Back to Course

2. Intermediate Course

0% Complete
0/0 Steps
  1. 1. Ethereum 2.0 - What is it? 
  2. 2. What is cryptocurrency burning?
  3. 3. How to create your own cryptocurrency? 
  4. 4. Blockchain Oracle - what are oracles? 
  5. 5. How to make money with NFT?
  6. 6. What is an ERC20 token and how is it created?
  7. 7. The Metaverse – a new virtual world
  8. 8. Metaverse – TOP 15 virtual reality projects
  9. 9. Technical analysis – is it worth using?
  10. 10. What are DeFi liquidity pools?
  11. 11. Second layer (layer 2) - what is it? 
  12. 12. What are wrapped tokens 
  13. 13. What is the Lightning Network, and how does it work?
  14. 14. What are security tokens?
  15. 15. What is play-to-earn (P2E) and how does it work?
  16. 16. What are Social Tokens? 
  17. 17. Examples of the use of WEB3 on the blockchain
  18. 18. What is Web5? 
  19. 19. Ethereum London Hard Fork - what is it ? 
  20. 20. Segregated Witness - what is Segwit Bitcoin all about?
  21. 21. Polkadot - Decentralized blockchain and DOT cryptocurrency
  22. 22. Polkadot Parachain - Next-generation blockchain
  23. 23. Set up of Stop Loss and Take Profit orders
  24. 24. Trading order types: stop loss, trailing stop loss, LIMIT
  25. 25. What are Decentralized Cryptocurrency DEX Exchanges?
  26. 26. What is Curve Finance?
  27. 27. What is GameFi and how does it work?
  28. 28. Non-fungible tokens and NFT exchanges
  29. 29. Cryptocurrency steps - What is move to earn M2E?
  30. 30. What is Proof of Reserves (PoR)? How does it work?
  31. 31. Interoperability in the world of cryptocurrencies and blockchain
  32. 32. Blockchain and its layers - What is layer three in Blockchain (L3)?
  33. 33. What is Layer 0 in Blockchain technology?
  34. 34. What is layer 1 in Blockchain?
  35. 35. What is MakerDAO and DAI Stablecoin?
  36. 38. What is the SubDAO protocol, and how does it work?
  37. 39. The main differences between static NFT and dynamic NFT
  38. 40. Liquidity Provider Tokens (LPs). What are they, and why are they so important?
  39. 41. What is KnowOrigin NFT, and how does it work?
  40. 42. What is decentralized social media?
  41. 43. What is the Ethereum Name Service (ENS) and how does it work?
  42. 44. Arbitrum: Ethereum scaling solution - everything you need to know
  43. 45. Ethereum ERC-4337 - what is it and how does this standard work?
  44. 46. Sustainable Blockchain - Proof of Useful Work & Flux
  45. 47. Ethereum Proof-of-Stake (PoS) - what should you know?
  46. 48. Atomic Swap: What is an atomic swap, and how does it work with cryptocurrencies?
  47. 49. What Is Cryptocurrency Vesting? What Are Its Advantages?
  48. 50. What Is the Metaplex Candy Machine Protocol? How Does It Work?
  49. 51. What Is the BNB Greenfield Ecosystem?
  50. 52. Real Yield in DeFi - what is this trend? What does it consist of?
  51. 53. Polygon 2.0 - the value layer for the Internet
  52. 54. What Is Slashing in Cryptocurrencies?
2. Intermediate Course 44. Arbitrum: Ethereum scaling solution – everything you need to know
Lesson 42 of 52
In Progress

44. 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 problems. 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?” [LINK].

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! [LINK – WHAT IS EVM – MASTER LEVEL].

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.