Arbitrum is a solution that aims to speed up transaction times and reduce fees on the Ethereum blockchain. Ethereum has many benefits, including its decentralized nature, reliability, and support for smart contracts, but it is also slow and expensive to use. As a result, many users have turned to Arbitrum as a way to complete their transactions more quickly and cheaply.
Arbitrum is a type of scaling solution, which is software that sits on top of the Ethereum blockchain to speed things up. It was created by Offchain Labs and raised $120 million in a Series B funding round in September 2021. On March 23, 2023, Arbitrum airdropped its new ARB token, which allows holders to vote in decisions related to the protocol, and marks the transition to a DAO (decentralized autonomous organization).
One of the main benefits of Arbitrum is its speed. While Ethereum can only manage 14 transactions per second, Arbitrum can handle up to 40,000 transactions per second. Additionally, transactions on Ethereum cost several dollars to complete, while they cost about two cents on Arbitrum. Moreover, Arbitrum supports the Ethereum Virtual Machine (EVM), meaning that Ethereum DeFi developers can integrate their decentralized applications (dapps) with Arbitrum without having to make any modifications.
So how does Arbitrum work? The basic idea is that people and smart contracts ask Arbitrum’s blockchain to do something by placing transactions into the chain’s ‘inbox.’ Arbitrum then processes it and outputs a transaction receipt, with the transactions in its inbox determining the ‘chain state’. Currently, Arbitrum processes Ethereum transactions through a method called optimistic rollup, which is a data compression technique for blockchain transactions. It involves ‘rolling up’ batches of transactions into a single transaction, which saves time and money.
Arbitrum’s optimistic rollups are settled on a proprietary sidechain, which 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 feeds the transaction data back to the Ethereum blockchain ledger. Arbitrum says that any transactions confirmed through this process are rubber-stamped with the “AnyTrust Guarantee.” Validators stake ETH before they can confirm transactions, and by putting money on the line, they are incentivized to act honestly.
Arbitrum has been integrated into several decentralized finance protocols, such as SushiSwap, Curve, and Abracadabra. According to DeFi Llama, $2 billion worth of cryptocurrency is locked up within Arbitrum’s smart contracts, with approximately 30% coming from decentralized exchange (DEX) SushiSwap.
To use Arbitrum, you can use a decentralized application like Aave, 1inch, or Gnosis Safe, or directly use Arbitrum’s token bridge. Deposits to the Arbitrum network through the token bridge take about 10 minutes to clear, and you’ll need to pay an Ethereum gas fee, which can be quite high.
In conclusion, Arbitrum is a promising solution for speeding up transaction times and reducing fees on the Ethereum blockchain. While Ethereum has many advantages, it is currently slow and expensive to use. With Arbitrum’s optimistic rollups and sidechain technology, users can complete transactions much faster and more cheaply. As more users adopt Arbitrum, it could become a significant player in the world of decentralized finance and blockchain technology.
