*https://insights.deribit.com/market-research/making-sense-of-rollups-part-2-dispute-resolution-on-arbitrum-and-optimism/*
Benjamin Simon, Market Research at Deribit, July 2021
I want to note my implicit bias at the outset. I recently participated in Offchain Labs’ latest fundraising round, as did Mechanism Capital. While feigning objectivity is futile, my hope is that this piece helps the reader to grasp some of the crucial differences between the two projects, biased though I may be.
All rollups follow a similar basic architecture and internal logic. Nevertheless, as we saw in the first part of this mini series, the single distinction between Optimistic and Zero Knowledge Rollups—how the “review process” works on each—generates a host of downstream differences in security, usability, and EVM compatibility.
Something similar is true within each category of rollups. While Arbitrum and Optimism, the leading Optimistic Rollups, share much in common, it’s not just tribal loyalties that separate the two. In particular, the differences in their respective approaches to dispute resolution produce some important performance tradeoffs. These are tradeoffs that merit discussion, given that both platforms aim to offer full scaling functionality for Ethereum over the coming months.
First, some brief historical background about each project is in order. As it happens, both have somewhat distinctive origin stories.
On a frigid Princeton morning six and a half years ago, a group of undergraduates working with Professor Ed Felten delivered a presentation on the project they had signed up to build: a blockchain-based arbitration system. The objective was to circumvent some of the anticipated scaling challenges of smart contract platforms, and the plan was to design a blockchain that relied on a system of challenges and dispute resolution to lighten the computational workload for traditional miners. “Arbitrum,” as the system was called, would have suffered the same fate as most other promising academic computer science projects, if not for two ambitious PhD students, Steven Goldfeder and Harry Kalodner, who approached Felten a few years later with the idea of building out a robust layer 2 solution based upon the initial concept. Soon thereafter, Felten, Goldfeder, and Kalodner co-founded Offchain Labs and have since shepherded Arbitrum from abstract idea to concrete reality.
Optimism, too, has a history that predates its current form. In mid 2017, Vitalik Buterin and Joseph Poon co-authored a paper proposing Plasma, an early scaling solution for Ethereum. A group of core Ethereum researchers took up the mantle and formed a non-profit research group to build out the vision. Development stalled in late 2019, as some critical design limitations of Plasma became apparent. Undeterred, three of Plasma’s lead researchers—Karl Floersch, Jinglan Wang, and Ben Jones—decided to pivot toward what seemed to be Plasma’s natural successor, the Optimistic Rollup. They formed Optimism PBC in early 2020.
Recall that Optimistic Rollups take an “innocent until proven guilty” approach to transaction validity. Optimistic Rollups process transactions and feed the result back to Ethereum for final inclusion in the base chain. A dispute period ensures that anyone monitoring the state of the rollup can submit a challenge if the rollup sequencer has processed transactions invalidly. This challenge immediately triggers a dispute resolution process. The difference between Arbitrum and Optimism is how the dispute resolution process works—including how much it costs and how long it takes.
The simplest way to describe the difference is that Optimism’s dispute resolution relies more heavily on the Ethereum Virtual Machine (EVM) than Arbitrum’s. When someone submits a challenge on Optimism, the entire transaction in question is run through the EVM. By contrast, Arbitrum uses an offchain dispute resolution process to whittle down the dispute to a single step within a transaction. The protocol then sends this single step assertion, as opposed to the entire transaction, to the EVM for final verification. Conceptually, Optimism’s dispute resolution process is thus considerably simpler than Arbitrum’s.
For its part, Arbitrum uses a recursive bisection algorithm for the offchain component of its dispute resolution process. This sounds complex, but in reality, the algorithm simply forces the “asserter” (the party that processed the transaction) and the “challenger” (the party submitting a challenge) to go back and forth to narrow down the point of dispute, in the manner illustrated by the diagram below. Interestingly enough, this back-and-forth resolution process via recursive bisection was part of the initial Arbitrum concept from 2015.