Ethereum's surge in adoption has led to high transaction fees and congestion. Some believe on-chain upgrades are the solution, while others opt for second-layer solutions. One such solution is Arbitrum.With its recent token airdrop that has seen its market value skyrocket above other Layer 2 solutions, Arbitrum is gaining popularity due to its innovative approach to the problem and for leading the next phase of dApps development.
Arbitrum is a Layer 2 solution for the Ethereum blockchain, designed to improve the speed of transactions, increase scalability, and boost the network's privacy. It allows users to perform transactions off the main network and has them verified and batched before being committed back to the main chain.
Arbitrum was developed by Offchain Labs, a blockchain research and development company founded in 2018 by Ed Felten, Steven Goldfeder, and Harry Kalodner. The company first proposed the solution through a presentation and the Arbitrum whitepaper (PDF) at Princeton University in 2018.
In 2020, they launched the first version and conducted a series of beta tests in mid-2020 before finally launching it on the Ethereum mainnet in August 2021. Arbitrum gained significant traction in the Ethereum community following its launch, and various other high-profile crypto projects adopted it, including Uniswap, Chainlink, and Aave.
Arbitrum makes the Ethereum blockchain faster and easier to use by letting smart contracts send transaction information between the mainchain and the sidechain. The process uses "optimistic rollup" technology.
A rollup is a general-purpose scaling solution that entirely relies on the security of Ethereum, which allows the deployment of all the existing smart contracts from the mainnet with little or no changes. It takes the best of both Layer 2 channels and sidechains.
Optimistic rollups work by executing transactions outside of Ethereum and posting the transaction data to the mainnet. They are considered 'optimistic' because they assume the off-chain transactions are valid and don't publish proofs for verifying transaction batches posted on-chain.
They rely on a timed fraud-proving system for validation to detect cases where transactions are not well calculated. Any verifier in the network can challenge the results of a rollup transaction by computing a fraud proof.
If the fraud proofing succeeds, the rollup batch transactions are re-executed and updated on the system accordingly. Meanwhile, the sequencer responsible for the incorrectly executed transaction is penalized.
If the fraud proof fails and the challenge period elapses, the transaction rollup batch is accepted as valid on the Ethereum mainnet.
Arbitrum also has a custom virtual machine called the Arbitrum Virtual Machine (AVM), which exists above the cross-chain EthBridge. It acts as the execution environment for compatible smart contracts.
Arbitrum is not the only solution that overcomes Ethereum's limitations: more than a dozen other Layer 2 protocols offer the same solution. Here's what makes it unique and better:
- Low transaction fees. Arbitrum is designed to be efficient, which significantly reduces its transaction fees. This is a sufficient incentive for validators and users to adopt the platform. A transaction costing tens of dollars on Ethereum costs a few dollars on Arbitrum.
- Full EVM compatibility: Arbitrum is compatible with the Ethereum Virtual Machine to the byte code level, which enables developers who understand existing Ethereum programming languages to hop on and start building dApps on the platform quickly.
- Extensive documentation: On top of high EVM compatibility, Arbitrum has extensive developer documentation, which empowers developers to start developing on the platform using existing tools quickly.
Overall, Arbitrum's unique combination of affordability and ease of adoption makes it a promising solution for scaling Ethereum and empowering developers to create the next generation of decentralized applications.
Within the Arbitrum ecosystem, there are two solutions. Arbitrum One is the mainnet designed for the more common decentralized finance use cases. Arbitrum Nova, on the other hand, is an optimized version of Arbitrum that focuses on reducing transaction costs for high-throughput dApps.
Arbitrum Nova was launched on August 9, 2022, as a Web 3.0 gaming and social applications solution. It was built using AnyTrust technology, analogous to Arbitrum One's rollup technology. It has a strong security guarantee besides being cost-effective.
Unlike Arbitrum One, Nova validates transactions through a data availability committee (DAC). Transaction data is sent to the DAC, which verifies the data and awards it with availability certificates used for posting on the Ethereum blockchain.
Due to the design of Arbitrum Nova, where a handful of members of the DAC provide data availability to end users, it is more centralized than Arbitrum One. Centralization is the price it pays to bring down costs. Some members include Google Cloud, Reddit, Offchain Labs, Consensys, QuickNode, and Infura.
There are several established Ethereum Layer 2 solutions on the market, and the most competitive ones include Polygon and Optimism. So how does Arbitrum compare to them?
To recap and for a better perspective, Arbitrum is an optimistic rollup chain that uses Ethereum's consensus protocol, supports all EVM programming languages, and has a speed of 40,000 TPS (transactions per second). Also, it recently airdropped its native governance token $ARB.
Meanwhile, Polygon is a sidechain that uses the proof-of-stake (PoS) mechanism for consensus, is only compatible with Solidity and Vyper among all EVM languages, has a higher speed of 65,000 TPS, and has a native token, $MATIC.
Optimism is also an optimistic rollup chain that adopts Ethereum's consensus protocol. It's only compatible with Solidity, has a lower speed of 2,000 TPS, and a native token, $OP. It's also worth noting that Optimism leverages the Ethereum Virtual Machine, unlike Arbitrum, which has its own.
As of April 1, 2023, Arbitrum is leading in total value locked, which shows great trust in its technology by the blockchain community. Arguably, its compatibility with all EVM languages makes it a formidable competitor.
As Ethereum faces congestion and high transaction fees, second-layer solutions like Arbitrum are becoming increasingly important. While some debate the best approach, Arbitrum's innovation is a promising solution to the challenges Ethereum faces.
As the blockchain space continues to evolve, it will be interesting to see how different solutions like Arbitrum contribute to the growth and scalability of decentralized applications.