What Is Arbitrum: Optimistic Rollups to Solve Scaling Without Compromise

Ethereum has grown so much that it’s having trouble keeping up with demand. Powering almost 3,000 DApps, completing over 150,000 transactions per day with over 50,000 daily active users, it’s become apparent that even Ethereum 2.0 won’t be scalable enough long-term. That’s why Ethereum scaling solutions such as Arbitrum are crucial to the long-term success of the Ethereum blockchain. 

Layer 2 solutions, including sidechains, channels, and rollups, provide Ethereum users and developers with increased speed and security without the price tag. Let’s discuss what is Arbitrum and how it takes rollups to the next level — for both beginners and advanced crypto enthusiasts.

What Is Arbitrum and What Is It Used For? 

Arbitrum is an Ethereum scaling solution designed to facilitate more transaction volume on the blockchain network at a lower cost. It uses the same tooling as Ethereum, so DApp developers can quickly, easily, and securely deploy apps on Ethereum using Arbitrum. 

In short, for those wondering what is Arbitrum and what it’s used for, Arbitrum is meant to facilitate more transactions, prevent fraud and lower the cost of operating on the Ethereum blockchain network. This Ethereum scaling solution will make DApp development seamless, fast, and secure by providing developers with an Ethereum-based platform that limits data stored on-chain. 

What Is an Ethereum Scaling Solution?

Ethereum scaling solutions are used to make Layer 1 blockchain networks faster and increase their ability to handle a high volume of transactions. Examples of Layer 1 networks include Ethereum and Bitcoin. Layer 1 solutions aim to alter the protocol of the blockchain network itself, instead of adding an additional processing layer. 

Arbitrum is a Layer 2 solution, which means it’s an extension to Layer 1 that’s enabled by smart contracts which are built on-chain. Arbitrum creates additional space for transactions to be processed. The solution executes transactions off-chain before reporting back to the mainchain, enhancing speed, lowering costs, and maintaining the DeFi network. 

To develop a deeper understanding and know what is Arbitrum along with its uses on blockchain networks, let’s talk about some different types of Layer 2 Ethereum scaling solutions and discover where Arbitrum fits into the mix. 

Sidechains

Sidechains are where Layer 1 scaling began. Sidechains work by running a parallel blockchain network alongside the Layer 1 network, and processing transactions off-chain. Although sidechains are essentially extra Layer 1 space, they aren’t secured by Layer 1 and are less decentralized. The problem is they can be manipulated by fraudulent validators, and the security standards may vary from chain to chain. 

Sidechains represent a shift in how developers intend to execute transactions using blockchain. Instead of maintaining a single ledger, sidechains introduce a blockchain model built with numerous layers integrated into the main blockchain network. 

Plasma

The plasma framework offloads transaction execution to sidechains — but with a twist that ensures extra scalability. Through the use of smart contracts and Merkle trees, plasma enables an unlimited number of sidechains, or child chains, to be created and designed to work in a specific way to meet the various needs of the main blockchain network. 

Plasma also provides fraud proofs, which ensure secure and enforceable exchangeability. That means any user can send funds to another user in their native platform coin faster and with less latency.

Channels

Going deeper down the blockchain scalability rabbit hole, we arrive at state channels and payment channels. Channels are smart contracts and open-source protocols that allow users to make a certain number of off-chain transactions with only two transactions occurring on-chain. 

Participants have to create and fund an Ethereum transaction when they open up a new channel. While the channel is open, off-chain transactions can occur. When users are ready to close the channel, they are charged again to process the transactions. 

The channel mechanism decreases the number of transactions processed on the Ethereum network and limits gas fees for opening and closing the channel. 

More specifically, payment channels are meant to transfer funds between users, and state channels are designed to create a fee-less conduit between two parties by locking up a portion of the blockchain. Because everything occurs within the sidechain channel between two participants, it’s a highly secure solution. But it lacks the ability to scale at higher volumes. 

Rollups

Before diving into what is Arbitrum, we’ll first need to discuss rollups. Rollups have become one of the most popular contract-based scaling solutions for blockchain applications. Rollups scale the mainchain by essentially “rolling up” transactions into a batch, and validating them off-chain. By rolling up and compressing the data, rollups allow higher throughput, more speed, and lowered transaction costs. 

There are two main kinds of rollups: ZK (zero knowledge) and Optimistic Rollups.

ZK-Rollups

ZK-rollups use validity proofs called ZK-STARKs, or “zero-knowledge scalable transparent arguments of knowledge,” to validate data and perform computations off-chain. The validity proof is attached to each data bundle while still having the ability to perform increased numbers of transactions. The zero-knowledge proof represents powerful security, since it’s publicly verifiable proof that something is true without having to reveal its state, what it is, and in what amount. 

Optimistic Rollups

Optimistic rollups limit on-chain computation by performing proof of confirmation only if a node suspects that a fraudulent transaction is occurring. By performing validity proofs only when fraud is suspected, optimistic rollups increase transaction speed and throughput even further. 

Arbitrum Rollups

If you’ve ever wondered what is Arbitrum, it’s an advanced Optimistic Rollup that stores very little data on-chain for optimal scalability. Arbitrum is built on the Ethereum network and allows for up to 4,500 transactions per second (TPS). That‘s faster than Ethereum 2.0’s (Consensus Layer) expectation of about 3,000 TPS. Arbitrum works with all Ethereum developer tools, including the EVM (Ethereum Virtual Machine) smart contract. Numerous integration options provide standard Ethereum front-end tooling for Arbitrum, making it easy to work with — and simple to build and deploy DApps. 

How Does Arbitrum Work? 

Now that you know what is Arbitrum, it’s now time to understand how it works. Arbitrum follows the off-chain Optimistic protocol managed by a contract on the Ethereum chain. In a nutshell, it works by validating transactions off-chain before sending confirmation back to the blockchain. Developers can create smart contracts using Solidity, and then compile them into code that runs on the Arbitrum virtual machine. 

But how does it function, exactly?

Arbitrum Virtual Machine

A Merkle tree organizes the state of the Arbitrum Virtual Machine so that the cryptographic hash value can be calculated. The hash is then stored on-chain so that the state can be fully confirmed and finalized. Only the hash values of the final state are stored on-chain. 

The state of the virtual machine is advanced when participants in an agreement propose a DA, or disputable assertion. The assertion says that the virtual machine will execute a certain amount when calculated. Each participant in the agreement needs to bet a deposit to ensure the assertion’s validity. 

If the DA is valid, the system will enter the new state. If the DA is invalid, it’s rejected by Arbitrum, and the state will not change. 

The Arbitrum virtual machine uses pipelining to process multiple DAs, while the verification node takes care of how fast it can be processed. Additionally, malicious participants can’t delay the system as with other protocols. This was customized for Arbitrum prior to their Nitro upgrade which now uses a standard and well-supported compiler on Ethereum known as Geth.

No Need for Trust

One of the most important things to understand about how Arbitrum works is that there’s no need for trust. As long as there is one honest participant in an agreement, then the Arbitrum virtual machine will advance correctly, no matter if the correct branch is bet on or not. A path of trust is created over time as participants execute valid transactions with Arbitrum. 

How Arbitrum Overcomes Ethereum’s Limitations

Ethereum has gained a lot of traction since it first launched in 2015. But scalability has always been an issue, preventing the network from reaching its fullest potential. Without scalability, developers are also limited by what the network can do and how many transactions it can process. Essentially, blockchain technology has hit a wall regarding scalability — and that’s precisely where Arbitrum can propel Ethereum forward. 

Blockchain Trilemma

What is the blockchain trilemma? Simply put, it means scaling, decentralization and security. It has proven difficult for blockchain projects to achieve a balance of all three. Finding a solution to this blockchain trilemma can help change the way we think about cryptocurrencies and blockchain technology. 

Right now, blockchains rely on rollups like Arbitrum to complete the trifecta and create a secure, scalable and decentralized blockchain. Let’s talk about some of the ways that Arbitrum overcomes Ethereum’s limitations. 

Processing Capacity

Ethereum can only perform about 10 TPS, but Arbitrum can handle up to 40,000 transactions per second. That’s 4,000 times faster than Ethereum alone, the most widely used L1 platform in the world. 

Lower Fees

A common problem among popular Layer 1 networks, such as Ethereum and Bitcoin, is high gas fees. Fees for transacting with online exchanges can cost anywhere from 1.5% to 2.3%. Arbitrum makes it possible to complete large volumes of transactions with much less gas — and they’re working on reducing fees even further. 

Ethereum Virtual Machine Compatibility 

Arbitrum is the most EVM-compatible out of all the Layer 2 solutions, making it an easy pick for those who know what is Arbitrum. It’s easy to use, simple for developers to understand, and powerful enough to scale on the Ethereum blockchain. 

Developers

Arbitrum is especially beneficial for developers. It’s compatible with EVM and uses Solidity code, without compiler or version restrictions. There’s also no gas limit, so smart contract developers can take their projects to the next level. 

Even though Ethereum 2.0 supporters are convinced that rollups will be obsolete after its full rollout, it’s clear that Arbitrum rollups are aligned to reach unprecedented scalability. Some Layer 2 blockchains plan to release their own coins, but Arbitrum has indicated that it’s a transaction-focused organization.

Arbitrum Nitro

Arbitrum recently completed its Nitro upgrade and is now running live on their mainnet. At its core, Nitro changes the way Arbitrum's engine works such that it can be written and compiled using standard languages and tools instead of the custom designs used previously.

Essentially, Arbitrum Nitro provides the network with a ton of improvements. This includes 10 times more in throughput, further lowering transaction costs on Arbitrum, Ethereum gas compatibility, additional Layer 1 interoperability, and creating a safer environment when passing messages from Arbitrum to Ethereum.

Arbitrum currently does not have a native coin and may be releasing one in the future. While Arbitrum has been live on the mainnet for around a year, the team has not mentioned anything around a native coin for the ecosystem. That said, it is worth mentioning that their competitor, Optimism airdropped its native coin months after making its platform available for testing and the OP airdrop was given to users who interacted with multiple facets on the Optimism network.

Arbitrum vs. Optimism

Arbitrum and Optimism built on what Polygon was unable to accomplish. Although Polygon is free, Arbitrum and Optimism have features that other rollups can’t compare with. They’re both built directly into the Ethereum mainchain, providing optimal visibility and security. 

Although Arbitrum and Optimism have several similarities, it’s their differences that set them apart. Let’s discuss some of these similarities and differences in more detail — so that you can decide which rollup is the best option for your purposes. 

Similarities Between Arbitrum and Optimism

After going through the basics of scaling solutions and what is Arbitrum and Optimism, it’s important to understand that both Arbitrum and Optimism are considered Optimistic Rollups. We briefly covered these in a previous section about Layer 2 solutions, but now we’ll see how this plays a part in the relationship between Arbitrum and Optimism. 

Both Arbitrum and Optimism can condense several transactions into one single transaction. They then process the transactions outside the Ethereum blockchain before transmitting the data back to the main chain. 

By processing the transactions outside of the Ethereum mainchain, Optimistic Rollups such as Optimism and Arbitrum can significantly reduce the time that it takes to complete a transaction on-chain. Additionally, they can both be implemented into existing smart contracts. 

A disadvantage that both Arbitrum and Optimism must contend with is that any challenged transactions can be held for one week. This is one way that the rollups attempt to prevent fraudulent transactions, but it can take some time if you’d like to transfer digital assets back to the main chain. 

Differences Between Arbitrum and Optimism

At first glance, Arbitrum and Optimism seem to be identical Optimistic Rollups. However, one key difference sets the two apart — and it has to do with how they deal with fraudulent transactions. 

When Optimism processes a fraudulent transaction off-chain, the rollup sends the entire transaction back through the EVM. When Arbitrum processes a suspicious transaction off-chain, it only sends the suspicious part of the transaction back through the EVM. 

It is through this fraud-prevention mechanism that Arbitrum sets itself apart from Optimism. And because all suspicious transactions are processed off-chain, Arbitrum can achieve a higher transaction capacity than Optimism. 

Table 1: Product Features of Arbitrum vs. Optimism

Which Is Better — Arbitrum or Optimism?

At this point, it’s hard to say if Arbitrum or Optimism is better. With the rate of blockchain development rapidly unfolding, we could be looking at even faster and more secure Layer 2 solutions than we thought possible.

As it is, Arbitrum currently offers the most to users when it comes to security and fraud prevention. On the other hand, Optimism’s faster transaction time is good for users who want more liquid digital assets. 

If we had to choose (and we did), we’d pick Arbitrum.

Arbitrum supports DeFi and DApps on the Ethereum network by increasing scalability and speed — without compromising security — while still maintaining low operating and trading costs. At the time of writing, Arbitrum represents 50% of the total value locked across Layer 2 networks since last year’s mainnet launch. 

Looking toward the future, Arbitrum has more to offer the DeFi and blockchain community than any other Layer 2.

Will There Be An Airdrop For Arbitrum?

Arbitrum currently does not have a native coin and may be releasing one in the future. While Arbitrum has been live on the mainnet for around a year, the team has not mentioned anything around a native coin for the ecosystem. That said, it is worth mentioning that their competitor, Optimism airdropped its native coin months after making its platform available for testing and the OP airdrop was given to users who interacted with multiple facets on the Optimism network.

If Arbitrum follows a similar airdrop route as Optimism, utilizing the top protocols on the Layer 2 could possibly benefit users. This includes using bridges, exchanges, and yield farming platforms. Check out our article covering the list of protocols on Arbitrum.

Easy Deposits and Withdrawals on Bybit With Arbitrum

Finally, understand what is Arbitrum and be ready to experience it firsthand. Bybit makes it easy to deposit and withdraw ETH, USDT, and USDC on the Arbitrum network. The platform allows users to enjoy the speed, security, and cost-efficiency of trading on Arbitrum. 

Learn how to deposit and withdraw crypto via Arbitrum on Bybit.

What Can You Do with Crypto on Bybit?

Bybit is trusted by millions of users worldwide and is one of the fastest-growing crypto exchanges. You can buy Bitcoin, Ethereum and USDT hassle-free with Bybit’s streamlined process and easy-to-navigate dashboard. With over 80 payment methods and nine fiat options, Bybit offers many ways to interact with crypto, including crypto market trading, P2P exchange, non-fungible tokens, derivatives, and more.

Making deposits and withdrawing assets are streamlined with both Bybit’s desktop and mobile app. 

How to Make a Deposit on Bybit

1. Go to the Assets tab and tap Deposit.
2. Next, select which coin type you’ll be depositing.
3. Copy your Bybit destination address on the next screen. (Note: Some coins may require your memo or tag, which is your Bybit ID.) Your deposit is on its way!

How to Make a Withdrawal on Bybit

1. In the Assets tab, tap Withdrawal.
2. Select the chain type that you’d like to withdraw. 
3. Choose the address of your receiving wallet, enter your amount, and withdraw.

The Bottom Line

In a blockchain ecosystem that’s expanding and seeking interaction between a series of chains, Arbitrum’s scaling solutions provide a look into what the future of crypto and blockchain has in store. With unmatched speed, critical built-in security protocols, and low operating costs, DeFi use cases are coming into focus with the help of its scaling potential as more users begin to understand what is Arbitrum.