Ethereum (ETH) on the Arbitrum network
ETH token in the Arbitrum network
Ethereum in the Arbitrum network is a token, not an original cryptocurrency. This means that when transferred from the Ethereum network to Arbitrum, the original ETH coins are converted into native ETH tokens. In a way, ETH on the Arbitrum network is a "wrapped" token, like WETH.
An original bridge created by Arbitrum developers is used for transfers between networks. The Arbitrum bridge allows transferring ETH and ERC-20 tokens to Arbitrum One and Arbitrum Nova networks within 15-30 minutes.
Arbitrum uses the same standard for issuing tokens such as ETH as it does for issuing the original cryptocurrency, ERC-20. However, unlike the original ether, ETH on the Arbitrum network is not entirely decentralized: all critical updates or contract crashes are done using admin keys.
ETH in the Arbitrum network is used to pay for gas, even though the project team released its ARB token in 2023. The rate of native ETH in the Arbitrum network is linked to the rate of the original cryptocurrency. Each ETH in the Arbitrum network is backed by real ether and stored at the official bridge's contract address. However, when assets are transferred, the conversion amount may change slightly due to delays. This differentiates ETH on the Arbitrum network from many other wrapped tokens.
Advantages and disadvantages of using Ethereum on the Arbitrum network
One of the main pros of using ETH cryptocurrency on Arbitrum's tier 2 network is the very cheap transactions, which cost dozens of times less than Ethereum and are much faster. The cost of commissions on the Arbitrum network has dropped significantly since the March 2024 Dencun update, which was one of its primary goals.
Using ETH on the Arbitrum network reduces the load on the Ethereum core network, making transactions on the core network faster and cheaper. Layer 2 networks like Arbitrum and Optimism were created for this purpose.
Another plus is Arbitrum's lower liquidity compared to Ethereum in the decentralized finance (DeFi) sector. The Arbitrum network has a somewhat developed DeFi ecosystem. Still, because the amount of locked-in value in its DeFi protocols is much smaller than Ethereum's, users can access liquidity pools with higher yields (APR).
Finally, Arbitrum is part of the vast EVM ecosystem, which means that ETH in this network supports many cross-chain bridges. In other words, a user can quickly transfer their ETH to many different networks.
However, ETH tokens issued on the Arbitrum network have several drawbacks. Firstly, it is not an original asset and is centrally managed through a separate contract, meaning the team can control its issuance and turnover using its private keys.
On the other hand, this approach has its advantages because, in case of a contract hack, the team can promptly intervene and stop the attacker's actions. Therefore, native ETH in the Arbitrum network is more secure than the other Wrapped ETH (WETH) tokens.
The second drawback of ETH tokens on the Arbitrum network is the weaker security compared to Ethereum. Although Arbitrum relies on Ethereum's layer one security, network failures and hacks or abuse of validators are still possible in theory.