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What is Optimism (OP)? The complete guide and useful information

July 5, 2023

8 min

What is Optimism (OP)? The complete guide and useful information

What is Optimism and how does it work? In short, it is one of Ethereum’s leading Layer-2 blockchains, aiming to provide faster, cheaper and more scalable transaction processing. Find out more about its solution!

op token

What is Optimism (OP) and how it came about

What Optimism is is crystal clear from its inception. The goal of its creators was in fact simple and defined, but by no means easy to achieve: to scale Ethereum.

The first core group of people to work on Optimism was a non-profit research group called the Plasma Group, which was working on a scaling solution for Ethereum from the whitepaper published by Vitalik Buterin and Lightning Network co-founder Joseph Poon.

In 2020, the collective announced its transformation into a startup, renaming itself Optimism and founding OP Labs. 

The organisation raised a total of $28.5 million in two investment rounds. The first round was a seed round, raising $3.5 million led by Paradigm and IDEO CoLab Ventures. The Series A funding round in February 2021, led by a16z, on the other hand, raised $25m.

Meanwhile in January 2021, exactly one year after its foundation, Optimism launched the first blockchain based on optimistic rollups on the Ethereum mainnet. Thus was born the OP mainnet, the main network on which all public transactions are executed.

It was not only a matter of technology that connected it with Ethereum: co-founding the start-up was Karl Floersch, a collaborator of the Ethereum Foundation. Another influential person in the founding team was Jinglan Wang, who had already developed for Microsoft and the Ethereum Foundation.

Let us now answer the question “what is Optimism” from a technical point of view, comparing it with the other optimistic Layer-2.

How Optimism works and the differences with Arbitrum

As a scalability solution, Optimism adopts optimistic rollups, invented by its own research team. But what is it and how does it work?

Rollups are packets of transactions published on Level-1, i.e. Ethereum, which then guarantees the integrity and availability of the data. The processing required before publication however takes place off-chain, then the rollups are sent to Layer-1 by sequencers, nodes that sort the transactions, assuming they are correct

Thanks to this off-chain, optimistic processing, the network guarantees lightning-fast throughput and very low fees (often lower than those of Arbitrum).

But how can such a system be secure? There are other nodes, called ‘verifiers’ that can challenge the validity of a transaction, in which case part of the transaction is executed directly on Ethereum for verification. Both types of nodes are incentivised to act honestly through a penalty if they do not, and it is also assumed that there is always at least one well-intentioned node checking the others.

To better define what Optimism is and how it works, a comparison with the more similar Layer-2 can be very useful.

The basic operation of Arbitrum is in fact the same, but there are some differences when looking at both in more detail.

  1. The OP mainnet’s anti-fraud system only verifies transactions reported by verifiers once, whereas on Arbitrum they are verified in several rounds;
  2. Optimism directly uses the Ethereum Virtual Machine (EVM), while Arbitrum has its own AVM;
  3. Consequently, Optimism’s programming language is limited to Solidity. While Arbitrum supports all EVM-compatible programming languages.

The OP token and governance

Now to the token: what is Optimism as a crypto and what is it for? Simple, it is primarily a governance token, distributed to the community via an airdrop in two phases in June 2022 and then in early 2023.

The OP token gives owners rights to participate in the Optimism Collective, a two-tier governance system consisting of the Token House and the Citizens’ House. The Token House governs technical decisions related to Optimism, such as software updates. The Citizens’ House governs funding decisions for public goods.

By ‘public goods‘ on Optimism they mean all those initiatives that bring value to the community in any way: it can be software to solve a specific problem, events, promotional campaigns, products and so on. Their creation is rewarded through RetroPGF, which stands for Retroactive Public Goods Funding. But what is it, and how does it work?

It is a mechanism devised by Optimism, with input from Vitalik Buterin, once again.

In short, it involves rewarding projects on the basis of the positive impact they actually make in the ecosystem, which can then only be assessed afterwards, on the basis of factual evidence. This would incentivise applicants to strive to create useful and effective solutions and avoid wasting resources on undeserving projects.

The RetroPGF is currently only in its third round (scheduled for autumn 2023), and is therefore still in the testing and correction phase. Therefore, especially during the launch of OP Labs, the Ecosystem Fund was used to finance projects and initiatives, which will be completely replaced by this innovative method in the future.

OP’s total supply was distributed over all these above-mentioned elements:

  • Ecosystem Fund: 25%
  • Retroactive Public Goods Funding: 20%
  • Airdrop: 19%
  • Contributors to the Optimism Collective: 19% 
  • Investors: 17%

How to use Optimism: bridges and dapps

Now that it is clear what Optimism is, let us see how it works in practice and how to exploit the efficiency of its network on various DApps, or even just to send transactions.

Just follow these steps:

  • Connect your wallet to the official bridge or use one of the compatible bridges;
  • Transfer ETH to the OP mainnet;
  • Add the Optimism network to your wallet;
  • Access compatible DApps via the OP network.

To make a withdrawal you must wait for verification on Layer-1 which takes 7 days, but faster withdrawals are available from third-party bridges with proprietary verifiers.

Optimism currently has more than 150 decentralised applications running on its blockchain (Source: DappRadar).

Optimism’s Roadmap and future developments

Optimism is determined to remain the most advanced and scalable optimistic rollup on the market. However, it is competing directly with Arbitrum, both in terms of innovation and adoption.

This is why the Roadmap includes the creation of the OP Stack, the next major phase of its scalability. In a nutshell, it is a bit like the Merge for Ethereum.

So what is Optimism’s OP Stack and how does it work? It is an architecture for building modular, scalable and interoperable blockchains. This means that the protocol will be more flexible and will be able to provide for the creation of various types of blockchain within it, not only with Optimism Rollup.

In fact, the ultimate goal is to make Optimism a ‘Superchain‘ composed of a network of rollups built using the OP Stack. This ecosystem of interoperable chains will share sequencers, verifiers and bridge infrastructures, facilitating seamless communication between networks. Incidentally, the team is already working closely with Coinbase to develop one such chain.

The first step in this direction was Bedrock, a major upgrade completed in June 2023 that introduced modularity and the separation of consensus from the execution layer and the layer that makes data available. Small seeds that will allow the Superchain to blossom. The expected results are vast improvements on the technical and performance level, while lower fees are expected on the practical side.

The next update is dedicated to the anti-fraud system, so as to increase the security level of the blockchain. After that, the intention is to decentralise the sequencers, so that anyone in the network can participate in the execution of transactions.

Let us return to the comparison with the main competitor. If Arbitrum is focusing on sidechains, network performance and the expansion of the developer community with a very classic growth path, Optimism prefers to focus on the modularity of the system. This will make it easier in the future to adapt to even radical changes and support a very large ecosystem.

Technicalities and details aside, it is clear from direct sources what Optimism is and how it works: it is definitely an ecosystem of optimistic visionaries with big ambitions. A highly infectious spirit!