Ethereum is a blockchain, and a blockchain can only facilitate so many transactions at a time.
That said, Ethereum has become the dominant settlement layer for the cryptoeconomy over the past couple of years as DeFi and NFTs have exploded in popularity. In this hyperactive environment, users routinely congest the Ethereum blockchain in jockeying for inclusion within the network’s limited block space.
These bouts of congestion lead to poor UX, as users face expensive and oftentimes slower transactions during periods of huge demand. To address this problem, the Ethereum community is earnestly embracing both on-chain and off-chain scaling methods.
The community’s long-term scaling strategy is on-chain sharding, or splitting the Ethereum network into multiple “shards.” For scaling now, builders are turning to off-chain solutions like layer-two (L2) rollups, which are built on top of Ethereum and have started hitting the limelight in 2021. Developed by Offchain Labs, Arbitrum is one such L2 rollup technology that’s quickly gaining major traction.
Understanding Arbitrum’s “optimistic” style
To date, two main styles of L2 rollups have come to the fore: zero-knowledge (ZK) rollups and optimistic rollups.
All rollups handle transaction execution off-chain, meaning they use their own infrastructure to facilitate transactions. In this way, rollups are like decongestants for Ethereum. They relieve Ethereum by readily supporting Ethereum-based activities that would have otherwise competed for “L1” Ethereum block space. Stylistically speaking, what sets rollups apart derives from how they handle data.
Rollups execute transactions off-chain, but in some capacity these L2s post data to the Ethereum mainnet. How they do determines whether they’re a ZK rollup or an optimistic rollup. The former rely on validity proofs, which entail posting batches of transactions via cryptographic proofs called ZK-SNARKs. The latter rely on fraud proofs, which assume posted data is valid unless challenged.
Because Arbitrum’s technology depends on fraud proofs, it is “optimistic” in style rather than ZK-based. Zooming in, this style affords Arbitrum some fundamental advantages:
- Optimistic rollups are readily compatible with the Ethereum Virtual Machine (EVM), so L1 dapps can easily “port” their projects to Arbitrum’s L2 tech.
- Optimistic rollups also offer low fixed-gas costs per transaction batch and lower off-chain computation costs than ZK rollups face, so Arbitrum enjoys these structural benefits.
Of course, it’s worth repeating that along with these specialized advantages Arbitrum additionally enjoys the generalized advantages of rollups. These are rapid and inexpensive transactions and the decentralization and security guarantees provided by Ethereum as a reliable L1 foundation.
An Arbitrum Glossary
- Arbitrum — The brand name; the title of this particular style of optimistic rollups technology.
- Arbitrum One — The first live rollup chain implementing Arbitrum’s tech; the moniker derives from the reality that “multiple rollups in parallel” will eventually run on Arbitrum’s tech.
- Arbitrum Reddit — The unofficial nickname of the bespoke rollup that Arbitrum’s creator team, Offchain Labs, is helping to build for the social news aggregation giant Reddit.
- Arbitrum Virtual Machine — The AVM is responsible for executing EVM-compatible code in L2 fashion.
- ArbOS — The program that functions as the “record-keeper, traffic cop, and enforcer for the execution” of Arbitrum smart contracts.
In May 2021, Offchain Labs launched the mainnet beta of Arbitrum One, but only to developers. The team geared this “soft launch” approach toward ensuring an ecosystem of dapp projects could be smoothly onboarded to the L2 before it was publicly opened and users’ money would be on the line en masse.
By early July, Offchain Labs had already onboarded over 300 dapps to the beta, and one month later that number reached +400. This paved the way for Arbitrum One’s public launch, which took place on Aug. 31st and opened up the rollup for “arbitrary contract deployment and any other interactions.”
Since then, Arbitrum One has quickly become the largest L2 per total value locked. Indeed, two weeks after launch the rollup has reached a $2.3B TVL — at the time of writing, this sum was over 10x the amount of money locked within the next largest active optimistic rollup, Optimism.
Bridging crypto to Arbitrum
The Arbitrum Token Bridge allows users to migrate ETH and ERC-20 Ethereum tokens over for use on Arbitrum One.
For a full guide to bridging your crypto over to Arbitrum, check out the official Arbitrum Bridge Tutorial. Generally speaking, though, the process works like so:
- First, add the Arbitrum One network to your MetaMask wallet.
- Then head to the Arbitrum Token Bridge and connect your wallet.
- Select which asset you want to bridge over.
- Next, input the amount of ETH or tokens you want to bridge over.
- Press “Deposit” and finish the deposit transaction via MetaMask, and you’ll be done!
- Note: you can migrate your funds back to Ethereum using this bridge whenever you want, but these transactions will be subject to a 7-day withdrawal period due to current design limitations of optimistic-styled rollups.
- Arbitrum One Portal — A repository of dapps and other resources available for use around Arbitrum One.
- Arbiscan — A block explorer for Arbitrum One.
- Inside Arbitrum — A deep-dive Arbitrum design guide.
Risks and early frictions
Arbitrum is ultimately a smart contract chain, so its users fundamentally face smart contract risk. That is, the risk derived from the possibility of losing money due to unforeseen smart contract bugs or economic flaws.
As for early frictions, we recently mentioned Arbitrum’s 7-day withdrawal period. That’s much longer than users care to wait, but it’s an unavoidable reality of young optimistic rollup systems. The good news is that going forward cross-chain interoperability solutions like Hop Protocol will popularize fast withdrawals from projects like Arbitrum.
Additionally, low liquidity in dapps is another friction early Arbitrum users have been facing. It’s an understandable difficulty at this point, considering how Arbitrum One is just beginning to compete for liquidity from other L1 and L2 liquidity hubs.
Arbitrum doesn’t have a token!
If you see anywhere offering anything to the effect of an “Arbitrum token” for trading, it’s a scam. That’s because Arbitrum One doesn’t have a native token. The rollup’s transactions are paid for in ETH, and Offchain Labs currently has no plans for a bespoke Arbitrum token.