Arbitrum (ARB) is the leading Layer 2 solution for Ethereum scaling
The crypto industry is seeing increasingly more Layer2 blockchains designed to reduce fees and increase transaction speeds as Ethereum's bandwidth remains low. Layer2 blockchains help to reduce the load on Ethereum, which benefits both blockchains and users. In this article, let's talk about the leader among L2 networks.
What is Arbitrum
Arbitrum is a Layer 2 network built on top of the Ethereum platform. Like any L2 network, Arbitrum is designed to scale Ethereum, offering users fast and cheap transactions.
The project was founded in 2018 by Ethereum co-founder's Offchain Labs team, with the leading Arbitrum One network not launching until the second half of 2021. Arbitrum received funding from major funds such as Alameda Research and Pantera Capital.
A year later, in August 2022, the developers upgraded the network to Arbitrum Nitro. As you can guess from the name, the upgrade lowered the cost, increased the speed of transactions and made the network more compatible with Ethereum.
Alongside Blockchain One, a separate network, Arbitrum Nova, was released at the same time. Although transactions are 97% cheaper in Arbitrum One compared to Ethereum, the Nova network makes them even cheaper and faster while leaving security at the same level.
Arbitrum is currently the leader among Tier 2 blockchains in terms of the number of assets locked in the protocol (TVL) and second in the number of decentralized applications after Polygon. In DeFi Llama's ranking, the network ranks 4th in TVL behind Ethereum, Tron and BNB Chain.
How Arbitrum works
The project team has developed its own Arbitrum Rollup technology based on Optimistic Rollups used in OP Mainnet (Optimism). Arbitrum Rollup inherits security from the "parent blockchain", Ethereum.
The basic principle of Arbitrum blockchain is not much different from similar Layer-2 solutions: transactions are verified and formed into packets at Layer-2 and then sent to Layer-1, where Ethereum validators check all transactions at once, confirm and write them to the blockchain. This way, decentralization is not compromised, the load on the underlying network is reduced, and Ethereum validators provide security.
The Arbitrum network has smart contracts and validators like Ethereum but lacks the Proof-of-Stake consensus mechanism. This is the main difference from Layer-1 networks.
Arbitrum Rollup works on the principle of "innocent until proven otherwise. Even if the validators in the layer 2 network try to cheat, the validators in the layer 1 blockchain can challenge the entire transaction packet and simply ignore it.
ARB token
Arbitrum did not have its own token when it launched in 2021: the network used a wrapped ETH token as its primary cryptocurrency for gas (commission) payments.
The ARB management token did not appear until March 2023. The ARB token was given away for free to users who showed various activities on the blockchain: exchanges (swaps), asset transfers via a cross-chain bridge to the Arbitrum Nova network, and so on. Users can tokenize the ARB token or use it to vote for proposals to improve Arbitrum (AIP).
Immediately after the airdrop, the ARB token flooded onto exchanges, where the price quickly skyrocketed to $11.80. Then, the cryptocurrency's rate began to decline and continues to do so until now. ARB was worth $0.77 — 93% below its all-time high at the time of writing. In fact, this figure can be ignored, as a sharp rise after a listing is not a rare phenomenon in the crypto market, especially among the most anticipated projects, which was Arbitrum.
The team plans to make the ARB token the primary cryptocurrency used to pay for gas, but for now, ETH still fulfils this function in the network.
Arbitrum's advantages
We can't say that blockchain has any outstanding features against the background of other second-tier solutions, but this in no way negates the obvious advantages of the ecosystem:
- Fast and cheap transactions. Your assets will be sent in just a few seconds, and you'll pay a few cents.
- Ethereum-level security;
- Gas payment in Ethereum. So you don't need to buy a separate token to pay for gas - just transfer ETH to the Arbitrum One or Nova network, and you can make transactions immediately;
- Encouraging early users (the crypto community is actively discussing the possibility of at least one more airdrop of ARB tokens).
Outlook
Arbitrum leads among second-tier networks by a wide margin: its TVL is 2.5 times larger than that of Polygon, which follows it. Arbitrum is likely to remain the leading L2 blockchain soon, given its pace of development.
According to the roadmap, the team's immediate plans include launching Orbit, allowing developers to run their own Layer-3 networks on top of Arbitrum seamlessly. At the same time, they plan to launch the Arbitrum Stylus update, which will expand the list of programming languages for creating L3 blockchains and decentralized applications, in addition to Solidity, in which developers write software for Ethereum.
