Scalable & Low Cost Computation of Ethereum Smart Contracts Using Arbitrum, on the Chainlink Network

Ed Felten
Ed Felten
Feb 14 · 9 min read

We are excited to announce the release of new capabilities for the larger Ethereum community by enabling the combined use of Arbitrum and Chainlink, which will enable Arbitrum’s unique form of trust-minimized smart contract computation to be used both securely and easily in the computation of any data-enabled Solidity based smart contract that uses Chainlink. With Chainlink node operators now able to operate as validators of Arbitrum’s secure off-chain computation protocol, developers can build smart contracts using an entirely new approach to secure off-chain computation, providing previously inaccessible scalability for running Solidity, and extreme improvements in cost efficiency.

Combining Arbitrum’s unique trust-minimized smart contracts together with Chainlink’s high quality node network as secure validators of those computations, as well as their ability to create secure connections to key external resources, provides a greatly improved, more scalable, and extremely cost efficient off-chain development stack for smart contracts. This makes it simple to launch highly secure, externally connected, and cost efficient smart contracts that can meet the demands of interoperability with other key systems, while being used for computationally intensive use cases that want to rely on the security of Ethereum.

Arbitrum Rollup, from Offchain Labs, is now live on testnet and is the first Rollup system for general smart contracts. To get started quickly with Arbitrum and Chainlink’s improved ease of use and external data enabled capabilities, jump into the quick start Chainlink+Arbitrum off-chain development guide. We also encourage developers to check out the Arbitrum documentation and begin experimenting with Arbitrum smart contracts directly on their local machine or testnet.

Arbitrum: Reducing Gas Costs and Increasing Throughput

Ethereum offers enticing security properties for processing specified logic (Solidity smart contracts) since they are redundantly computed by decentralized networks of independent nodes. This idea of decentralized computation provides highly reliable and secure applications, but Ethereum does have some initial limitations with scalability, since every node in the network needs to process every single transaction broadcast on the blockchain.

Arbitrum supports secure smart contracts using an off-chain protocol that gives smart contract developers the flexibility to move most of the work of smart contract execution off-chain, to nodes running the Arbitrum protocol, while maintaining the trustless security of Ethereum. Arbitrum offers uniquely low cost and high throughput capabilities by computing solidity in a way that doesn’t have to be fully computed by every node on a single public network. Similar to how Chainlink applies scalable security to real-world data, Arbitrum provides a scalable security model for trust minimized off-chain computation. As the value of an Arbitrum off-chain computation increases, developers can always add Chainlink oracles/node operators to increase the number of validators securing their specific computation’s overall security.

Arbitrum has large benefits when compared to doing all smart contract computations entirely on-chain; specifically,

  • Huge increases in contract throughput and storage capacity since bandwidth isn’t limited to any underlying blockchain consensus mechanism. Only the validator nodes of an Arbitrum chain need to do all of the work to compute and form consensus on that chain’s solidity smart contracts.
  • Almost complete elimination of gas costs, since computation is done off-chain and only final results are posted back on-chain. The Arbitrum protocol only requires on-chain fees when communicating a result back on-chain or when validators submit proof in the event there is a dispute. Which will rarely occur in cases where multiple reliable validators are responsible for simultaneously guaranteeing correctness.

In the rare event that an Arbitrum contract’s validators don’t agree on what the next correct state of the computation is, Arbitrum allows for the efficient resolution of the dispute on Ethereum, using a unique on-chain dispute resolution mechanism that guarantees correctness even if there is just one honest validator, referred to as Arbitrum’s AnyTrust Guarantee. If any validator tries to lie about an Arbitrum computation’s behavior, an on-chain contract will identify and penalize the dishonest node by using a highly-efficient challenge-based protocol. The challenge system requires validators to submit proofs on-chain backed by staked collateral until the issue is resolved.

By having a secure dispute resolution mechanism built on Ethereum that incorporates crypto-economic incentives to avoid disputes and resolve them efficiently if they do arise, Arbitrum provides major performance enhancements to the computation layer of smart contracts, yet still, maintains strong trust-minimized security guarantees. Moreover, Arbitrum ships with a Solidity compiler, ensuring a familiar developer experience and making it easy to port existing contracts directly onto Arbitrum, which can then be validated by an oracle network of high quality Chainlink node operators, guaranteeing correctness.

Computational Oracles

Chainlink is ideally suited to support Arbitrum given its secure and flexible framework, growing number of high-quality node operators already securing hundreds of millions in USD value, and long-term viability as a standard layer in the web3 protocol stack.

Chainlink oracles allow smart contracts to securely import data from the real world and execute actions on external systems, both of which are critical functions needed by many of today’s most interesting Dapps. But oracles have far more functionality than facilitating data messaging between disparate systems. They become even more powerful when they not only transport raw data, but trustlessly process and perform scalable computations on that data using a trust-minimized form of computation like Arbitrum.

In this off-chain design, smart contracts are split into two parts: scalable off-chain computation and on-chain dispute resolution and/or settlement. Thus, Dapps can securely outsource expensive computational tasks — tasks that would be prohibitively expensive to do on-chain — to Arbitrum-enabled Chainlink nodes, while remaining anchored to Ethereum to automatically resolve disagreements arising in the arbitration period.

Putting it together, decentralized networks of Chainlink nodes running Arbitrum can validate a solidity smart contract, retrieve external data inputs, scalably compute the smart contract with associated correctness guarantees, push these contract outputs and proofs on-chain, and send a provable result to the user’s on-chain contract once the arbitration period has ended. Chainlink nodes will be able to add an additional layer of security by staking LINK as collateral to back their computations. These crypto-economic guarantees will allow the system to scale to secure more and more value over time, especially given Chainlink’s unique ability to progressively add additional high quality nodes to secure any specific Arbitrum computation as it grows in value.

Using Chainlink with Arbitrum

Some useful examples for computational oracles include:

  • DeFi — Currently DeFi is limited in what it can do and the complexity of products it can ship as the computation load on Ethereum is often too large from its growing base of users. Arbitrum based computations allow developers to unleash the potential of DeFi by opening up more complex products that are cheap enough for end-users to interact with at viable price points. Some interesting use cases include determining collateral ratios for money markets, calculating aggregated interest rates for lending protocols, or managing portfolios by distributing assets based on collective market analysis.
  • Gaming — At present, most of the gaming industry on Ethereum cannot afford to run heavy computational processes on-chain. Games traditionally require thousands of in-game interactions, especially strategy-based games that can generate upwards of one hundred thousand transactions on Ethereum to properly function. Arbitrum allows gaming projects to use Ethereum as a settlement layer, while processing highly complex operations off-chain that retain high levels of transparency and security.
  • Enterprise — Many industry use cases in the enterprise space, such as insurance, supply chain, and finance, are unfeasible on public blockchains due to a lack of user privacy and slow transaction throughput. Arbitrum can not only replicate the high transaction speeds of traditional non-blockchain infrastructure, but users can benefit from having private, trustless computation of multiparty contracts that avoid information leakage of sensitive data.

Chainlink Nodes to Offer Arbitrum Validator Services

The Chainlink integration will also help existing Arbitrum users. For example, if a project launches an Arbitrum rollup chain, but doesn’t have access to jreputable nodes, they can outsource validation to Chainlink nodes. Chainlink already has one of the largest collections of security-reviewed, Sybil-resistant, and fully independent node operators, which can serve as the validators for any Arbitrum computation, and scale to secure increasingly greater value over time.

Outsourcing validation to high-quality node operators provides many potential benefits without reducing security, such as adding strong liveness and uptime guarantees to Arbitrum users. The overall security of the system will only increase and even if a single node were compromised, the integrity of the Arbitrum chain would remain intact.

Real-World Data Inside Arbitrum Smart Contracts

Like most VM machines, Arbitrum is not natively connected to real-world data living outside its own network protocol. Some of the most interesting use cases for decentralized applications require these external data inputs before computing reliable contract outcomes, such as price feeds, stock quotes, or information about how some event unfolded.

Arbitrum contracts will also now have access to Chainlink price reference data networks, data marketplaces and various other Chainlink capabilities, making them much more powerful and useful in complex application designs. Arbitrum contract developers can make use of the existing Chainlink markets, such as the Chainlink Price Reference Data for DeFi, or create a custom decentralized oracle network that securely sources data critical to the execution of their decentralized application. This opens up more advanced Dapp designs, such as IoT-driven insurance products, real-time decision making in financial services, and high throughput gaming applications.

The best part? Arbitrum has full solidity support and accessing Chainlink data on Arbitrum will be just as simple as accessing it directly on Ethereum. If you can dream it, you can build it with Chainlink and Arbitrum.

Arbitrum and Chainlink

We’ve laid out some initial thoughts on how to leverage Arbitrum and Chainlink together in new value-adding design patterns, along with some specific use cases that can be enhanced by their synchronistic functionalities. Ultimately, the possibilities are endless, and will only grow over time as development advances on both networks. Both teams are excited to see the combination of Arbitrum and Chainlink provide an entirely new set of capabilities to smart contract developers:

When thinking about an ideal platform to work with Arbitrum, Chainlink’s stood out as an obvious choice given its strong technical team advised by leading academic researchers, great track record of substantially solving the oracle problem for blockchains and robust set of secure nodes/validators for securely executing off-chain computations. Our long-term collaboration will open up a whole new realm of trust-minimized applications that are fully connected to the real world, yet scale to meet the current demands of traditional systems.” — Ed Felten, Co-founder of Offchain Labs, Computer Science Professor at Princeton, and former White House Deputy CTO

“We’re thrilled to work closely with the extremely accomplished, deeply experienced and highly technical team making Arbitrum, and are excited to work closely together with them on our shared goal of truly advancing smart contracts. Chainlink’s ability to help provide trust minimized off-chain computation that makes smart contracts more private, highly scalable and cost efficient, while still relying on the unique security guarantees of Ethereum, is truly a step forward. Arbitrum opens up a whole new range of complex application designs that were previously unavailable due to the current limits of on-chain computation, many of which we’re already in the process of helping leading DeFi, Blockchain Gaming and Smart Contract Insurance teams implement. I and our entire team are very excited to team up with Offchain Labs to help more people benefit from their groundbreaking work, and are thrilled that Chainlink is able to provide an additional layer of security, greater ease of use and critical access to external resources to Arbitrum computations.” — Sergey Nazarov, Co-Founder of Chainlink

Both teams are at EthDenver this weekend, so we encourage anyone with questions, concerns, or ideas about how to leverage Arbitrum and Chainlink to approach us and show us what you’re building!

Learn More

Offchain Labs: Learn more by visiting our 22 or checking out the documentation to experiment with Arbitrum Rollup on testnet today.

Chainlink: Learn more by visiting the Chainlink website, Twitter or Reddit. If you’re a developer, visit the developer documentation or join the technical discussion on Discord.

Offchain Labs

Creating Arbitrum, a scaling and privacy solution

Ed Felten

Written by

Ed Felten

Co-founder, Offchain Labs. Kahn Professor of Computer Science and Public Affairs at Princeton. Former Deputy U.S. CTO at White House.

Offchain Labs

Creating Arbitrum, a scaling and privacy solution

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