- Arbitrum is a L2 optimistic rollup designed to help Ethereum scale
- It is EVM-compatible so that Ethereum smart contracts can be deployed on Arbitrum
- Arbitrum may still find usage among developers and users even with ETH2.0
- Glossary of terms
Today, Ethereum is the most popular blockchain for developers to build decentralized applications (DApps) on. Unfortunately, the ever-increasing number of transactions on Ethereum congests the blockchain, leading to high gas fees and slow transaction speeds.
A variety of solutions have sprung up: Alternative “Ethereum Killer” blockchains like NEAR Protocol and Fantom are designed to scale effectively; while other chains like Moonbeam focus on porting Ethereum DApps over to Moonbeam.
Arbitrum utilises a different technology called optimistic rollup, specifically designed to help Ethereum scale.
What is Arbitrum?
Arbitrum is a Layer 2 (L2) optimistic rollup built on top of Ethereum. It compiles batches of transaction data on the Ethereum main chain and sends them to the Arbitrum L2 side chain.
Transactions are complex cryptographic data (data written in code) which have to be calculated and validated to be processed. Arbitrum does this calculation and validation for Ethereum. The results (Arbitrum calls them ‘assertions’ or ‘rollup blocks’) are then posted on Ethereum and recorded on the main chain. This process lightens the computing and data storage burden on Ethereum for improved efficiency.
Further reading: What are Layer 1 and Layer 2 Protocols?
Optimistic Rollup Technology
As mentioned, rollups process Layer 1 transaction data on a side chain. Rollups help to lower the cost of transactions and improve speed.
Arbitrum process data by relying on fraud proofs, which assume all transaction results posted on Ethereum are valid unless challenged.
Image credit: Ethereum.org, Fraud Proof system
Individual nodes on Arbitrum help to run the network and validate transactions. Some nodes help to submit transaction results to the main chain, earring ETH as rewards. Other users stake ETH to become node validators. Node validators are the ones providing fraud proofs.
Fraud proof is a security system to ensure that transactions on Arbitrum are calculated correctly. Any node validator can help to confirm the validity of transaction blocks. They earn a portion of Arbitrum’s transaction fees for their work.
This is where it gets interesting: Node validators can issue a challenge if they believe a block was posted incorrectly. If no challenge is posted within a certain time frame, the block is approved. If a challenge is posted, a dispute reputation protocol will activate to solve the issue.
That said, if a validator is lying or intentionally causing trouble, they will have their ETH deposit (staked earlier) confiscated. This ensures that validators remain honest for the smooth running of Arbitrum.
Arbitrum is widely regarded as being one of the most EVM-compatible rollups. It provides an Ethereum Virtual Machine compatible environment for smart contracts. This makes it convenient for developers familiar with Ethereum to write code, or deploy Ethereum smart contracts on Arbitrum. Developers can also easily port DApps over to Arbitrum for their users to enjoy faster speeds and lower fees.
Image Credit: Arbitrum
The rollup’s DeFi ecosystem is rapidly growing and includes SushiSwap, Uniswap, Curve, Yearn Finance and more. Top crypto exchanges like Binance and FTX have also integrated Arbitrum.
Image Credit: Arbitrum
Additionally, Arbitrum offers an Arbirtrum Token Bridge for users to move ETH and ERC-20 tokens from Ethereum to Arbitrum and vice versa. This is useful for trading on popular DApps on Arbitrum.
No native token
Transaction fees and deposits on Arbitrum are paid in ETH.
There is no native token for Arbitrum and Offchain Labs has no plans to launch one. Hence, be wary of any scammers offering Arbitrum token sales.
ETH 2.0: What Is The Future of Arbitrum?
Ethereum 1.0 is currently transitioning from a Proof-of-Work model to Ethereum 2.0, which adopts a Proof-of-Stake (PoS) model. In the long term, sharding technology will be introduced on Ethereum to further increase scalability. Sharding splits the main chain into smaller individual chains to reduce data overload and processing time.
In this case, would L2 rollups like Arbitrum still be needed? We would think so.
Ethereum’s Snail Pace
The first phase of the Ethereum upgrade has gone live via PoS blockchain Beacon Chain, the backbone of Ethereum 2.0. The Beacon Chain will eventually be merged with the existing Ethereum blockchain. However, due to complications, this merging has been continually postponed.
If the merge happens, Ethereum 2.0 will still have to be tested and optimised. Even post-sharding, the upgrade will only be 80% completed. In a fast-moving industry like crypto, players may not be able to wait for the Consensus Layer to be fully optimised for use.
Arbitrum has seen high adoption as a short-term solution to scale Ethereum, but it may continue to provide valuable utility to DApps and users in the future.
Proof-of-Work vs Proof-of-Stake: What You Need To Know
What is sharded blockchain NEAR Protocol?
Cryptography: The act of writing or solving codes.
EVM-compatible: Being EVM-compatible means that Ethereum smart contracts can be deployed on the compatible chain. Pros include lower gas fees on the compatible network and developers are able to use the same programming language (Solidity) to write smart contracts.
Interoperability: Enables blockchains to communicate, share and access their data with one another.
The views expressed in this article are the author's alone and do not necessarily represent the views of ApolloX.
Risk Reminder: Crypto trading carries a risk. All trading activities are done at your discretion and at your own risk. The information here should not be regarded as financial or investment advice from ApolloX. ApolloX will not be liable for any loss that might arise from your use of any financial product.
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