What Is Arbitrum And How Does It Work?
After the launch of the anticipated Ethereum layer2 solution, Arbitrum successfully became the best layer-2 solution on the Ethereum layer.
The arbitrum is designed to resolve the decentralized section that Ethereum struggles with, which is scalability. A project will only be said to be decentralized with it being scalable.
And also, arbitrum is focused on reducing the cost of operation for the Ethereum blockchain for developers. Making its network scalable, fast, and cheap has triggered the flock of developers in troops to the system to develop decentralized applications (DApps).
As reported by DeFI Llama, Arbitrum is currently the sixth largest blockchain with 135 protocols and $891.55 million estimated Total Value Locked as of writing time.
Enough of its success stories. Let`s dive deep, starting with the definition of Arbitrum.
DEFINITION OF ARBITRUM
The Arbitrum system is the first layer-2 (L2) solution on the Ethereum blockchain, aiming to lower the cost of operation on the chain. The arbitrum chain is built and depends on its layer-1 (L1) chain — The Ethereum layer-1.
The arbitrum may execute and enable smart contracts but technically leverages the provided security feature of the Ethereum mainnet. Low cost, faster transaction, all these are made possible with the help of optimistic rollups technology.
The optimistic rollups are programmed to take transactions off-chain, package and compress transactions, and then report to the Ethereum mainnet, where they are immutably established. Moving computation off-chain and only saving the necessary data reduces the Ethereum congestion and the gas fee cost.
But still, it is the second largest layer-2 system on the Ethereum mainnet after Polygon. The Polygon is the largely subscribed layer-2 system for the Ethereum mainnet.
Many major decentralized projects are established on the arbitrum system, including NFT marketplaces like Trove and notable projects like Sushiswap, Abracadabra, Curve, and Uniswap.
Recently, Arbitrum has disclosed the launch of a separate chain called the Arbitrum Nova, developed for social and gaming projects with high transaction volumes but lower cash value at stake. However, let`s leave the Nova chain for now and move to how Arbitrum L-2 works.
How does Arbitrum work?
In simple terms, The Arbitrum system is responsible for powering smart contracts on its chain and later passed on to the Ethereum mainnet (L1).
Developers pay in Eth for using the arbitrum ecosystem, and charges are reduced to almost 50% rate of the regular fees of a transaction on layer 1 — in this case, the Ethereum mainnet. Theoretically, this means smart contracts are cheaper to run on the arbitrum chain than directly on the Ethereum mainnet.
In addition, a huge part of the transaction processing takes place on layer 2. Then the arbitrum automatically registers the transaction on the main layer, making running smart contracts fast and efficient. Afterward, arbitrum allows a validator to post a rollup block and check its validity on another block. With that, validators can use available public data to rebuild a complete chain history from optimized logs.
What makes Arbitrum unique?
The Ethereum mainnet is bleated with critics for scalability, less transaction speed, and the high gas fees incurred for using the mainnet directly.
However, different networks have been introduced as resolutions to solve the Ethereum shortcomings. The introduced networks include EOS (EOS), Polkadot (DOT), and many more. All listed networks operate differently as separate blockchains but leverage the provided security by layer 1- The Ethereum network.
And also, all layer-2 system on the Ethereum mainnet is powered by protocols known as proof-of-stake (POS). Furthermore, aside from the price, scaling, and speed transaction solutions, the arbitrum system has enabled most DeFi products to be market fit, which could never have existed on the Ethereum layer 1.
The arbitrum system facilitates the validation of smart contracts code on a separate layer, saving the ETH mainnet from excessive transactions. Smart contracts are validated through the optimistic Arbitrum rollups.
However, other layer2 protocol solutions tend to operate similarly to the arbitrum. However, the arbitrum compatibility with the Ethereum Virtual Machine (EVM) has made it maintain a reputable edge over others. With that, dApps developers do not need to acquire a new coding language before using the arbitrum system.
Although, after the Ethereum merger in September 2022, some Ethereum layer2 solutions were affected as they lost part of their individualized sales points. For the moment, Arbitrum One appreciate validators for their effort with ETH and allows batch validation of smart contracts, which helps reduce the cost of operation.