OP

Most recent update: [June 26, 2023]

With more people embracing crypto today, the transactional load on blockchains has increased, leading to longer transaction times and higher fees. A robust L2 scaling solution is one of the ways to help resolve the difficulty. ‘Optimism’ is a fast, simple, and secure L2 scaling solution for the Ethereum blockchain.  

Crypto is flourishing like never before and is closing the gap with fiat currency at an unprecedented pace. Consequently, many countries, even those with conservative approaches, are embracing crypto because it is a redefining technology that could spell the future of the global economy. However, crypto has issues like high gas fees and increasing transaction processing times. Therefore, there is a strong compulsion to develop a Layer 2 scaling solution that can support Blockchain dApps (Decentralized Applications). ‘Optimism’ is one such solution for the Ethereum Blockchain. Let’s deep dive into what ‘Optimism’ is and how it can scale Ethereum values by helping highly impactful projects to succeed. 

What is Optimism (OP)? 

Optimism, a Layer 2 (L2) Ethereum scaling solution (with its native crypto token ‘OP’), is a public benefit corporation that balances the financial interest of stakeholders with the best interests of the community and society. Optimism has its unique design philosophy that can help projects without specific business models succeed. It used to be known as Plasma Group earlier when it researched Ethereum scalability, and with the new name, it started implementing its principles in the practical world.  

Optimism’s 'Optimistic Rollup' concept makes scalability and instant transactions on Ethereum possible. While Optimism appears to be a standalone blockchain, functionally, it acts as an extension of the Ethereum blockchain. Thus, it provides operational flexibility and ease to reduce transaction times while sharing its parent blockchain's security framework and consensus. In other words, it gives its users the same level of security and functionality as Ethereum while making instant transactions at low costs possible, which is the best of both worlds. 

Optimism Design Philosophy 

Optimism has a robust design philosophy that primarily revolves around four defining characteristics. They are simplicity, pragmatism, sustainability, and optimism. Understanding these qualities is crucial as it helps better assimilate the Optimism design philosophy and operational methodology. 

• Simplicity   

Generally, Layer 2 constructions are complicated, making them difficult to understand and operate. Optimism is different because it takes a simplistic approach by involving as few moving parts as possible to ensure a secure, flexible, and scalable L2 system. Consequently, it reduces the engineering overheads, allowing users to spend more time developing new features rather than recreating the existing ones. Optimism manages to stay simple mainly by using the time-tested Ethereum code and infrastructure.  

• Pragmatism 

The best solutions to problems in real life are generally not theoretically ideal. Instead, a pragmatic approach is necessary to overcome the most challenging situations. Hence, pragmatism is one of the critical components of Optimism’s design philosophy. Optimism works with the understanding that its users grapple with real-life problems, its core team fights real-time constraints, and the projects using it have real-life requirements. Optimism does not strive for theoretical perfection because it prioritizes practical user and developer needs.  

• Sustainability 

Application development platforms should remain operational and be competitive to sustain themselves over extended periods. The Optimism design process gives this assurance to developers as it believes in long-term sustainability and does not resort to shortcuts to scalability. A scalable system is of no use without its sustaining ecosystem. A complex codebase makes it practically impossible for users outside the code development team to contribute. So, Optimism concentrates on keeping it simple to help build a larger community of contributors who can maintain the protocol long-term. 

• Optimism 

Being simple, pragmatic, and sustainable are crucial aspects of a Blockchain platform. However, it would not be possible for it to succeed without the quality of optimism. The developers keep these points in mind when designing new features or improving existing ones. Though Optimism appears to be a standalone platform, it serves as an extension or an integral part of Ethereum. Its existence is essential for Ethereum to succeed because it provides an optimistic approach to keep Ethereum's vision advancing. 

How does Optimism Work? 

As explained earlier, Optimism is a Layer 2 Ethereum scaling solution capable of supporting all Ethereum dApps. Therefore, instead of using the Ethereum network to run computation and data, Optimism puts transaction data on-chain while running the computation component off-chain. In other words, while the L1 on Ethereum stores immutable transaction data, the Optimism L2 rollups take care of the verification and smart contract execution processes. This load-sharing method improves transactional speeds and reduces gas fees. 

Optimism must be pictured as a minor blockchain appended to the main Ethereum blockchain. The Optimism blocks are stored in a special smart contract on Ethereum called Canonical Transaction Chain (CTC). The CTC uses a special append-only list to store the Optimism blocks, which constitute the Optimism blockchain. The block activities are managed using the 'sequencer' concept. Instead of treating each block or transaction request separately, the sequencer collects multiple blocks and submits them in batches to Ethereum for finalization. Thus, it helps distribute the transaction fees across all requests and avoids each transaction being charged a separate fee. A user can skip the sequencer if they wish, which will increase the expense. 

The Optimism Community Concept 

Optimism upholds Ethereum’s values by creating the infrastructure for promoting the growth and sustainability of public goods. The following are the noteworthy points in the Optimism way of thinking. 

• The internet is available for all, and Optimism and Ethereum are public goods. Therefore, Optimism believes in a collective approach from its users to help maintain it. 
• Besides encouraging people to maintain public goods, Optimism (OP) rewards those creating or sustaining public goods. It is possible to create a constantly evolving ecosystem by rewarding public goods appropriately. 
• The Optimism concept works on a collaborative network of organizations, communities, and citizens held together by a mutually beneficial understanding to maintain an equal proportion of impact and profit. Thus, the Optimism protocol generates good revenue. 

• Rather than using the profits for self-benefits, Optimism directs the revenue to projects that benefit communities and builds a sound infrastructure for the mutual benefit of all. 
• The Optimism Collective comprises two houses, the Token House and The Citizens’ House, tasked with balancing the long-term vision with short-term incentives. 

Such an approach helps create a sustainable future for Optimism, Ethereum, and the digital landscape. 

Risk Factors involving Optimism 

While Optimism is simple, pragmatic, and sustainable, it has its risk elements, as listed below.  

• Market Risk: Optimism involves cryptos, and when you deal in cryptos, you cannot ignore the market risk.  
• Volatility Risk: Optimism works on the Ethereum blockchain. While ETH does not fluctuate as wildly as BTC, it is volatile crypto. Hence, volatility risk is always present. 
• Regulation Risk: Though cryptos work in a deregulated environment, specific regulatory risks apply to all crypto transactions. 

• Cybersecurity Risk: Optimism is an open-source platform. Though this permissionless and decentralized framework is considered secure, one cannot rule out operational cybersecurity risks. Hence, the platform runs a bug bounty program anticipating such risk elements. 

Final Words 

Optimism (OP) is one of the most popular blockchain platforms globally because it is a low-cost L2 platform. Optimism shows decent upward growth with various developers and renowned projects like Uniswap, Coinbase Wallet, Perpetual Protocol, Chainlink, and Synthetix embracing the medium. While it preserves all the benefits offered by Ethereum, it provides the users with additional features to offset Ethereum’s deficiencies. Thus, it makes transactions swift and reduces costs considerably.  

Due Diligence   

Before listing OP on the VirgoCX Platform, VirgoCX performed due diligence on OP and determined that OP is unlikely to be a security or derivative under Canadian securities legislation. VirgoCX’s analysis includes reviewing publicly available information on the following:   

• The creation, governance, and location of OP and/or its primary development team;  
• The supply, demand, maturity and liquidity of OP; and  
• Legal and regulatory risks associated with OP.   

Statutory Rights under Securities Legislation 

VirgoCX is offering Crypto Contracts on crypto assets in reliance on a prospectus exemption contained in the exemptive relief decision Re VirgoCX Inc. dated May 30, 2022 (the Decision). Please be aware that the statutory rights in section 130.1 of the Securities Act (Ontario), and, if applicable, similar statutory rights under the securities legislation of each other province and territory in Canada, do not apply in respect of the Crypto Fact Sheet to the extent a Crypto Contract is distributed under the prospectus relief in the Decision. 

References 

1. Nyaga, C. (2022, June 1). Optimism price prediction: Is OP a good investment? CoinJournal. https://coinjournal.net/news/optimism-price-prediction-is-op-a-good-investment/ 

1. How Optimism works. (n.d.). Optimism Docs. Retrieved June 3, 2022, from https://community.optimism.io/docs/how-optimism-works/ 

1. Optimism. (n.d.). Icoholder.Com. Retrieved June 3, 2022, from https://icoholder.com/en/optimism-1012863 

1. Optimism. (n.d.-b). Optimism.Io. Retrieved June 3, 2022, from https://www.optimism.io/