How optimistic rollup might help Reddit's new Ethereum tokens take off

Reddit’s new crypto project has captured the imaginations of enthusiasts who hope it might lead to a legitimate mainstream application. 

But if it takes off, will Ethereum be able to handle it? 

Last month, Reddit announced that it is beta testing two ERC-20 tokens, $MOON and $BRICK, which will be issued to members of subreddits r/Cryptocurrency and r/FortniteBR, respectively. 

The goal of these so-called “community points” is to create a new way to measure users’ credibility, according to Reddit’s website. Users can earn points by posting quality content on the subreddits. They can also use the tokens to vote in forum polls, tip other content creators and transfer funds. What is more, their token balances will show up next to their usernames as a way to showcase their online reputation. 

It’s the kind of hypothetical crypto use case that has been promised for years but still hasn’t materialized. Meanwhile, early indications reflect the potential for a genuine hit: the beta test has seen over 3,000 transactions in less than a month. 

But not everyone is so optimistic that Reddit’s new crypto-token scheme can take off, no matter how compelling the use case is — at least without assistance from an emerging technique aimed at helping Ethereum handle mainstream transaction volumes.

Congestion Ahead?

John Adler, the co-founder of Fuel Labs, a nonprofit focused on developing Ethereum scaling tools, thinks it is likely that Ethereum’s base layer will struggle under the additional traffic that Reddit’s new tokens will bring. 

The two initial subreddits for the experiment — r/Cryptocurrency and r/FortniteBR — have a combined user base of 2.3 million. Adler argues that even if a small portion of that base starts using the new tokens, it could significantly strain the network, which has already been stressed of late. 

“The main Ethereum chain has been under pretty heavy congestion,” said Adler. “If you suddenly add a few hundred thousand users using these community points, it just means fees are going to spike even harder because the Ethereum chain is already pretty much at its capacity.”

Today, Ethereum can only process around 10 to 20 transactions per second (tps), and the network has been exposed as vulnerable to congestion and fee spikes in cases of high traffic. On March 12th, for example, following significant market swings and unusually high transaction demands, the gas prices surged by 900% to well over 100 Gwei within a day. 

Besides that, the recent emergence of Ponzis and pyramid schemes, which are now some of Ethereum’s biggest gas users, has exacerbated the problem. 

Reddit’s Ethereum project is, of course, an early-stage experiment involving only two subreddits. If it works, it seems plausible that the company might launch similar systems throughout the site, which today sees approximately 330 million active users worldwide. 

Neeraj Agrawal, the director of communications at Coin Center and a long-term user of Reddit, sees the idea as a legitimate improvement upon the forum’s current reputation and reward system (based on “karma points”) since it introduces a monetary incentive for meaningful participation.

“People post all this good content for the free karma points that don't really do anything,” he told The Block. Offering real money has the chance to change that. “It would be a way of incentivizing good behavior because these coins could presumably be traded anywhere and for something of value,” said Agrawal. 

“It's hard to tell what incentives they'll set up, but I think if it's a part of Reddit, people will use it,” he said.

Fuel for optimism

In anticipation of potential Reddit-caused congestion, Adler and his colleagues at Fuel are building Reddit Cash, a burner wallet powered by an emerging blockchain scaling tool called optimistic rollup.

The strange-sounding name refers to a layer-2 architecture that allows transactions to be executed entirely off of Ethereum’s base chain in order to alleviate the blockchain’s validation burden. It is a “rollup” in the sense that it requires operators to publish enough transaction data so that anyone can reconstruct the latest state of the system. It is “optimistic” in that it assumes all transactions to be valid unless someone submits cryptographic proof of a fraudulent transaction. 

This validation scheme offers considerable scaling benefits because the base layer does not need to bear any of the computation costs associated with the transactions. Moreover, transaction data is stored in the blockchain history rather than the state. That means nodes can fit more transactions in each block, thereby increasing throughput.

With the early version of Reddit Cash, Fuel has demonstrated the application’s ability to speed up the transaction throughput to around 350 tps and reduce the average gas use per transaction by two orders of magnitude. According to Adler, the application’s mempool — the data structure that holds new transactions waiting to be mined — can also handle high throughputs, meaning that it can deal with sudden surges in traffic. 

Fuel is not alone in its general approach. A number of other projects — including Optimism, Offchain Labs, Interstate Network and ANON — are also developing scaling technologies based on optimistic rollup. 

These projects tend to vary in the way they approach smart contract scripting. While projects like Optimism support the Ethereum virtual machine's full functionality, Fuel’s model is more focused on payments. In other words, Adler explained, Fuel’s technology is most suitable for scaling transfers as opposed to general-purpose smart contracts.

For Adler, the goal right now is to signal to Reddit that Ethereum will soon be ready to tackle a potential onslaught of Redditors adding transactions to the blockchain. 

“This is a good opportunity to test out our tech and demonstrate to the Reddit developers that we have the potential as the Ethereum community to handle what they are doing,” he said. “Don’t feel hampered by scaling limitations because within months that will be no longer an issue.”