Arbitrum is a fully decentralized platform that uses a roll-up approach to scale Ethereum, which differs from side chains. Roll-ups are more secure and work directly on the contract, not relying on validators. Arbitrum One is an optimistic roll-up that currently hosts DeFi, while Arbitrum Nova is a general-purpose blockchain designed for gaming and social projects. Arbitrum DAO is a governance protocol and a DAO, while Arbitrum Orbit allows users to build app-specific chains on top of Arbitrum One. The upcoming EVM+ tech will allow users to write smart contracts in Rust, C, and C++ on L2.
Ethereum has been in the space for a considerable amount of time, and as you are probably aware, there are scalability, decentralization, and security issues associated with it. However, there are alternate L1 solutions available that are attempting to solve these same issues.
Since Ethereum is a fully decentralized platform, it requires numerous scalability solutions. Therefore, there are several methods to scale Ethereum, including side chains, Validium, Roll-Ups, and Plasma chains.
When discussing the scaling of Ethereum, the objective is to allow developers to build anything on Ethereum with ultra-low gas fees or high transaction throughput. Currently, several blockchains are aiming to scale Ethereum. One of these is Arbitrum, which uses a roll-up approach to scale Ethereum. In roll-ups, all computations and transactions occur on another chain, and the finality that the transaction is valid is then returned to Ethereum. This is where roll-ups and side chains differ.
When conducting a transaction on a side chain, only the header of the transaction is placed on Ethereum. However, with roll-up, the call data is pulled onto Ethereum. By “calldata” we mean the minimum amount of data needed to prove that the transaction was valid and actually occurred, and that it was not a malicious transaction. This is where roll-up and side-chains differ.
Roll-up vs SideChain
In Roll-ups, all computations and transactions are done on another chain, and the finality that the transaction is valid is put back onto Ethereum. This is where Roll-ups and side chains differ.
When you do a transaction on a side chain, only the header of the transaction is put on Ethereum. In contrast, with roll up, the call data is pulled on Ethereum. By “call,” I mean the minimum amount of data needed to prove that the transaction was true and actually occurred, and that it was not a malicious transaction. This is where roll up and side-chains differ.
From a security perspective, roll up is always a better solution for developers. In the past, there have been many hacks with bridges, and in order to address security concerns, compatibility is required. With roll up, the bridge contract is self-evident and can prove that the data is valid only from the contract itself. In contrast, with a side chain, one has to rely on validators to confirm that two-thirds of the consensus is valid for the transaction. Additionally, one requires signatures from all validators to move from the side chain to Ethereum and vice versa, but this is not the case with roll up.
Roll-up works directly on the contract and does not rely on the validator set. Even if two-thirds of the validators are malicious, the roll-up can still work because it relies on the smart contract, not the validators. You can always verify the correctness of the contract or transaction by going to the Ethereum mainnet and checking the fraud proofs.
This is the power of roll-up, and why it is so popular. There are two types of roll-ups: optimistic and ZK. In optimistic roll-up, fraud proofs are proven on Ethereum mainnet, while in ZK roll-up, validity proofs are put on Ethereum. Both methods verify the transaction’s validity, but ZK roll-up is more secure and achieves EVM zero knowledge. Arbitrum One had build an optimistic roll-up, which is already live in production.
- Arbitrum One
- Arbitrum Nova
- Arbitrum DAO
- Arbitrum Orbit
- Arbitrum EVM+
Arbitrum, The Optimistic Rollup Solution
Many people are not aware that Arbitrum has two chains instead of one, each catering to different use cases:
- Arbitrum One is an optimistic rollup and currently hosts DeFi. It provides high security.
- Arbitrum Nova is a general-purpose blockchain that operates on the data availability committee. It is specifically designed for gaming and social projects. If you prioritise high TPS and smooth UX over security, then Nova is the best choice.
Arbitrum One is a highly secure optimistic roll-up that differs from a side-chain in that its finality is on Ethereum, making it highly secure. Regarding data availability, all proofs submitted to Ethereum from Arbitrum roll-up are backed by Ethereum, which ensures that data availability is available on optimistic roll-up.
Arbitrum has a native bridge from L1 to L2 which is highly secure. For the native bridge, there is a waiting period of seven days for withdrawing tokens to Ethereum, but no waiting period for depositing tokens to Arbitrum. The seven-day period is because anyone can apply for a challenging period if they think the transaction is malicious. This is not the case in a sidechain, where they only rely on third-party bridges owned by someone else.
In case of a 51% attack, the optimistic roll-up design ensures that if a majority of the validators think the transactions are valid, then they are considered valid. If anyone wants to challenge that period, they must have more than 51% of the validators. Therefore, from a security point of view, it is ultra-secure compared to a sidechain.
Currently, there are over 2000 audited applications running on Arbitrum, mostly in DeFi.
In my opinion, DeFi protocols on Arbitrum are ideal due to the platform’s balance between security, transaction throughput, and gas requirements. This is why more and more protocols are choosing to join the Arbitrum ecosystem. This is why an increasing number of protocols are being attracted to the Arbitrum ecosystem.
The chart above, taken from L2 Beat, shows a comparison of all Layer 2 solutions. The first line shows that Hobby Company has a 60% market share compared to all other roll-ups currently available in the Web3 ecosystem. Arbitrum One holds the majority of the market share, with a total of 8.14 billion locked on the platform, making it the most secure and safe option available at present.
Arbitrum One is expanding into the gaming ecosystem, with innovative gaming companies like Pirates Nation, Forgotten Rule, and ZVerse onboard. Pirates Nation is working on the proof-of-play concept. Gaming companies are leveraging Arbitrum for innovation, and the main treasure DAO on Arbitrum One is DAO Gaming, which is bringing gamers into the ecosystem.
In 2022, the Reddit team invited many blockchain enthusiasts to submit proposals for their community point use case. The Arbitrum team participated in the contest and developed the Nova technology for Reddit. The company was pleased with the results, and as a result, community points are now running on Nova. Subsequently, the team made the blockchain technology available to everyone, and it is now called Arbitrum-Nova. This technology serves other social projects and gaming platforms as well.
Arbitrum Nova has a unique architecture that processes transactions internally and submits them to the data availability committee for approval. Once approved, the batch of transactions is sent back to Ethereum, reducing gas fees and increasing transaction throughput. Nova offers a more affordable option for gamers and social projects, with gas fees currently at only 10 cents. This is due to the need to maintain the security of the DeFi ecosystem on Arbitrum One.
Fees on Nova are literly 0.02. If data availability fails to give you the certificates in a given, time, you can still put it on arb-eth using roll-up tech.
The Data Availability Committee, made up of 15 to 16 members, including reputable companies like ConsenSys, OpenSea, and GCP, approves transactions on Nova. The committee members have a consensus mechanism in place to ensure security and avoid malicious activities.
In March, Arbitrum launched the ARB token and became a governance protocol and DAO. The community controls the technology via the committee, ensuring that upgrades are not controlled by a small group. The Arbitrum DAO allows for self-executing decisions without waiting for approval. Highly qualified delegators run the Arbitrum DAO, and the Arbitrum.Foundation forum provides more information. The DAO has seen amazing proposals for the ecosystem in just two to three months, bringing us closer to decentralization.
Growing demand for personal blockchains is leading people to opt for building their own blockchain instead of working on layer 1 or layer 2 due to specific use cases. For example, launching their own token or running their token as a gas fee on their blockchain. Even Yoga Labs is building its blockchain, perhaps to create an ecosystem or cater to millions of users like a web 2.0 company.
We realized that people want to build on a layer 3 for many reasons. However, they don’t want to go standalone because of handling a lot of tooling or bridging on their own. That’s why we launched Arbitrum Orbit, which allows you to build any app-specific chain or layer 3 chain on Arbitrum One.
The advantage of Orbit is that the base layer for L3 will be Arbitrum One, so you can take advantage of all the tooling available on Arbitrum One like bridges, indices, early layers, oracles, wallets, and more. You don’t have to spin up your own tooling for layer three. You can benefit from Orbit and Arbitrum One’s liquidity.
For example, any DeFi protocol can create its ecosystem on top of Arbitrum One to attract more layers, more DeFi protocols, and more liquidity. Arbitrum Orbit is currently open and permissionless for anyone to build L3 on Arbitrum One.
If you want to spin up your L2, you have to go to the DAO because the DAO owns the technology. You can write a proposal, and with complete live broad proof, get licensing to spin up your L2.
This technology is currently under research and development, with a target launch date of the end of this year or possibly next year. Using this technology, you can write smart contracts in Rust, C, and C++. Previously, this capability was only available on alternate L1 chains such as Solana and Cosmos. However, now you can write the same contracts for L2, which is EVM compatible.