Ethereum still has a hard time scaling. More dApps and more users are competing and this does not only increase transaction costs but also the time to execute transfers on the blockchain. Ethereum has become the second-largest blockchain after Bitcoin and is the market leader in terms of total value locked on its chain.
Its blockchain is becoming slow and more expensive. Optimism is a scaling solution for Ethereum that promises to solve these problems.
How does Optimism work and how can you get involved in enjoying all of its features?
What is Optimism?
Optimism speeds up transactions on Ethereum at a fraction of the cost of a usual on-chain transaction. This is achieved by a technology that is called optimistic rollups which is bundling multiple transactions “rolling them up” into one transaction and settling them on another blockchain. Optimism is a so-called layer-2 scaling solution.
The name of the protocol stems from the fact, that all validators assume optimistically that all transactions that have been bundled are valid. Validators have one week time to check the entire rollup for any fraudulent transactions.
It is estimated that this technology is reducing fees on the Ethereum blockchain by over 100 times compared to a standard on-chain transaction. Optimism was introduced in 2019 but its mainnet just started in December 2021, which is the reason why this solution hasn’t become popular yet.
How does Optimism work?
All blocks that are rolled up by Optimism are stored in a smart contract on Ethereum that is called the “Canonical Transaction Chain”. A new block on Optimism is produced by a sequencer. It confirms valid transactions and creates blocks on its second layer.
These blocks are acting very similar to receipts between transacting parties and only require a minimal set of data that is also compressed. Once the block is tightly packed, Optimism hands the transaction data back to Ethereum.
How can you use Optimism?
Since Optimism is a second layer based on Ethereum users have to bridge their assets to its blockchain. Doing so can be easily done by using a gateway that can be connected with any wallet such as MetaMask.
A deposit takes around 20 minutes but a withdrawal form Optimism takes about a week since validators have to check the user’s balance before withdrawing the funds to the Ethereum blockchain.
If funds are deposited on Optimism, users can interact with dApps that support the second layer solution. This is especially useful when trading on decentralized exchanges or moving crypto in and out of liquidity pools. Each transaction will only cost a fraction of the usual fee. Once the users is finished with his business he can choose to opt for an on-chain settlement of his balance or to keep it on Optimism for other activities.
The Optimism token
Like many other blockchains, Optimism has its own token which is listed under the exchange ticker OP. The OP token is using the ERC-20 standard on the Ethereum blockchain. Unlike other scaling solutions, users don’t need OP tokens to pay fees. Instead, fees are always paid using Ether, the native cryptocurrency of the Ethereum blockchain.
The purpose of the Optimism token is to take part in the protocols of the on-chain governance and public goods funding. By holding the token, investors have the right to vote and the weight of their vote is determined by the amount of OP that they are holding.