What are Sequencers in Blockchains and why are they used?

Ethereum network is at the heart of application for blockchains. However, Ethereum has its own disadvantages especially high network fees and slow transaction speed per second as Ethereum scales. To solve this problem, multiple solutions have been proposed, the most prominent one being rollups. Rollups are of multiple types and is used by networks like Polygon, Arbitrum, Optimism and zkSync.

Sequencers are an important part of Ethereum layer 2 solutions . As buzzwords like DeFi, NFTs, and DAOs dominate the conversation, sequencers play an increasingly pivotal role, particularly with the rise of Layer 2 solutions for scalability. Let's breakdown sequencers in a simple manner:

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What is a Sequencer?

A sequencer orders transactions in Layer 2 solutions like Optimistic or zK Rollups. It batches or aggregates multiple transactions off-chain from the main network, and then submits a summary to the decentralized mainnet, often Ethereum. This process boosts transaction throughput or speed and reduces fees.

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While there are multiple notable rollup technologies, Optimistic rollup stack seems to be the most popular one. BASE network, a product of Coinbase is also built on top of the OP stack. While it brings scalability, the typical OP Stack often lacks fraud proofs, an essential security feature to validate transactions.

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Proof of Authority: The New CeFi?

Sequencers, in this setup, act as centralized authorities. They temporarily control transaction ordering before it gets verified on the mainnet. Given the absence of fraud proofs, an Optimistic Rollup Stack with a centralized sequencer essentially leads to a form of "Proof of Authority."

Major centralized players like Coinbase and Binance have launched their Layer 2 solutions. They control the sequencers, gaining significant authority over transaction ordering and dispute resolution. So, while these L2 solutions offer lower transaction fees and higher throughput, they also drift back to a centralized structure. It's a trend that challenges the decentralization ethos and could signify the rise of a new form of Centralized Finance (CeFi).

Understanding sequencers and their impact becomes crucial as we navigate a rapidly changing blockchain landscape. The absence of fraud proofs and a centralized sequencer could either be stepping stones toward scalability or backtrack to centralization.

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In conclusion, the role of sequencers could either pave the way for a scalable decentralized future or push us back toward a new form of centralization.