Arbitrum: The Ultimate Layer-2 Scaling Solution for Ethereum

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GMO-Z.com Trust Company

5 min readDec 28, 2022

The blockchain revolution paved the way for many innovations, cryptocurrency being the most significant of them. That said, Ethereum, the second major blockchain network, has constantly been explored for enhancing its throughput and reducing congestion.

In this article, we will take a closer look at Arbitrum, a layer 2 solution on the Ethereum blockchain, explore its unique features and benefits, how it differs from its competitor Optimism, and why it is an essential part of the Ethereum ecosystem.

What is Arbitrum?

Arbitrum is a layer-2 blockchain that uses a type of scaling solution called optimistic rollup to improve the scalability and efficiency of Ethereum.

There are currently two Arbitrum chains on the Ethereum mainnet: the Arbitrum Rollup chain “Arbitrum One” and the AnyTrust chain “Nova.”

Arbitrum One is a decentralized, high-security chain suitable for DeFi and NFT projects. Arbitrum Nova, on the other hand, is a cost-efficient scaling solution that is optimal for gaming and social applications. In this article, we will primarily focus on Arbitrum One.

What is Optimistic Rollup?

Optimistic rollup is a scaling solution that assumes off-chain transactions are valid and don’t require publishing proof of their validity on the main chain. Transactions are validated by a smaller set of nodes added to the main chain in batches, helping to reduce congestion and increase the overall transaction throughput of the network. However, Optimistic rollups may be susceptible to delays caused by fraud challenges as progress stops until the dispute is resolved.

Arbitrum’s optimistic rollup

Arbitrum’s implementation of optimistic rollup is unique since it uses its own virtual machine, the Arbitrum Virtual Machine (AVM). The AVM stores minimal data on-chain for optimal scalability and uses pipelining to process multiple disputes to improve speed and security. The verification approach Arbitrum uses is called multi-round fraud proofs. Another key feature of the AVM is that it allows layer-2 transactions to be executed off the main chain, making gas block limits irrelevant and resulting in higher network performance and scalability.

On August 31st, the Arbitrum One mainnet was upgraded to Nitro, a complete layer-2 Optimistic Rollup system with features such as improved fraud protection and data compression to enhance the speed and efficiency of Ethereum transactions.

Features of Arbitrum

The best features and advantages offered by Arbitrum include:

High degree of EVM Compatibility

Arbitrum technology is regarded as one of the most EVM-compatible rollups. It gels well with EVM at the bytecode level and supports any language, including Solidity, Vyper, etc. Thus, it benefits the developers as they can conveniently code in the same language and don’t have to master a new programming language to build on Arbitrum.

Low Cost & High Throughput

Arbitrum, a layer-2 scaling solution to Ethereum, offers high transaction throughput at lower transaction costs. In addition, while the transaction costs are lower, it provides enough incentives to validators.

Robust Development tools

The Arbitrum project team has gone the extra mile to include all the documentation required to build a layer-2 solution. They have produced well-documented materials which the developers can start using. There’s no need for developers to download anything specific to the project, like plugins or compilers.

Excellent Ecosystem

Arbitrum has a thriving ecosystem with diverse infrastructure projects and Ethereum-based decentralized applications (dApps). The platform currently hosts over 400 projects, including several significant dApps deployed on Ethereum. In addition to these dApps, many popular decentralized exchanges, such as Uniswap, SushiSwap, Curve, and others, also utilize Arbitrum.

How is Arbitrum different from Optimism?

While Arbitrum and Optimism are both categorized as Optimistic rollups, they have some key differences.

First, from a market perspective, Arbitrum holds a total locked value (TVL) of $1.7 billion, which positions it as the leader in Ethereum layer-2 solutions and the fifth-largest DeFi chain. Meanwhile, Optimism has a TVL of $744.8 million, making it the second largest in the layer-2 solutions market.

Second, from a technical standpoint, the dispute-resolution processes used by both technologies are different. Optimism uses single-round fraud proofs executed on the Ethereum main chain (Layer 1), while Arbitrum uses multi-round fraud proofs executed off-chain. This makes Arbitrum more efficient and cost-effective compared to Optimism. Both technologies are EVM-compatible. Optimism only works with Solidity compilers, while Arbitrum can accommodate all EVM-compatible languages.

Third, the two roll-ups also differ in the initiatives they bring to their communities. The Optimism Collective is a DAO, divided into two houses, namely Citizen’s House and Token’s House. The members of these houses use the governance token $OP to receive perks like voting rights, project incentives, and more.

On the flip side, Arbitrum is not DAO-governed, with the protocol wholly owned and managed by Offchain Labs. Also, Arbitrum does not currently have its own native token. However, since the Nitro upgrade, there has been a noticeable rise in transactions, which may result from traders expecting an airdrop of the native token.

Bottom line

Arbitrum has gained widespread recognition and adoption as a leading player in the Ethereum layer-2 solutions landscape. Its unique roll-up architecture and focus on security have made it a popular choice for developers looking to build decentralized applications on a scalable and secure platform. With its impressive market presence and diverse use cases, we can expect to see it continue driving innovation and adoption in the sector.

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