A Web3 User Guide to the Innovative L2

The immense popularity of Ethereum has severely taxed the network’s capabilities. The Ethereum blockchain only supports around 20-40 transactions per second (TPS). Just like a highway at rush hour, the network gets congested at times where more transactions are queued up than it can accommodate. This is when fees spike as users clamor to get their transaction first in line. Layer 2 (or L2) networks are a well-tested solution to blockchain scalability challenges, easing network traffic by enabling some transactions to be executed off the main chain. Arbitrum is one of the leading L2 solutions out there for tackling congestion and high fees on Ethereum.

What is Arbitrum?

Arbitrum is a cryptocurrency network and Layer 2 scaling solution for Ethereum which enables greater transaction volume and lower fees. L2 solutions like Arbitrum exist as a sub-module within a blockchain network, processing transactions away from the mainnet to reduce congestion, thereby facilitating its growth. Arbitrum achieves this using a technology called optimistic rollups (more on that later), which bundles transactions off-chain which are then validated on the main chain.

Ethereum’s scalability challenges are a result of its design, which limits how many transactions per second it can process to preserve decentralization. If too many transactions were able to be processed on the main chain, running nodes to validate them would be out of reach for all but those with the most powerful computing hardware. This is why an L2 solution like Arbitrum is preferable to modifying the architecture of the Ethereum mainchain. It gives users all of the benefits of Ethereum without the downsides.

How Arbitrum works

Arbitrum enhances Ethereum’s scalability and efficiency through the use of Optimistic Rollups and the Arbitrum Virtual Machine (AVM).

Optimistic Rollups

Arbitrum achieves its efficient, low-cost transaction processing through Optimistic Rollups, which bundle and process transactions off-chain, reducing network congestion and fees. These rollups assume transactions are valid by default and only undergo verification on the mainnet if disputed. In case of an invalid transaction, the malicious actor faces financial penalties. This mechanism allows Ethereum to handle a higher volume of transactions more efficiently.

Transactions on Arbitrum are submitted to the L1 in large, single batches, typically containing hundreds of L2 transactions. This enables Ethereum to supercharge its transaction volume by approving many transactions at once while effectively only doing the amount of work required to validate and record a single transaction. 

Arbitrum Virtual Machine (AVM)

The Arbitrum Virtual Machine (AVM) executes smart contracts with full compatibility to the Ethereum Virtual Machine (EVM), enabling seamless migration for developers. The network’s design ensures high throughput and low latency, making it an attractive solution for decentralized applications (DApps) and DeFi projects. Governance is facilitated by the ARB token, which allows holders to participate in network decisions, although it does not serve as a transactional utility token.

Benefits of Arbitrum

Scalability improvements 

Ethereum is limited to processing between 20-40 transactions per second, which may sound like a lot, but when you consider that’s the limit across the entire Ethereum ecosystem, it’s easy to understand the problem network congestion presents. With Arbitrum, the Ethereum network is able to handle exponentially more transactions.

Cost efficiency (lower gas fees)

It’s not uncommon for gas fees on Ethereum to reach into triple digits during peak times. Arbitrum offloads much of the transaction processing work from the main chain, reducing network traffic on the mainchain and keeping costs low.

Enhanced transaction speed

If you need to complete an Ethereum transaction during times of high network traffic and don’t want to pay a lot in gas, you might be waiting a while. By performing complex computations on Arbitrum, less transaction data needs to be stored on the mainchain, allowing for significantly faster transaction processing times.

Security benefits

L2 solutions like Arbitrum inherit all of the security features of their parent chain. Arbitrum’s optimistic rollups additionally utilize rigorous anti-fraud protection measures to ensure transactions are secure.

Comparison with other scaling solutions/L2s

Although it’s one of the most popular, Arbitrum isn’t the only Layer-2 scaling solution for Ethereum. Optimism and Polygon are two other well-known L2s with their own technologies and advantages.

Optimism (OP), like Arbitrum, utilizes optimistic rollups to process transactions off-chain before batching and settling them on Ethereum. However, Optimism uses a “bridge” to connect its L2 to the Ethereum blockchain while Arbitrum uses a sequencer.

Polygon (POL) uses a sidechain architecture, where transactions are processed on a totally separate blockchain which is connected to Ethereum via a “bridge.” While Arbitrum is primarily designed for use cases that require high transaction volumes (such as DeFi applications and some gaming platforms), Polygon is more suited for situations where speed and cost are the main concern.

Start using Arbitrum

To get started using Arbitrum, follow these essential steps to set up a wallet, bridge your assets, explore dApps, and spend your cryptocurrency IRL.

Get a wallet that supports Arbitrum

As with getting started on any blockchain,your first step is to use a compatible wallet. The BitPay Wallet supports Arbitrum along with other top L2s and traditional blockchains. Since the Arbitrum One network is an Ethereum L2, any gas or network fees will be paid in ETH. For this reason, your wallet must contain at least some ether. The self-custody BitPay Wallet allows you to manage your assets and track all your transactions conveniently, providing a streamlined way to handle your crypto finances.

Get the App

Bridge ETH or ERC-20 assets to Arbitrum

To begin using Arbitrum, you’ll need to bridge your assets from the Ethereum mainnet to the Arbitrum Layer 2 network. Start by visiting a bridging service such as the Arbitrum Bridge. Connect your Ethereum wallet to the bridge interface. Select the asset you wish to transfer—either ETH or ERC-20 tokens—and specify the amount. Confirm the transaction in your wallet. The bridge will process the transfer, and within minutes, your assets will be available on Arbitrum, ready for lower-cost, faster transactions.

Explore and use dApps on Arbitrum

Once your assets are on the Arbitrum network, you can start exploring a variety of decentralized applications (dApps) that offer enhanced functionality with lower fees and faster transactions. Popular dApps such as Uniswap, Sushiswap, and Aave are fully integrated with Arbitrum, allowing users to trade tokens, provide liquidity, and engage in lending and borrowing activities seamlessly. Simply connect your Ethereum wallet to the Arbitrum version of these platforms, and you’ll experience the same robust services with the added benefits of Layer 2 scaling.

The Future of Arbitrum

Arbitrum is governed by its own decentralized autonomous organization (DAO), which allows ARB holders to vote on proposed changes to the Arbitrum ecosystem. Cross-chain interoperability is also expected to continue as a trend, expanding Arbitrum’s reach by enabling it to seamlessly interact with tokens or coins on other blockchains. As developer tools and infrastructure undergo evolutions, the process of building and deploying on Arbitrum is expected to get even easier, which should dramatically improve its reach. 

As for its potential impact on the Ethereum ecosystem, Arbitrum’s scalability and low gas costs can open the door to creating more complex and decentralized applications on the network, which could result in a broader range of use cases and adoption. Its very entry into the market could have the effect of driving more innovation and competition among other L2s, leading to improved service offerings. 

Wrap up on Arbitrum

Layer 2 solutions like Arbitrum for many represent the future of large-scale blockchain networks like Ethereum, where transactions are completed quickly, securely and at a low cost. As the home of much of the DeFi ecosystem, the Ethereum blockchain gets bogged down at peak times, resulting in higher gas fees and slow transaction speeds. Arbitrum’s optimistic rollup technology offloads much of the processing work from Ethereum, keeping the mainnet free of data clutter while supercharging its ability to quickly and securely validate and record transactions. 

FAQs about Arbitrum

Is Arbitrum a layer 2?

Yes. Arbitrum, like its competitor Optimism, are both Layer-2 rollups.

Does Arbitrum have a token?

Arbitrum’s native token is ARB, which trades on many centralized crypto exchanges.

What is Arbitrum used for?

ARB is the governance token of the Arbitrum ecosystem, granting holders voting rights in network changes and other community proposals. The L2 network of the same name.

Who created Arbitrum?

Offchain Labs created Arbitrum, launching the Arbitrum One mainnet on Aug. 31, 2021.

More resources for a deeper dive into Arbitrum