment, despite Polygon having the largest market cap, Arbitrum One accounts for more than 60% of the market share in L2 scaling solutions. This is also reflected in the TVL (total value locked) and the number of projects with more than $1 million TVL.
Although architecturally all of the protocols support a large amount of TPS, at the moment, none of the three protocols shows a high TPS. This could be due to the still low number of daily users.
Which Is Best: Optimism, Arbitrum, Or Polygon?
Optimism, Arbitrum, and Polygon all use different technologies to scale Ethereum. Each protocol has its pros and cons. That’s why it is difficult to simply conclude that one is better than the other. Much depends on the nature of the project and the needs of its users.
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We can see that at the moment, Arbitrum has the largest market share. This could indicate that the protocol is getting a lot of attention from the crypto community. This in turn will benefit decentralized projects on Arbitrum. According to DeFiLlama, Arbitrum has the highest number of large DeFi projects. New DeFi-related dApps could benefit from the existing ecosystem.
If a crypto project has a lot of users who prioritize a short withdrawal period and low fees, then Polygon is a good choice to be built on. According to DappRadar, Polygon has the highest number of NFT marketplaces among the three. This could make it attractive for new NFT-related projects.