What is Optimism?

Key Takeaways

1. Optimism is a scaling Layer 2 solution for Ethereum and works by using optimistic rollups, with around $850 million in TVL.

2. Optimism helps end-users access Ethereum's dApps with cheaper transactions and a smoother user experience.

The Ethereum Merge has finally taken place. It's now time for us all to join hands, rejoice, and breathe a breath of fresh air... or so we thought. Then the world watched as the ETH price crashed. And instead of becoming deflationary, the ETH supply actually went up, up, up and away!

But that's the least of Ethereum's problems, when one remembers that Scalability is the reason all these upgrades are necessary in the first place. Amid all this chaos, how can one remain optimistic?

With all this going on, it's hard to stay an optimist these days. But when we look at Layer 2 solutions, we feel slightly better. Today, we look at one of the most popular Layer 2 blockchains: Optimism

What is Optimism?



Optimism is a Layer 2 solution for Ethereum, the most popular Layer 1 blockchain for building dApps. Ethereum, the first blockchain to launch with smart contracts, can get slow and expensive. But we'll get into that a bit more in the next section.

For now, know that Optimism is a scaling solution for Ethereum, and is a separate blockchain running on top of it. Optimism's mission? To help end-users like ourselves access Ethereum's dApps with cheaper transactions and a smoother user experience.

According to DefiLlama, Optimism currently ranks #8 for the most popular chains by TVL, with roughly $850 million locked in. (Aave dominates nearly 50% of this impressive figure.)

Now let's look at why Ethereum needs Optimism—or any other Layer 2 solution—in the first place.

Scaling Ethereum with Optimism



Ethereum was born with a sacrifice; her name was Scalability. In exchange, Ethereum was granted the gifts of Security and Decentralization.

In the Ethereum whitepaper, founder Vitalik Buterin describes this tradeoff as the Blockchain Trilemma. The Trilemma posits that you can have scalability, security, and decentralization, but not all three at the same time.

So Ethereum launched purposefully with a handicap. But since Ethereum was designed on an auction-based model for blockspace, the handicap presented its own set of problems. The most prominent challenge involves network congestion, followed by spikes in user demand. Such spikes fuel bidding wars between users who wish to see their transactions executed over those of others.

Over time, it came to be accepted that Ethereum Layer 2 solutions would lead the charge in the battle for scalability. Therefore, Ethereum's upgrades would shift focus. The mission thus changed to laying the architectural groundwork for the smooth operation of rollups on top of it.

How Does Optimism Work?



Optimism works by using optimistic rollups. These rollups were named thus because they roll up all the transactions and bundle them into a single transaction, to be executed on Layer 1. That way, Optimism's Layer 2 blockchain inherits all the security features from Ethereum.

By the way, they're called "optimistic" rollups for a reason. They assume—quite optimistically—that all transactions are valid until challenged and proven otherwise. This philosophical approach is how Optimism is able to provide blazingly fast transactions for its crypto users.

So what happens when a suspicious transaction actually occurs? The system has a 1-week challenge window where such transactions can be contested by running a fault proof.

Formerly known as fraud proofing, it involves running the contested state transition against those of the base layer. If the fault proof is validated, then the batch of transactions is re-run. A neat and simple scheme, no major challenges have presented thus far.

Protocols on Optimism



We can use DefiLlama to look at the most popular protocols on Optimism here. The Total Value Locked (TVL) dashboard shows us that the top 5 dApps on Optimism at the time of writing are...

1. Aave V3 (AAVE)
2. Synthetic (SNX)
3. Curve (CRV)
4. Velodrome (VELO)
5. Uniswap (UNI)

At present, only 70+ dApps are running on Optimism, but do keep in mind that it's early days. It is surprising, then, that Optimism lags behind its competitors considerably. Arbitrum lags close behind with nearly 120 protocols, but Polygon wins out, boasting more than 300 protocols.

How to Start Using Optimism

Optimism couldn't be any easier for Ethereum users to start using. In fact, Optimism is way easier to use than its competitors. Here's an example. If you've already got an Ethereum address, your Optimism address is identical. Pretty cool, huh?

So let's use MetaMask, the most popular Ethereum browser wallet for storing your digital assets. To add a new network to your Metamask, open your wallet and follow these steps after logging in to your SolarPath Dashboard and creating an app for the Optimism network:

1. Copy the Optimism endpoint provided by SolarPath.
2. Click on the Metamask network dropdown and select "Add a network manually."
3. Enter a network name and paste the endpoint URL into the "New RPC URL" field.



Get Testnet ETH

A word of caution: Optimism relies on ETH for transaction fees. That's why you still need to load up your Optimism wallet with some ETH. This involves transferring ETH from another chain, like Ethereum mainnet.

The prerequisite is that you have test ETH on Ethereum Goerli network in your account, once you have that Goerli ETH, use the Optimism Bridge to get it on Optimism Goerli. please see: Optimism docs

Optimism Vs. Polygon



Polygon is a popular Ethereum Layer 2 solution, but unlike Optimism and Arbitrum, it's a sidechain that operates independently of the main chain.

As a result, Polygon does not benefit from Ethereum's security advantages. However, Polygon has been around for a long time and offers various solutions such as zero-knowledge rollups and proofs.

Unlike Optimism, which uses optimistic rollups, zero-knowledge rollups rely on more computational power and are more secure, as all proofing is done on-chain.

Optimism Vs. Arbitrum



Arbitrum is a competing Layer 2 blockchain solution to Optimism, both using optimistic rollups and inheriting immediate tooling from Ethereum.

Optimism has a token (OP) and verifies all transactions on-chain with a single round of fraud proofing, while Arbitrum uses multi-round fraud proofing for suspicious transactions. Unlike Optimism, gas prices on Arbitrum are not restricted to Layer 1 limits since not all transactions occur on-chain.

Additionally, Arbitrum uses its own Arbitrum Virtual Machine instead of the EVM, while Optimism is currently working on becoming EVM-compatible like Arbitrum for added flexibility and adaptability.