Arbitrum’s Layer 2 Solution. What Hypersea Traders Will Benefit From This Development?

The Ethereum protocol version that was launched in 2015 has had tremendous success. The Ethereum community, however, had always hoped that a few important upgrades would be critical to unlocking Ethereum’s full prospect.

Increased order is driving up transaction fees, essentially making Ethereum a lot more expensive for the average user than most other blockchains. As for Ethereum clients, the disk space needed to run on the network is growing at a rapid rate. In addition, the foundational proof-of-work (PoW) consensus algorithm that maintains Ethereum’s security and decentralization has proven to have a significant environmental impact. Speaking of upgrades, the Ethereum ecosystem expects to use these to address the problems previously mentioned and more. The first set of such upgrades was originally called ‘Serenity’ and ‘Eth2,’ and they’ve been a functional area of investigation and growth since 2014.

Ethereum desperately needs to be able to tolerate more transactions per second. This must be achieved without increasing the size of the independent operators (nodes) in the network. Nodes are crucial network players who are responsible for storing and running the blockchain. Increasing node size alone isn’t useful because only those with strong and costly computers could do it. In order to scale, however, Ethereum requires more trades per second, as well as more nodes. More nodes will result in more security.

How To Simply Understand Layer 1 & 2 Solutions

In order to understand Layer 2 and why Arbitrum exists, we must first get familiar with related terms and concepts. To begin with, Layer 1 is the base blockchain. Ethereum and Bitcoin are both layer 1 blockchains. This is because they are the foundation that different layer 2 networks build on top of. An important example of Layer 2 solution is Arbitrum on the Ethereum blockchain and the Lightning Network on top of the Bitcoin blockchain. All user activities on a Layer 2 protocol can eventually resolve back to the underlying Layer 1 blockchain.

In the case of Ethereum, the blockchain functions as a data storage for its Layer 2 variables. Layer 2 projects will broadcast their trade data onto Ethereum, trusting the Ethereum network for data availability. This data can be used to resolve disputes or derive information for analyzing projects.

Layer 2 is a joint term used to refer to the solutions developed to help scale an application by overseeing transactions outside of the Ethereum Mainnet (layer 1) while grabbing the benefit of the strong decentralized security model of Mainnet. Transaction speed begins to slow down when the network is busy, creating a poor user experience for specific types of decentralized applications. A busy network also results in higher gas prices per transaction. At times like this, senders aim to outbid each other. This can make using Ethereum very expensive. Below is a graph showing how much in fees was paid by users on Ethereum blockchain between the years 2021 and 2022.

Some Layer 1 blockchains maintain higher transaction amounts per second (sometimes known as throughput) and lower transaction costs than Ethereum. These alternatives have had to give up some layers of security and (or) decentralization in order to fulfill higher transactions per second and lower transaction fees. The rigidity of the Ethereum blockchain often underscores that layer 2 scaling is the only way to unravel the scalability trilemma while preserving its decentralization and security.

Layer 2 solutions are needed because they facilitate improved scalability and throughput while still maximizing the virtue of the Ethereum blockchain. It also ensures complete decentralization and transparency, as well as security. And, most importantly, it promotes less gas usage, which translates to less energy being used, essentially reducing the carbon footprint.

The Ethereum Mainnet is known to have around 13 transactions per second (which is way lesser than many contemporary blockchains) and expensive gas fees. Layer 2s are created on top of the Ethereum blockchain, maintaining transaction security, speed and scale.

Abitrum’s Advantages Over Ethereum And Solana

Blockchains have been able to bring in trust minimization to new use cases including monetary policy (e.g. Bitcoin) and digitalisation of asset exchange (e.g. DEXs). Blockchains, however, have a record of struggling to sustain trust minimization for use cases that demand speeds and fees identical to conventional computing systems. These scalability restrictions can be felt by subscribers in the condition of high transaction costs and push developers to doubt whether blockchains can sustain high-value use cases that rely on handling data in real-time.

With the supreme goal of opening blockchain technology for all users and use cases, scalability is one of the leading elements of blockchain research and development. Blockchain is also a key factor in smart contracts becoming the backend choice of major industries such as finance.

Arbitrum offers 3 important scaling categories to the Ethereum Blockchain: These are execution, storage, and consensus. Below, we define the categories and try to explain the core problem each of them seeks to solve. In practice, scaling one property is usually conditional on or affects the scaling of one or two other properties.

Blockchain execution (Greater Transactions Per Second): the mathematical calculations required to complete transactions and execute state changes. Transaction execution pertains to inspecting the truth of transactions (e.g. ascertaining signatures and token balances) and performing the on-chain logic required to compute state changes. State changes are when full node operators update their copy of the ledger to show new token transfers, smart contract code updates, and data storage.

The scalability of blockchain execution is commonly believed to be transactions per second (TPS), but from a broader perspective, it refers to the number of computations done every second (since transactions can vary in complexity and cost). The more transactions registered on a network, the greater the computations that need execution at any given time.

Better Trust Minimization Consensus: the technique by which node operators in a decentralized network attain an understanding of the current state of the blockchain. Consensus is primarily concerned with attaining an honest majority in the face of a particular point of malicious actors and reaching finality; i.e., transactions are accurately processed and highly unlikely to ever be reversed. When scaling the consensus layer, the primary issue to solve is how to attain finality faster, cheaper, and with more trust minimization. The nodes agree to do all these in a predictable, stable, and accurate manner.

More Data Storage System: refers to the storage requirements for full node operators, which are responsible for maintaining and storing a copy of the ledger. In scaling the storage layer, the main problem Arbitrum is solving is to process and confirm more data without increasing storage requirements for full nodes; i.e., where data can be stored long-term without significant differences to the trust suppositions of blockchains.

Advantages That Traders Achieve From Hypersea As A Result Of Scalable Solutions

Ethereum layer 2 solutions have some profound potential to transform the blockchain terrain for the better. Layer 2 ensures that users can retain all the security measures used on the Ethereum Mainnet while still being able to perform transactions more quickly and at a low cost for users.

This style of improvement is stimulating more people to test the Ethereum blockchain and experience everything it has to deliver.

• A greatly increased number of transactions per second greatly improves user experience and reduces network congestion on Hypersea.
• Arbitrum designates and rolls up orders into a single transaction to Mainnet Ethereum. This reduces gas fees for Hypersea users, making Ethereum more inclusive and accessible for global users.
• Any updates to scalability are not at the expense of decentralization or security — Arbitrum builds on top of Ethereum, which is still the most secure blockchain at present.
• Hypersea employs other types of efficiencies when working with assets at scale. This is inclusive of liquidity provisions and assets management.