9. Arbitrum: Ethereum scaling solution – everything you need to know

Arbitrum is nothing more than a layer 2 chain built on top of Ethernet. It was designed to solve congestion problems on Ethereum’s main network. Arbitrum was developed by Offchain Labs, a New York-based technology company.

So the Arbitrum chain itself is a scaling solution for the main Ethereum network chain. How. Arbitrum records transactions on Ethereum, “holds them” and then forwards them to the main chain of the network. This effectively eliminates the problem of ecosystem congestion.

The inventor of Arbitrum was Offchain Labs, as mentioned in the paragraph above. The chain was founded in 2018, and its creator was Ed Felten.

According to the inventor, the idea for Arbitrum came to him while he was still working at Princeton. At that time, he had already started working on it. However, he focused on it fully after he left his job.

Arbitrum – how does it work?

The Ethereum blockchain has several issues. One of them is the speed of transaction processing. The blockchain network can only process a certain number of transactions in a certain amount of time. If this number is higher, a queue forms on the chain. This can lead to congestion.

Ethereum is a popular ecosystem for creating dApps. This leads to even more transaction delays. Simply put, more and more transactions are pushed onto the chain and it takes even longer than usual for them to complete.

To solve this problem, we have two solutions. The first, of course, is sharding. We have explained how this works in the section “What is sharding?”.

The whole process of sharding is quite complicated. Moreover, it is currently not yet at a stage where the problem of transaction time has been effectively solved. What does this mean in practise? That dApps and other applications that want to execute transactions quickly will have to look for another solution.

Another solution is roll-ups and confirmation of off-chain data. Smart contracts are redirected to operate freely in the off-chain system. This allows them to redirect transactions and add them to the Ethereum chain at a later date. Rollups execute transactions off the Ethereum blockchain, then reduce the data in the chain and potentially reach consensus.

This is a huge advantage for the network. Transactions can be confirmed in real time, while the consensus itself is reached a little later in the Ethereum main chain. And because the transactions are contained in Layer 1 blocks, they maintain the same level of security.

Such actions are performed by roll-ups of Layer 2 chains. Arbitrum is one of them.

Arbitrum is an optimistic roll-up chain. That is, data is passed on with the assumption that it is valid by default. Because of these optimistic assumptions, the Arbitrum chain ranks slightly higher above zero-knowledge tier two chains.

And why? Because optimistic roll-ups are inherently cheaper than those using zero knowledge. Moreover, we have gas fees, which are also cheaper in this case. The third plus is the lower cost of data processing outside the chain.

And the last and perhaps most important advantage of this type of roll-up is that it is compatible with the Ethereum Virtual Machine (EVM). Therefore, Tier 1 applications can easily connect to Arbitrum and receive faster confirmations.

Do not remember what Ethereum Virtual Machine is? Look it up here!

How can you benefit from Arbitrum?

It is simple. We can use the chain by using decentralized applications like Aave, 1inch or Gnosis Safe for it. It is also possible to use it via the token bridge Arbitrum. In this case, you first need to connect your wallet to the bridge and deposit a certain amount of money.

Of course, using the Arbitrum chain comes with the need to pay for gas – at Ethereum rates.

Interestingly, Arbitrum is expected to develop new features in the near future. These include AnyTrust Chains and Sidechain, which will lower fees while increasing speed.

Ethereum, gas fee and The Merge

In late 2022, Ethereum entered a new phase of its life. It underwent an update to The Merge, which took a big step towards sharding. This move was intended to reduce congestion on the network’s main chain and make it easier to confirm transactions. Unfortunately, these problems remain despite The Merge. Well, in life, not everything always works out. Therefore, the popularity of chains and solutions like Arbitrum will continue to grow.

Arbitrum’s native token

And at this point we will surprise you. Most Tier 2 solutions have their coins that they use to reward validators, among others. Arbitrum is the only solution that does not have its coins.

This just means you cannot invest directly in Arbitrum. However, according to a tweet by Steven Goldfeder, co-founder of Offchain Labs, we can hope that one day such a coin will be created. In April 2022, he posted a tweet hinting at the minting of “Arbi”. At this point, we have no further information. We have no choice but to wait.

Summary

Tier 2 solutions like Arbitrum have caused a stir in the cryptocurrency industry recently. And why? Because they could be the solution to many of the problems affecting Ethereum.