What is Arbitrum? Speeding up Ethereum using optimistic rollups

the Ethereum the network has many advantages: it is decentralized, reliable, supports smart contracts written in a programming language familiar to many crypto developers, and home to a thriving decentralized finance (Challenge) industry.

However, Ethereum is also slow and expensive to use, and will remain so unless users choose to switch to another blockchain (like SolanaGhost or avalanche), or until scheduled Ethereum Upgrades accelerate things in the next two years.

While the world waits, a third fix has appeared: scaling solutions. These are software programs that rely on the base layer of a block chain, in this case Ethereum, to speed things up. Arbitrum is one such scaling solution, and it has become a popular place for Ethereum users to transact.

Abritrum is cheap and quick to use, and relays all transaction information back to the main Ethereum blockchain. While Ethereum only handles 14 transactions per second, Arbitrum advances at 40,000 TPS. Transactions cost several dollars on Ethereum, while they cost around two cents on Arbitrum.

And Arbitrum also supports Ethereum Virtual Machine (EVM), which means Ethereum DeFi developers can integrate their decentralized applications (dapps) with Arbitrum without having to make any changes.

Arbitrum was created by Offchain Labs. The company raised $120 million in a Series B funding round in September 2021.

How does Arbitrum work?

Arbitration development documentation says this is the most important graph to understand:

Arbitration Workflow. Image: Arbitrum

Simply put, people and smart contracts are telling the Arbitrum blockchain to do something by putting transactions into the chain’s “inbox”. Then Arbitrum processes it and generates a transaction receipt. How Arbitrum processes that transaction – which determines its “chain state” – is decided by the transactions in its inbox.

Currently, Arbitrum processes Ethereum transactions through a method called optimistic rollup and settles them on a sidechain before reporting to Ethereum. Let’s break this down.

What is an optimistic cumulation?

A rollup is a type of data compression technique for blockchain transactions. This involves “bundling” batches of transactions into a single transaction.

The advantage of this is that a blockchain only needs to process a single transaction – the cumulative transaction – instead of confirming each individual transaction contained in the cumulative. This saves time (multiple transactions are confirmed at once, so you don’t have to wait for the blockchain to arrive at your transaction) and money, because the blockchain only has to confirm a transaction.

An “optimistic” rollup is a specific technique for the rollup of transactions. To speed things up, optimistic rollups assume that the transactions contained in the rollup are valid. It is possible to dispute transactions through a dispute resolution mechanism if a validator suspects fraudulent behavior. (Optimistic rollups are distinct from “no-knowledge” rollups, which bypass a dispute resolution mechanism by validating transactions before they are added to the rollup.)

Arbitrum’s optimistic rollups are installed on a proprietary sidechain. A sidechain is a blockchain that is connected to a main chain; in this case, Ethereum. Arbitrum collects batches of transactions, settles them on its sidechain, and then sends the transaction data back to the Ethereum blockchain ledger.

Arbitrum states that all transactions confirmed by this process are buffered with the “AnyTrust guarantee” – when all validators agree on the validity of transactions contained in a block. Validators stake ETH before they can confirm transactions; by putting money on the line, they are encouraged to act honestly.

Unlike other cumulative networks, like Boba or Loopring, Arbitrum does not have a token. Offchain Labs claims that the network does not need it, since all transactions on the sidechain are settled with ETH, the native cryptocurrency of the Ethereum blockchain.

Arbitrum has been integrated into several decentralized finance protocols, such as SushiSwap, Curve and Abracadabra. Data from DeFi Llama shows that $2 billion worth of cryptocurrency is locked up in Arbitrum smart contracts. About 30% comes from decentralized exchanges (DEX) Sushi Swap.

The project’s blockchain, Arbitrum One, is in mainnet “beta”, which allow Arbitrum developers “various levels of control over the system”, including “the ability to pause the system”. Offchain Labs plans to eliminate these checks once it is certain the project is robust.

How to use Arbitrum

You can use Arbitrum through a decentralized application, like Aave, 1 inch or Gnosis Safe, or directly on Arbitrum symbolic bridge. For the token bridge, you can deposit funds to the Arbitrum network after connecting your Web3 wallet. It takes about 10 minutes for the deposits to disappear.

You will need to pay Ethereum gas fees, at Ethereum rates. To deposit less than one cent of ETH in Arbitrum, Metamask wallet quoted us $5.41 in gas charges.

The future of Arbitrum

Arbitrum is about to roll out a feature called AnyTrust Channels, a sidechain that sacrifices lack of trust for lower fees and increased speed. Eventually, Offchain Labs will also eliminate its control over the project.

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