What Is Arbitrum, the Renowned Ethereum Scaling Solution

In the world of cryptocurrencies and blockchain technology, Ethereum is a well-known name for every crypto enthusiast. Its native coin, ETH, is the second-largest cryptocurrency by market capitalization. Despite Ethereum’s popularity, the network struggles with scalability, and that’s what is Arbitrum’s benefit to this blockchain!

Arbitrum offers a scaling solution for the Ethereum blockchain and enhances the platform’s performance. It increases transaction speed and reduces costs to provide a reliable and cost-effective service. Since it’s a Layer-2 solution, Arbitrum offloads some of the transaction processing from Ethereum’s mainnet to a secondary layer for faster transaction verification.

Additionally, Arbitrum has its governance token, ARB. Holders of this cryptocurrency can take part in decision-making processes regarding the solution’s investments, fund allocation, and more! If you’re looking for a crypto exchange to buy ARB for yourself, check out Binance, Coinbase, and Kraken.

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What Is Arbitrum?

Arbitrum is a Layer-2 scaling solution for Ethereum that addresses the blockchain’s scalability issues and reduces transaction costs. When learning what Arbitrum is, you’ll need to understand that “Layer-1” is the main blockchain (like Ethereum), while Layer-2 expands Layer-1’s capabilities but acts as a secondary chain.^[1]

Simply put, Arbitrum processes some of the transactions outside Ethereum’s mainnet and on a secondary layer. It reduces the load on Ethereum and processes transactions faster, cheaper, and more efficiently. So, the Layer-2 blockchain executes smart contracts while the Layer-1 blockchain, such as Ethereum, stores the data.

Nevertheless, Arbitrum maintains Ethereum’s security level and focuses on providing a reliable service. Also, when researching what Arbitrum is, crypto enthusiasts highlight its reliability and efficient operation as significant advantages among other Layer-2 solutions.

Importance of Arbitrum

Arbitrum addresses one of Ethereum’s biggest challenges - scalability. While Ethereum has a robust smart contract infrastructure, a lively community, and a wide selection of decentralized applications (dApps), it can’t handle large amounts of transactions in a short time.

📚 Read More: What Is a dApp

Ethereum’s popularity among decentralized applications (dApps), non-fungible tokens (NFTs), and DeFi protocols often leads to network congestion during peak usage, forcing users to compete for limited block space. As a result, gas prices can soar, average fees hover near $0.25, and during congestion peaks can exceed $20, making even simple ETH transfers costly and slower to confirm.

Ethereum’s mainnet currently processes roughly 15-17 transactions per second (TPS) in real time, averaging about 13.6 TPS per month. In contrast, Solana - whose theoretical ceiling is 65,000 TPS - typically delivers around 3,000 TPS in practice.

That said, because of this disparity, Ethereum continues to suffer congestion under heavy demand, which has driven the adoption of Layer 2 solutions like Arbitrum to alleviate fees and delays.

Arbitrum One currently achieves about 20.8 TPS on its mainnet, surpassing Ethereum. Moreover, by batching transactions off-chain via Optimistic Rollups, Arbitrum’s average fees drop to around $0.04 per transaction, versus multi-dollar costs on Ethereum’s mainnet and spikes above $20, enabling affordable trades even during congestion. The protocol’s architecture can theoretically scale up to tens of thousands of TPS, offering a path toward greater scalability while retaining Ethereum’s security guarantees.

What are Layer-2 Solutions

Arbitrum is one of Ethereum’s most well-known Layer-2 solutions, but there are many more projects like it. Layer-2 solutions are secondary frameworks that work on top of an existing blockchain, also known as Layer-1. The core aim of such frameworks is to improve the efficiency of the Layer-1 blockchain while maintaining robust security measures.

Layer-2 solutions use various methods to optimize their performance, such as off-chain processing, sidechains, and rollups. Some projects use a combination of these methods to scale, improve, and optimize their transaction processing!

How Arbitrum Works

Arbitrum offers several different products for traders. However, this Layer-2 solution relies on blockchain rollups to process transactions efficiently off the main chain before loading the transaction data on-chain. What is Arbitrum’s method? The solution uses optimistic rollups to directly confirm a “rolled up” batch of transactions!

Off-Chain Processing

As a Layer-2 project, Arbitrum processes most of the transactions off-chain. Thus, the Ethereum mainnet experiences less workload and congestion! Arbitrum takes care of executing transactions and aggregating the related data. Afterward, this data moves to the mainnet for recordkeeping.

So, what is Arbitrum’s advantage over other Layer-2 solutions? It’s the efficiency and cost-effectiveness of transaction processing. While such claims are common in this industry, Arbitrum is a fan favorite among crypto enthusiasts since it’s one of the oldest Layer-2 solutions that proves these claims as true.

Thus, off-chain processing allows more transactions to be processed quickly and cost-effectively. Arbitrum has significantly faster transaction throughput than Ethereum’s mainnet. For example, Ethereum’s maximum recorded number of transactions per second was 62, while Arbitrum processed 648!

Additionally, this Layer-2 solution offers lower gas fees. Off-chain processing reduces the need for block space on Ethereum, so there’s lower congestion and fewer costs associated with transaction processing.

Rollups and Optimistic Rollups

Rollups are a common type of Layer-2 solution. Simply put, it’s a way to process large amounts of transactions by combining them and cutting down on the mainnet’s resources.

Several rollups with different applications exist among Layer-2 solutions. Arbitrum uses optimistic rollups, while other solutions rely on zero-knowledge rollups, also known as zkRollups. These are the two main types of rollups, and their main purpose is to reduce transaction time and costs.

So, what is Arbitrum’s optimistic rollups? This method is similar to other rollups, and it processes transactions off-chain. However, optimistic rollups add compression when “rolling up” multiple transactions to reduce gas fees and optimize transaction speed. Also, this method helps save block space, so the Ethereum blockchain can process more transactions with minimal space.

Optimistic rollups assume all transactions are valid and don’t verify them before confirming completion. Verification only happens when there’s a dispute. So, network participants can point out faulty blocks on the chain in a week. If this proves accurate, the validator that approves such a faulty block will lose its collateral.

The main disadvantage of optimistic rollups is that the funds have to stay on-chain until the dispute period is over. So, you won’t be able to cash out instantly and will receive your crypto in a week or so.

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Security Measures

When considering what is Arbitrum’s most important security measure, many crypto enthusiasts would tell you its fraud proofs. This Layer-2 solution relies on optimistic rollups, so all transactions are valid until there’s a dispute.

So, fraudulent transactions are dealt with in several ways. A validator can challenge a potentially illicit transaction, which will be broken down into smaller steps. Each of these steps needs to be verified to determine which part of the transaction is fraudulent.

After the dispute is resolved, Arbitrum reverses the fraudulent transaction and upholds the chain’s integrity. The malicious actor who initiates the illicit transaction may also be penalized to prevent others from committing this activity.

Also, network participants can become Arbitrum’s validators if they wish to become an integral part of this Layer-2 solution. However, you’ll need to stake a significant portion of your cryptocurrencies as collateral.

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What Is Arbitrum One

Arbitrum One is the classical option of this Layer-2 solution. So, this version makes up what is Arbitrum One’s primary use of optimistic rollups and the initial process of reducing transaction costs.

It’s a powerful Layer-2 solution that greatly enhances the Ethereum blockchain. With faster transaction processing and lower gas fees, Arbitrum One is a popular choice for crypto enthusiasts. Since it relies on the Ethereum mainnet for security, people can enjoy peace of mind when using Arbitrum to trade their digital assets.

Arbitrum One also supports a wide range of dApps and non-fungible tokens (NFTs). As one of the most popular scaling solutions on the market, Arbitrum offers tools for developers to easily migrate their creations from the main blockchain to a Layer-2 solution.

Moreover, Arbitrum One’s benefit is the technology that helps you dive deeper into the Web3 space. There are pre-built SDKs and other resources for you to use and launch your next project. So, if you’re looking for an excellent scaling solution and a comprehensive support system for your Web3 project, head over to Arbitrum!

What Is Arbitrum Nitro

You might be confused by another definition and ask, “What is Arbitrum Nitro?”. Simply put, it’s a technical advancement for the famous Layer-2 scaling solution, but it’s not a chain. It introduces various enhancements to further improve Ethereum’s capabilities and efficiency.

While building upon the underlying architecture of Arbitrum One, the Nitro version is a significant technical improvement. Arbitrum One uses a custom virtual machine, but Arbitrum Nitro uses WebAssembly, and the program includes Geth, the most widely used Ethereum implementation. This difference in code makes Nitro a more efficient and compatible framework.

Thanks to that, Arbitrum Nitro processes transactions cheaper and faster, furthering the scaling solution’s capabilities. It launched in 2022, one year after the official launch of this Layer-2 solution, making it even more advanced and compatible with Ethereum’s ecosystem.

What Is Arbitrum Nova

Another rendition of this scaling platform leads to learning what is Arbitrum Nova. It’s a high-performance alternative chain to the classical Arbitrum One, designed for high-throughput processes and low transaction costs.

The main difference between One and Nova is in the protocols. Arbitrum One uses a purely trustless rollup protocol, while Nova utilizes a mostly trustless AnyTrust protocol. The latter introduces one more assumption about trust called the Data Availability Committee (DAC). Thus, the DAC batches and moves the transaction signatures to the Ethereum mainnet.

Alternatively, Arbitrum One stores full transaction data on the mainnet, focusing on the benefits of decentralization. Nova is more centralized since it doesn’t store the full transaction data on Ethereum and compromises the blockchain’s extensive security. However, it greatly increases scalability while lowering transaction fees.

Additionally, this trust assumption is responsible for what is Arbitrum Nova’s greatest advantage - high performance and affordability. It’s an excellent solution for gaming, social networking, and other dApps that demand fast and cheap transaction processing.

Arbitrum’s Native Coin, ARB

Learning what is Arbitrum cryptocurrency will lead you to some interesting facts. While Arbitrum has been around since 2021, the Layer-2 solution launched its native token, ARB, two years later. This cryptocurrency is the native ERC-20 compatible governance token for Arbitrum with an initial supply of 10 billion.

As with other cryptocurrencies, you can trade, buy, sell, and stake ARB. The initial airdrop only allowed “active users” to get their hands on this token, but everyone can access it now. However, make sure you understand the investment risks before buying ARB or any other token!

Also, this coin is a governance token. So, ARB holders can vote on governance decisions and influence the future of this Layer-2 solution regarding processes like fund allocation, investments, and technical upgrades.

If you have any ARB coins in your wallet, you can connect them and cast your vote! Since Arbitrum focuses on decentralization and transparency, the information about fund allocation is publicly available, and you can see why and when the team needs money. Thus, it fosters trust among the community!

Where to Buy Arbitrum’s Token

If you’re wondering where to buy Arbitrum’s token, you’ll be happy to know it’s available on some of the most popular crypto exchanges! Check out Binance, Coinbase, or Kraken to start trading your ARB.

After you navigate to a crypto exchange, the steps on how to buy Arbitrum’s coin are simple. If you haven’t done so already, connect a wallet to your account and choose the correct trading pair.

Make sure it includes ARB, and simply confirm the transaction! After getting your tokens, you should secure them with a trusted wallet like Ledger Flex or Ledger Stax.

As with any crypto exchange, Binance, Coinbase, and Kraken have different interfaces and flows, so check them out and see which one better fits your needs. Also, beware of any gas fees and other transaction costs, even if these crypto exchanges offer some of the cheapest and most trustworthy trading options on the market!

However, you need to make sure you understand what buying cryptocurrencies entails. The crypto market is volatile, so choose the right trading strategy for your situation.

Arbitrum Alternatives

Now, let's check out some of the most notable Arbitrum alternatives. Below, you'll find 4 other options that might catch your eye, including Optimism, Base, Avalanche, and Loopring.

Arbitrum VS Optimism

Similar to Arbitrum, Optimism is a Layer-2 scaling solution for Ethereum. It uses optimistic rollups to lower congestion on the Ethereum mainnet and increase transaction throughput. Optimism can be considered what Arbitrum’s main competitor is, since both scaling solutions are leading the industry!

While these two solutions have some technical differences, their goal is the same. Both strive to improve Ethereum’s efficiency by offloading transactions from the main chain to a secondary framework. Also, they offer various tools and resources for developers to build their projects or migrate from the Ethereum mainnet to their chosen Layer-2.

Arbitrum and Optimism use optimistic rollup protocols, but the latter solution strives to mimic Ethereum as much as possible. Thus, Optimism focuses on Ethereum equivalence to provide a service that offers similar features to the mainnet. On the other hand, Arbitrum uses WebAssembly as the baseline for its technical ecosystem.

Since both solutions use optimistic rollups, their drawbacks are similar. Traders won’t receive their money immediately because validation takes up to a week. Nevertheless, Arbitrum and Optimism are popular choices for people who need fast transaction processing at low prices!

Arbitrum VS Base

Another Layer-2 scaling solution for Ethereum, alongside Arbitrum, is Base. Launched by the famous crypto exchange Coinbase, this solution offers low transaction costs and a developer-friendly environment, similar to Arbitrum’s main features. Coinbase built Base while collaborating with Optimism to provide a decentralized and transparent service.

Consequently, Base leverages Ethereum’s robust security measures and combines them with Coinbase’s best practices for further reliability. You can easily build dApps because you have full access to Coinbase’s products, tools, and other resources. Coinbase offers its product integrations, fiat options, and user acquisition tools for developers.

Alternatively, Arbitrum offers a comprehensive development stack and various tools to help people build their next project. When choosing a Layer-2 solution, you need to evaluate your needs and skills because Arbitrum and Base have unique features when it comes to launching a new dApp.

Also, Base has an active community that you can join to get updates, participate in discussions, and read various articles. Similarly, Arbitrum has a lively network of crypto enthusiasts and offers a platform for discussing and sharing helpful information. Whether you choose Arbitrum or Coinbase, you’ll find support for your next endeavor!

Arbitrum VS Avalanche

If you’re looking for a blockchain with high transaction throughput and low costs, you might want to consider Avalanche. While this platform isn’t exactly what Arbitrum is, it offers some unique features. Avalanche is a Layer-1 blockchain like Ethereum, but the former boasts scalability and low costs!

An important aspect lies in Avalanche’s consensus mechanism. It combines the classical and Nakamoto mechanisms to achieve high scalability, almost instant transaction finality, and low gas fees.^[2] On the other hand, Arbitrum doesn’t have its own consensus protocol and relies on Ethereum.

Avalanche is a standalone Layer-1 solution that provides extensive security measures tailored to different use cases via its subnets. It’s an excellent choice for developers who need extra safety steps for their projects, rapid transaction finality, and customizable environments!

Alternatively, Arbitrum can provide customization options and numerous resources for developers. However, it can’t alter security measures case by case since it heavily relies on Ethereum. Also, you won’t get your money instantly like you would with Avalanche, since Arbitrum is a Layer 2 solution using optimistic rollups.

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Arbitrum VS Loopring

Loopring is another Layer-2 scaling solution for Ethereum that boasts high performance and scalability. However, its operational processes are different from other solutions. Optimistic rollups make up what is Arbitrum’s core, while zkRollups power Loopring’s technical side.

With over 2,000 TPS recorded, Loopring is an efficient solution for professional traders who need high transaction speed. This is an impressive number compared to Ethereum’s 15-17 TPS. Even the maximum recorded TPS of 62 on Ethereum doesn’t compare to Loopring’s performance! Arbitrum performed better with 648 TPS but still lags behind this Layer-2 solution.

Such speed is part of the zkRollup protocol’s benefits. This method generates cryptographic proofs that send batches of transactions to be validated before sending them to Ethereum for recordkeeping. Alternatively, Arbitrum relies on validators and dispute resolution to resolve validation issues, which can lower transaction processing speed.

However, if you’re a developer looking to launch your project, Arbitrum has more to offer. From an active community to countless resources, many praise this scaling solution for supporting up-and-coming projects. Loopring is beginning to build a community and resource base, so you might not find what you need.

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Conclusions

Exploring what is Arbitrum is inevitable when searching for Ethereum-aimed scaling solutions. It’s one of the most prominent players and addresses vital points of the Ethereum blockchain’s transaction speed, costs, and overall efficiency. Thanks to the optimistic rollup protocol, the platform ensures security and transaction validity!

Since Ethereum is the second-largest blockchain by market capitalization, solutions like Arbitrum are crucial for lowering network congestion and offloading some transaction processing. Moreover, you’ll find robust security measures and a lively community to help you navigate the world of Arbitrum!

Additionally, this scaling solution has its native token, ARB. Holders can use it to make governance-related decisions and vote on proposals, becoming an important part of the network.

The content published on this website is not aimed to give any kind of financial, investment, trading, or any other form of advice. BitDegree.org does not endorse or suggest you to buy, sell or hold any kind of cryptocurrency. Before making financial investment decisions, do consult your financial advisor.

Scientific References

1. Sguanci C., Spatafora R., Vergani A.: 'Layer 2 Blockchain Scaling: a Survey';

2. Luca I., Hutter K., Kuo C. Y., Tai Y. C.: 'Two-layer models for shallow avalanche flows over arbitrary variable topography'.