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  • Writer's pictureAndrey Shevchenko

Why Decentralization Matters: Comparing Its Impact vs Appchains and Rollups

Updated: Jan 16

As the Web3 space continues to evolve, we are witnessing significant advancements in scalability solutions. These developments are steering our architectural vision toward a model that emphasizes shared security, appchains, and cross-chain interactions. This approach is key to enabling a seamless Web3 user experience and unlocking the potential for virtually limitless horizontal scalability.

Central to this vision is the creation of a scalable and decentralized network of block space, robust against security threats and resistant to censorship. Think of blockchain decentralization as the foundation of a skyscraper. It's essential for ensuring the structure can withstand various pressures, be they security failures or regulatory challenges. Without this foundation, the entire system is at risk of crumbling under external stressors.

With the critical role of this foundation in mind, we turn our attention to examining the state of decentralization in two leading shared security approaches: Layer-2 rollups and Layer-1 appchains, including those powered by Tanssi. Let’s dive in.

Rollups Trade Consensus Security for Extreme Block Production Centralization

The Rollup Dilemma: Scalability vs. Centralization

Rollups are a specialized type of blockchain technology that utilize an underlying layer-1 chain, primarily for consensus and transaction finalization. They function by grouping multiple transactions together and processing them as a single transaction on the main chain. This method significantly eases the load on the network, enhancing transaction efficiency and scalability.

Notable examples include Ethereum mainnet rollups such as Optimism, Arbitrum, zkSync, and Base, which have become increasingly popular for their ability to handle high transaction volumes more efficiently. Beyond Ethereum, the rollup approach is adaptable to any EVM-compatible chain, with rollups already implemented on platforms like BNB Chain and Moonbeam, showcasing their wide applicability in the blockchain domain.

Since rollups offload their consensus to an underlying layer-1 chain, which is typically assumed to be decentralized and safe enough to prevent disruptions, they can technically "get away" with a highly centralized block production infrastructure, often referred to as a 'sequencer.'

In practice, sequencers are usually wholly run by the foundations responsible for the network, while other participants can, at most, act as observers.

Due to the security guarantees of the architecture, sequencers are limited in their ability to cause damage to users. However, as we soon shall see, the centralization risks are still significant. Moreover, some rollup architectures do not have those key security guarantees.

Practical Attack Vectors with Centralized Sequencers

Centralized sequencers are vulnerable to liveness failure — in other words, they can go down. So far, we’ve already seen two such episodes, with the Arbitrum sequencer going down, likely overwhelmed by the user activity associated with the ARB airdrop. More recently, Base also had a brief downtime shortly after its launch, indicating likely issues in the DevOps process.

Blockchain downtimes can be dangerous due to the inability to update prices and liquidate positions properly. The longer the downtime, the worse the effects. DDoS attacks can also cause significant trouble to these networks, though it seems that this hasn’t happened yet on a massive scale.

Miner Extractable Value (MEV) Capture and Incentives for Centralization

Centralized sequencers in rollups have the capability to reorder transactions and fully capture the Miner Extractable Value (MEV) - the profit made from such reordering - generated across the chain’s activity. This could potentially represent billions of dollars in value. However, this is not commonly practiced, primarily due to reputational concerns. In a centralized setup, any obvious exploitation of MEV would be easy to see and cause an outcry in the community.

Despite these concerns, MEV remains a critical component of the business model of rollup operators. Optimism has long-standing plans to auction its MEV power, aiming to use the proceeds for funding public goods. This strategy has been criticized in the past due to a perceived value extraction from users. Indeed, it’s likely that users would prefer a blockchain that seeks to minimize value extraction by either reducing the opportunities available or offering a “cashback” on the extraction.

Relying on MEV as a major revenue stream could lead to misaligned incentives for rollup operators and the entire ecosystem. Given the billions of dollars at stake, the natural incentive is to delay or sabotage work for solutions that would reduce the value extraction at its core and to keep the sequencer centralized for as long as possible.

Overall, the centralization inherent in sequencers could potentially raise concerns about the integrity of future systems, including those designed for funding public goods. While not an inevitable outcome, the difficulty in fully safeguarding these systems from corruption in a centralized framework should be acknowledged and addressed. Ensuring robust checks and balances is crucial to maintaining trust and fairness in the blockchain ecosystem.

The Road to Decentralization Is Still Long With Rollups

Rollups are still evolving and currently incorporate several centralized elements. This aspect of their development presents challenges that need addressing as the technology matures.

For example, platforms like Optimism are yet to implement active fraud-proving mechanisms. Currently, this leaves the control of funds predominantly in the hands of the operators of the OP Stack chains, resembling a Proof of Authority model, which is more centralized by nature. Similarly, zkRollups also maintain a degree of operator control.

Arbitrum stands out with its implementation of fraud proofs. Yet, this system also has not achieved full decentralization, as evidenced by the limitation that only pre-approved nodes can submit fraud proofs.

These examples highlight the nuanced and complex process of evolving towards a more decentralized framework in rollups. Decentralizing the sequencer role, in particular, involves intricate challenges related to both technology and incentives. It's a journey that many in the blockchain community are watching and participating in, with the hope and expectation that these issues will be progressively resolved, leading to more permissionless rollup environments.

Appchains Tackle All Aspects of Decentralization

Appchains powered by Tanssi are using a different architecture from rollups, but apply a similar principle of shared security.

Both consensus and block production are fully decentralized and enabled by a strong community of stakers and validators. By using Polkadot’s dual model of Validators and Collators (block producers), each Tanssi appchain has access to its strong security guarantees, blockchain liveness, and decentralization.

Appchains connected to Tanssi, known as ContainerChains, benefit from Tanssi's unique block production system. This approach eliminates the complex task of onboarding their own block producers. Instead, ContainerChains accesses a network of block producers pre-established by Tanssi, streamlining the process and enhancing decentralization.

A standout feature of this system is its rotational assignation of these collators. Regular rotation ensures network stability and resilience. If one collator faces issues, it's quickly replaced by another, preventing the kind of centralization risks and potential points of failure often associated with sequencer-based models.

Tanssi’s robust core infrastructure provides builders with chains that are future-proof right from deployment. This resilience frees them to concentrate on enhancing the utility and developing new features for their appchains. They can do this without being burdened by the complexities of infrastructural setup, a significant advantage for developers looking to innovate and expand quickly.

Furthermore, Tanssi appchains can already benefit from light clients to further maintain resiliency and decentralization even in scenarios where RPC providers might face challenges. Light clients are lightweight versions of blockchain nodes that don't require downloading the entire blockchain, enabling faster and more efficient data verification and access. This aspect is crucial in reinforcing network integrity and supporting a decentralized approach to blockchain interactions within Tanssi appchains.

Tanssi and Light Clients: The Final Decentralization Step for Appchains

A common issue in the crypto space is dependence on centralized RPC providers for transaction execution. Often, these servers are run by centralized companies, potentially creating a centralization bottleneck.

Tanssi appchains don’t need to rely on this weakness. Thanks to the smoldot client, their users can connect to the appchain without relying on external services. Smoldot is a light client implementation usable in a JavaScript setting, meaning that it can directly verify transactions and submit them to the peer-to-peer node network.

Light clients strike a balance between user-friendliness and decentralization. While the most dedicated users may opt to run full nodes for complete decentralization, this can be impractical for many due to high hardware demands. Tanssi appchains stand out with their operational light client implementation, elevating their level of decentralization.

Moreover, light clients facilitate efficient cross-chain communication. They allow smart contracts on one chain to accurately verify state changes on another, ensuring a fully decentralized and permissionless process. Through XCM (Cross-Consensus Message Format), Tanssi appchains can interact seamlessly with other networks via such decentralized bridges, as enabled by the Polkadot Relay Chain. Additionally, upcoming protocols like BEEFY and Snowbridge are set to expand these capabilities for interaction with Ethereum networks.

Maintaining The Push for Decentralization

In recent years, many blockchain protocols have compromised decentralization to expedite market entry and maximize profits. This trend has led to vulnerabilities, notably in rollups, which continue to struggle with centralization despite ongoing development.

This trend highlights the critical need for a dedicated commitment to decentralization within the blockchain community. Developers, whether they are working on appchains or rollups, face the essential task of continuously addressing and eliminating any aspects of centralization in their systems.

In response to these widespread challenges, Tanssi has firmly based its development on decentralization principles. Its infrastructure and community governance tools are designed to support this commitment, providing decentralized systems that ensure network reliability, backed by a Substrate environment conducive to effective community governance.

For developers aiming to efficiently launch appchains, Tanssi's TestNet, Dancebox, provides a smooth and user-friendly process. To assist in this journey, the Tanssi documentation site offers detailed technical guidance and developer resources.

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