Blockchain Types and Reorg Risk Profiles

Understanding Blockchain Reorganizations (Reorgs)

A blockchain reorganization, or "reorg," is an event where a previously confirmed block on a blockchain is replaced by a new, longer chain. This can occur due to network latency, where two miners (or validators) produce a block at roughly the same time, or, more maliciously, through a 51% attack. When a reorg happens, transactions in the orphaned block are either returned to the mempool to be included in a future block or are discarded entirely. This introduces risk, as transactions considered final can be reversed.

When thinking about integrating the ASMS into an application’s tech stack for cross-chain composability the following 4 categories can be drawn up to understand the Dynamic Lane Management System, which can be used to leverage the ASMS and complement it with a Reorg Insurance pool within the protocol’s architecture.

Ethereum Mainnet

• Risk Level: Low

• Underlying Risk Factors:

  • Gasper Consensus: Ethereum's consensus mechanism, Gasper, combines the LMD-GHOST fork-choice rule with the Casper FFG finality gadget. While short reorgs of 1-2 blocks can still occur due to network latency, the risk of longer, more disruptive reorgs is significantly mitigated.

  • Finality: After approximately two epochs (about 12.8 minutes), blocks are considered "finalized." It is economically infeasible for an attacker to revert a finalized block, as it would require them to control over 1/3 of the total staked ETH and would result in the slashing (loss) of their stake.

  • Attestation: A large number of validators (attestors) vote on the validity of each block, making it extremely difficult for a malicious actor to create a competing chain that the majority of the network would accept.

Optimistic Rollups (Optimism Stack, Arbitrum)

• Risk Level: Moderate (during the challenge window)

• Underlying Risk Factors:

  • "Optimistic" Execution: These rollups optimistically assume all transactions are valid and post them to the Layer 1 (Ethereum). There is a "challenge period" (typically 7 days) during which anyone can submit a "fraud proof" to challenge a transaction.

  • Challenge Period Risk: During this 7-day window, the transactions are not fully final on the L1. A successful fraud proof would lead to a re-rolling of the rollup's state, which is a form of reorg.

  • L1 Reorgs: Optimistic rollups are also susceptible to reorgs on the underlying L1. If the L1 chain reorgs, the rollup's state, which is anchored to it, will also be affected.

zk-Rollups (Linea, zkSync)

• Risk Level: Low

• Underlying Risk Factors:

  • Validity Proofs: Unlike their optimistic counterparts, zk-Rollups generate cryptographic "validity proofs" (ZK-SNARKs or ZK-STARKs) to prove the correctness of every transaction batch submitted to the L1.

  • No Challenge Period: Once a validity proof is accepted by the L1 smart contract, the transactions are considered final. This eliminates the long challenge window and the associated reorg risk found in optimistic rollups.

  • L1 Reorgs: Similar to optimistic rollups, zk-Rollups are also subject to the reorg risk of the underlying L1 they are built upon.

Alt-L1s (Avalanche)

• Risk Level: Very Low to Near-Zero

• Underlying Risk Factors:

  • Avalanche Consensus: Avalanche utilizes a novel consensus protocol that is probabilistic and designed for high throughput and rapid finality.

  • Finality: Unlike traditional longest-chain-wins models, transactions on the Avalanche C-Chain are typically considered finalized within 1-2 seconds. Once a transaction is finalized, it cannot be reversed, effectively eliminating the risk of reorgs for confirmed transactions. The node architecture, by default, only exposes finalized blocks, so reorgs are not experienced by users and applications interacting with the network.