DCAP Interview Series – Raphael Knechtli, Lead Research & Technology at DCAP Ltd. talks about Rollups
January 4, 2023
Our guest for the first edition of the DCAP interview series is Raphael Knechtli. Raphael is leading the Research & Technology team at DCAP Ltd. He and his team are responsible for monitoring the fast-evolving space of blockchain and Web3, and their research feeds into the investment advisory and products offered by DCAP. Previously Raphael worked for Prof. Dr. Fabian Schär at the Center for Innovative Finance of the University of Basel. As a senior consultant for Ernst & Young (EY), he advised large institutional clients from various industries on the topics of blockchain, Web3 and the Metaverse.
Let's jump right in with the following question: What's the thing about the recently emerging topic of blockchain scalability?
In recent times, popular public blockchain architectures such as Ethereum Mainnet have begun to reach certain transaction processing capacity limitations, which has led to longer transaction wait times and high gas prices. For end-users, this resulted in a poor experience and even brought certain use cases to the point where they were no longer economically viable or practical.
While scalability was already on the radar before (for example, it was already mentioned in the whitepaper by Vitalik Buterin), the increasing tangibility of the problem for end users had further increased its priority.
How was this problem approached within the Ethereum ecosystem?
Many solutions were researched, and, in the end, the Ethereum community informally opted to pursue rollups as a scaling strategy for the near future and adapted its development roadmap accordingly (background information and the reasoning behind this decision can be found in a blog post by Vitalik Buterin titled "a rollup-centric ethereum roadmap"). In the case of Ethereum, rollups act like a second layer to offload certain computation steps to infrastructure components that reside outside Ethereum Mainnet while, in turn, state data is periodically written back to Ethereum. In a very simple way, you can think of a rollup as a different smaller "blockchain" that runs on a separate layer and periodically talks to the main chain (e.g. Ethereum Mainnet). Of course, various solutions exist, and exact implementations can vary. Still, in the end, these mechanisms allow rollups to derive their security from popular and trusted platforms such as Ethereum Mainnet.
Please give us some more insights into the benefits these rollups can bring for the broader Web3 users.
Two critical benefits for end users are how these rollups derive their security guarantees and the user experience/integration some rollups provide. For example, some rollups derive certain security guarantees from Ethereum Mainnet. The Ethereum blockchain is well-known, reasonably decentralised, and trusted by many end users. Therefore, when done correctly, these solutions can inherit certain trust guarantees – making it easy for end users to trust them as well.
Second, particularly in the case of Ethereum, some rollups already have achieved very high compatibility from a technical perspective, making it easy for end users to switch between networks, essentially "reusing" existing and familiar infrastructure. Similarly, for developers, applications initially developed for Ethereum can often easily be ported to compatible rollup networks.
As a result, this allows for new use cases that were not economically feasible before, makes the ecosystem more modular and removes load from dominant blockchains such as Ethereum Mainnet.
Are there areas that end-users need to watch closely and, in turn, need more research?
Of course. Rollups are still subject to research and under very active development. Quite often, solutions advertise that they inherit strong decentralisation guarantees from Ethereum. While this may be true in theory, their current implementations often include centralised controls giving quite some authority to the developers. The main reason is that these rollups are still subject to active development and will hopefully become more decentralised in the future. Hence, end users must be vigilant before using any specific rollup type and check its current implementation. The same also applies to researchers who need to observe the development roadmaps and security properties more closely, highlighting any deficiencies in an understandable way for end users. In this respect, L2Beat does an excellent job of providing such transparency.
Another category of components that need to be scrutinised are bridges. Cross-chain bridges are often a weak point as the vast balances they hold make them an attractive target for attack. In addition, their technical implementations are often quite complex, making it hard for end users to understand how they technically work. This is complicated by the fact that there is a lack of standardisation. Many bridges are out there, and most differ substantially in how they actually work.
To wrap up the above, please give us a brief look ahead on this topic.
Sure. As previously said, it is essential to understand that on the one hand, rollups and bridges are still novel technology and very much subject to active development that naturally comes with certain risks. On the other hand, they provide an exciting path to increased transaction throughput and a more capable ecosystem with interesting security properties. In the near term, rollup developers must continue to follow the path of decentralisation and follow through on their promises of giving up any currently implemented centralised controls. Similarly with bridges additional work for improving their security to get to the point of robust, trustless bridges is required. Additional work is also required when it comes to end-user usability. For example, the user experience for switching networks and bridging assets needs to be improved. In the long run, the ecosystem needs to be built out further. Rollup technologies allow for many new use cases, and we are excited to see how the ecosystem evolves further.
Last question: being a professional in a highly fast-paced industry, what other topics are you following besides your work focus on blockchain, and what do you do to balance out your work and private life?
Generally speaking, I have been interested in the IT and technology sector since my childhood, and also today, my interests are not limited to Blockchain and DLT. I actively follow the latest developments in various fields, such as cryptography, IT security, software development, and the semiconductor industry. Of course, I also privately follow current trends and developments in the blockchain sector. At times, this can be challenging and time-consuming as the industry is advancing swiftly. To balance things out, I like to go swimming from time to time which helps me to sort my thoughts and focus on the topics that matter most.