What Is Arbitrum? ‘The Future Of Ethereum’ Explained

Arbitrum, which calls itself the ‘Future of Ethereum’, is a blockchain platform that focuses on improving transaction efficiency and scalability. It has gained recognition in the crypto space for its approach to handling high transaction volumes while aiming to reduce costs.

Designed to work alongside Ethereum, Arbitrum addresses challenges like network speed and high fees. It provides developers and users with an alternative for smoother blockchain interactions.

In this article, we will explore what Arbitrum is, how it functions, and what makes it stand out in the blockchain ecosystem.

Key takeaways

• Arbitrum is a ‘layer-2’ scaling solution for Ethereum. Imagine it as a separate, faster blockchain built alongside the main Ethereum network to handle more traffic and reduce congestion.
• Arbitrum bundles up lots of transactions and processes them off of the main Ethereum blockchain (‘off-chain’). This makes transactions faster and cheaper.
• It uses a clever mechanism called ‘optimistic rollups’, which assumes transactions are valid unless proven otherwise, further improving efficiency.
• With several projects like GMX, Aave, and Uniswap built on Arbitrum, its growing ecosystem offers different applications.

What does Arbitrum do?

Arbitrum improves the Ethereum blockchain by making transactions faster and cheaper. It is a layer-2 solution that works alongside Ethereum to handle transactions more efficiently. By processing requests off-chain, Arbitrum reduces the workload on the Ethereum mainnet.

According to the details from their website, Arbitrum has helped to save 3.59 million Ethereum and holds 36.5% of the L2 market share. Arbitrum has $20.82bn in total value locked, 1.34 million active wallets, and conducted 1.48 billion in total transactions.

How does Arbitrum work?

Arbitrum uses optimistic rollups, a technology that allows multiple transactions to be grouped together and processed off-chain. After processing, the results are recorded on the Ethereum blockchain. This approach lowers gas fees and speeds up transaction times.

Developers can use Arbitrum to run their decentralized applications (dApps) more effectively. It is fully compatible with the EVM, so developers can move their Ethereum-based projects to Arbitrum without making any changes to the code. This compatibility makes it easier to adopt and use.

Arbitrum also supports various use cases, including decentralized finance (DeFi), gaming, and other blockchain-based applications. It helps users save on costs while still benefiting from Ethereum’s security and decentralization.

What is Arbitrum’s main purpose?

Arbitrum’s main purpose is to make the Ethereum blockchain faster and cheaper to use. Using optimistic rollups, Arbitrum groups multiple transactions together processes them off-chain, and sends a single record to Ethereum. This reduces gas fees and speeds up transactions, making it more practical for users and developers.

Is Arbitrum a layer-2 solution?

Yes, Arbitrum is a layer-2 solution designed to work on top of the Ethereum blockchain. Layer-2 solutions aim to solve Ethereum’s scalability issues by processing activities off the main blockchain (layer-1) and then recording the results back on it. This approach helps reduce congestion, lower gas fees, and improve speed while maintaining the security of the Ethereum network.

By operating as a layer-2 protocol, Arbitrum handles the computational load, while Ethereum focuses on providing security and finality. This separation of tasks ensures that Arbitrum users benefit from a faster and cheaper experience without compromising Ethereum’s decentralized and secure nature.

What are the benefits of using Arbitrum?

Arbitrum offers several advantages for both developers and users by addressing key challenges of the Ethereum blockchain:

1. Better scalability
   Arbitrum processes activities off-chain and combines them before adding them to Ethereum. This increases the number of transactions the network can handle, reducing delays and making it more efficient.
2. Lower gas fees
   Ethereum’s high gas fees make any network activity expensive, especially during busy periods. Arbitrum reduces these fees by handling most of the transaction processing off-chain, making using dApps more affordable for everyone.
3. Faster transactions
   Transactions on Arbitrum are processed off-chain, which speeds up their confirmation. This is particularly helpful for platforms like DeFi and gaming that need quick and reliable processing.
4. Strong security
   Arbitrum inherits its security from the Ethereum blockchain. It also uses optimistic rollups with built-in anti-fraud measures to ensure that transactions processed off-chain remain safe and trustworthy.
5. Ethereum compatibility
   Developers can use Arbitrum without changing their Ethereum smart contracts. This compatibility makes it easy for projects to move to Arbitrum and take advantage of its cost and speed benefits.
6. Better user experience
   Users on Arbitrum enjoy quicker confirmations and lower fees. They can also interact with dApps on Arbitrum using their existing Ethereum wallets, making the process simple and user-friendly.
7. Growing ecosystem
   As more projects adopt Arbitrum, its ecosystem is expanding. This growth provides users with more application options and increases liquidity for decentralized platforms.

Who developed Arbitrum?

Arbitrum was developed by Offchain Labs, a blockchain-focused company founded in 2018. The founders are Ed Felten, Steven Goldfeder, and Harry Kalodner.

Ed Felten is a professor of computer science and public affairs at Princeton University and a former deputy U.S. Chief Technology Officer at the White House. Steven Goldfeder, the CEO of Offchain Labs, has been a key figure in building and promoting Arbitrum. Harry Kalodner is also a co-founder and played a major role in its development.

The team began their work at Princeton University, where the foundation of Arbitrum was laid. Offchain Labs has since focused on developing tools that make Ethereum transactions faster and cheaper.

In 2022, Offchain Labs acquired Prysmatic Labs, the team behind Prysm, one of the leading consensus clients for Ethereum. This acquisition showed their commitment to strengthening Ethereum’s infrastructure.

Offchain Labs continues to improve Arbitrum and support Ethereum’s growth. To expand its functionality, the company has introduced new features like Arbitrum Orbit and Arbitrum Nitro.

Offchain Labs and its founders’ work has made Arbitrum one of the most effective solutions for scaling Ethereum, helping developers and users benefit from faster and cheaper transactions.

Can I use Arbitrum on my crypto wallet?

Yes, you can use Arbitrum with many cryptocurrency wallets to manage your assets and interact with dApps on the Arbitrum network. Several popular wallets support Arbitrum and allow for faster and cheaper transactions.

Supported wallets:

• MetaMask: A browser extension wallet that lets you connect to the Arbitrum network by adding its settings.
• Trust Wallet: A mobile wallet that supports Arbitrum for storing and managing assets and accessing dApps.
• Coinbase Wallet: A beginner-friendly mobile wallet that works with Arbitrum to handle assets and dApps.
• Ledger and Trezor: Hardware wallets that provide secure storage for your private keys and support Arbitrum.

Steps to use Arbitrum on your wallet:

1. Set up your wallet: Download and install a supported wallet, such as MetaMask, Trust Wallet, or Coinbase Wallet. You can create a new wallet or access your existing one.
2. Connect to Arbitrum: In the wallet settings, find the “Add Network” or “Custom RPC” section. Enter the details for the Arbitrum network. For example, MetaMask users can add Arbitrum through its network settings.
3. Transfer tokens to Arbitrum: Use a bridge service to move Ethereum or other tokens from the Ethereum mainnet to Arbitrum.
4. Use dApps on Arbitrum: Once connected, you can explore and use dApps built on the Arbitrum network for various purposes.

Security tips:

• Protect your private keys: Store your private keys or recovery phrases in a safe place. Never share them with anyone.
• Download from official sources: Always download wallet apps and bridge services from their official websites to avoid scams.
• Update regularly: Keep your wallet application up to date to maintain security.

What projects are built on Arbitrum?

Arbitrum hosts a growing number of projects that focus on faster and cheaper transactions. Here are some of the key projects built on the network:

1. GMX
   GMX is a decentralized exchange (DEX) that supports spot and perpetual trading with up to 50x leverage. It uses a multi-asset pool called GLP for liquidity. GMX is popular for its low fees and fast processing times.
2. Radiant Capital
   Radiant is a cross-chain lending platform that allows users to deposit major cryptocurrencies and borrow assets across different networks. It focuses on making lending and borrowing more efficient.
3. Treasure (MAGIC)
   Treasure is a decentralized NFT ecosystem built for metaverse projects. The MAGIC token is used for payments and other activities in the ecosystem.
4. Gains Network (GNS)
   Gains Network offers decentralized trading for cryptocurrencies, stocks, and forex with high leverage. Originally on Polygon, it expanded to Arbitrum to improve transaction speeds and costs.
5. ZyberSwap
   ZyberSwap is a DEX that offers an automated market-maker (AMM) model. It offers low trading fees and rewards for staking and yield farming.
6. Aave V3
   Aave is a decentralized lending protocol. Its V3 version operates on Arbitrum, allowing users to access lending and borrowing services with lower fees and faster transactions.
7. Uniswap
   Uniswap, one of the largest DEXs, uses Arbitrum to offer faster and cheaper trading. This integration helps address Ethereum’s congestion issues while providing a better user experience.
8. Curve Finance
   Curve Finance specializes in stablecoin trading. It runs on Arbitrum to offer lower fees and less slippage during trades, improving the efficiency of stablecoin swaps.

How secure is Arbitrum?

Arbitrum relies on Ethereum’s security features and adds its own measures to ensure safe off-chain transactions.

Key security features:

• Optimistic rollups: Arbitrum processes transactions off-chain and batches them onto Ethereum. This reduces congestion while relying on Ethereum’s security for final approval.
• Fraud-proof system: Validators can challenge invalid transactions. If a dispute occurs, the system reviews and rejects fraudulent transactions, ensuring only valid ones are confirmed.
• Data availability committee (DAC): In some setups, a DAC oversees off-chain data to ensure all information remains accessible and secure.

Smart contract audits:

Arbitrum’s smart contracts go through audits to find and fix vulnerabilities. Reputable firms, like BlockApex, review the system to prevent security issues. These audits ensure the contracts function as expected and protect users.

Security strengths:

• Inherited security from Ethereum: Arbitrum relies on Ethereum’s decentralized validator network and consensus mechanisms, making it as secure as the Ethereum blockchain itself.
• Continuous monitoring: Regular updates and active community oversight help identify and address potential risks quickly.

Potential risks:

• Off-chain complexities: Arbitrum processes all network activities off-chain, which introduces added complexity. This requires constant monitoring to avoid vulnerabilities.
• Ongoing maintenance: The system’s security depends on regular audits, updates, and active participation from developers and users.

1. 01.

   Is Arbitrum a good crypto?

   

   The native token associated with Arbitrum, ARB, has shown strong potential in the crypto market due to its utility in governance and its growing adoption.

   Whether ARB is a good investment depends on market conditions, the adoption of the Arbitrum network, and your investment goals. Always research thoroughly before investing.

2. 02.

   Are Ethereum and Arbitrum the same thing?

   

   No, Ethereum and Arbitrum are not the same. Ethereum is a layer-1 blockchain that supports decentralized applications and smart contracts.

   Arbitrum is a layer-2 solution built on top of Ethereum. It processes transactions off-chain to reduce congestion and costs on Ethereum while relying on Ethereum for security and final transaction validation.

3. 03.

   Can Arbitrum reach $10?

   

   Whether the ARB token can reach $10 depends on several factors, including market demand, adoption of the Arbitrum network, and overall cryptocurrency market trends. If more developers and users adopt Arbitrum for its scalability and lower fees, the value of ARB could increase. However, at the time of writing, ARB is down by 71% since its all-time high of $2.39 on 12 January 2024. So, $10 seems like a long-term goal for ARB.