Optimism is a Layer 2 scaling solution designed to enhance the Ethereum network by significantly increasing its throughput and reducing transaction fees. It achieves this by using Optimistic Rollups, which process transactions off-chain while leveraging the security of the Ethereum mainnet.

Optimism has made significant strides in enhancing its security and decentralization over the years. Its latest attempt is the implementation of Fault Proofs. This mechanism addresses the limitations of the previous security model, which was based on trust (a trust-based model). While this provides significant security, it faces the problems of Centralized governance and time-based security (7-day challenge period).

In this article, we will explore what Optimism fault proof is, how it works, and how it solves these issues

Understanding Optimistic Rollups

Before delving into Fault Proofs, let’s understand how Optimistic Rollups work. This technology operates on the principle of optimistic execution, it assumes that all transactions within a batch are valid unless proven otherwise. To achieve this, a compressed rollup state is periodically submitted to the Ethereum mainnet, acting as a checkpoint.

Optimistic Rollups rely on a combination of the three factors below for security;

1. Optimistic Rollup Mechanism: This mechanism assumes that all transactions within a batch are valid unless proven otherwise. It allows for faster and cheaper transactions but introduces the risk of fraudulent activity.

2. Seven-Day Challenge Period: This period is a crucial safety net. It allows anyone to challenge the validity of a state root. If a challenge is successful, the optimism chain could be rolled back to a previously valid state.

3. Optimism Security Council: A group of trusted entities overseeing the network and making critical decisions. They act as a backstop in case of issues during the challenge period.

Traditionally, the Security Council is responsible for challenging and resolving disputes about fraudulent transactions. While effective, this centralized approach introduces a potential point of failure and raises concerns about trust. To address this Optimism introduced fault proofs.

The Emergence of Fault Proofs

Faultproof is a decentralized mechanism designed to replace the security council. Remember, Optimism is an optimistic roll-up, which means it assumes all transactions are valid unless proven otherwise. Fault proofs provide the tool to prove when a transaction is not valid.

How Fault Proofs Work;

Transaction Batching

• Grouping Transactions: A collection of user-initiated transactions is gathered and combined into a single unit. This batching process significantly reduces the amount of data that needs to be processed on the Ethereum mainnet.

• Efficiency Gains: By processing multiple transactions together, Optimism can optimize the use of computational resources, leading to faster transaction times and lower costs.

State Root Submission

• Snapshot Creation: After processing a batch of transactions, Optimism generates a state root, which is essentially a cryptographic hash representing the entire state of the blockchain at that specific point in time.
• Data Compression: The state root concisely represents the blockchain's data, significantly reducing the amount of information that needs to be transferred to Ethereum.
• Ethereum Interaction: The calculated state root is submitted to the Ethereum mainnet, where it's recorded on the blockchain.

Challenge Period

• Dispute Window: A designated timeframe is established after the state root is submitted, during which anyone can challenge its validity.
• Incentivization: To encourage participation, there are often rewards or incentives for individuals who successfully identify and challenge fraudulent state roots.
• Security Mechanism: This period acts as a safety net, allowing for the detection and correction of errors before they become permanent.

Dispute Game

• Challenge Initiation: If someone believes a state root is incorrect, they can initiate a dispute by providing evidence of the error.
• Proof Submission: The challenger must submit a fraud-proof, which is a piece of data demonstrating the invalidity of the state root.
• Verification Process: The Optimism network then enters a dispute resolution process, where the validity of the fraud-proof is assessed.

Resolution

• Fraud Proof Validation: The state root is considered incorrect if the fraud proof is deemed valid.
• Rollback: The Optimism chain is reverted to the previous valid state, ensuring the system's integrity.
• Penalty: The entity responsible for the incorrect state root is typically subject to penalties, such as loss of funds or reputation.
• Security Assurance: By successfully resolving disputes, the system maintains its security and trustworthiness.

Key Benefits of Fault Proofs

1. Decentralization: By eliminating the need for a centralized security council, Fault Proofs significantly enhance the network's decentralization.
2. Security: The permissionless nature of the challenge process allows anyone to participate, making it significantly harder for malicious actors to manipulate the system.
3. Efficiency: While the dispute resolution process can be computationally intensive, it's inherently more efficient than relying on a small group of validators.
4. Trustlessness: Fault Proofs foster a higher level of trust in the system as it relies on verifiable cryptographic proofs and decentralized dispute resolution.

Implications for the Ecosystem

Optimism Fault proofs currently power withdrawals for the OP mainet and are gradually being adopted by the OP chains (Mode, Base, Metal, and Zora ) however the Optimism Security Council still retains a crucial role.

In the event of system failures or critical vulnerabilities, the Security Council retains the authority to temporarily revert the network to its previous state. This measure is intended to safeguard user funds and protect the overall integrity of the system. This provides a form of backstop for the Fault proofs system and is otherwise known as “Stage 1 Decentralization”.

The long-term vision for Optimism involves a fully decentralized "Stage 2" where the network is governed solely by smart contracts. This transition would eliminate the need for centralized intervention. As the technology matures, the role of the Security Council is expected to diminish, and the network will increasingly rely on its decentralized mechanisms for governance and security.

Resources

To learn more about fault proofs, check out the following resources;
Fault proofs Explainer
Permissionless Fault proofs on the OP stack