One of the blockchain projects using this concept is Arbitrum. Built on top of the Ethereum network (L1), this is a Layer-2 blockchain, or L2 shortened. Adopting optimistic rollups helps Ethereum solve the scalability issue, thus boosting the throughput for transactions, which in turn lowers the transaction fee as more transactions can get added to the block faster. Although transactions are processed on Arbitrum via ArbOS, the operating system that handles the transactions and collects fees, security for the transactions are still processed by the Ethereum network. So it’s essentially combining the best of both worlds.
The consensus mechanism used by Arbitrum to process transactions is known as the AnyTrust Guarantee. How this works is that all the validators need to agree for a block to be added. As long as there is one validator who disagrees, the block won’t be added to the blockchain.
The project’s primary target audience is developers, as it offers an ETH-friendly environment for them to build dApps without the costly fees. There are also various key features of the projects that we will point out in the following sections below.
Arbitrum Rollup
One of the ways to distinguish one type of rollup from another is the number of rounds of disputes required to resolve challenges. Arbitrum’s version uses the Multi-Round Interactive Optimistic Rollup. An on-chain contract referees the back-and-forth between the challenger and asserter. In addition, the amount of data on-chain is low.
EVM-Compatible and Ease of Use
Another highlight of Arbitrum is its high compatibility with the Ethereum Virtual Machine (EVM). In a nutshell, the EVM is the “computer” that runs the Ethereum network for smart contracts execution. Arbitrum has its own”supercomputer”, known as Arbitrum Virtual Machine (AVM), that underpins everything that is Arbitrum. On top of the AVM is ArbOS, mentioned earlier. The AVM supports the EVM architecture. This means that ETH developers can develop on Arbitrum just as if they are developing it on the Ethereum network itself.
In this sense, Arbitrum is positioning itself as the “home-away-from-home” option for ETH developers. Not only is it compatible with EVM, but it also natively supports all Ethereum development tools without any special add-on. This includes all smart contract languages like Solidity, which works just as well on Arbitrum. Therefore, dApps originally developed in Ethereum can easily move over to Arbitrum with minimal code changes. It’s never been easier to move dApps over, making it a most attractive option as the transaction costs are drastically lower than working on the Ethereum network itself.
Arbitrum Ecosystem
L2s currently have a Total Value Locked (TVL) of $5.53 billion, of which Arbitrum has snagged $2.28 billion of it. That’s more than half the market share! This goes to show the popularity and belief from the Ethereum developer community. Let’s see what kind of dApps are actually on Arbitrum now.
Arbitrum Portal
“Your gateway to the Arbitrum ecosystem” is the first thing you see when you are at the Arbitrum Portal. There are five categories to choose from and one to see all the dApps running in the ecosystem. So let’s dive right in!
Wallets
There is no shortage of wallets to choose from that supports Arbitrum. Top names like Metamask, Coinbase, Trust, and MathWallet sit alongside lesser well-known ones such as DefiYield, LoopRing, Sequence, and Zapper. The wallets are used to help tokens get transferred (“bridged”) from L1 to L2 through the Arbitrum token bridge
DApps
A rich collection of dApps have already made Arbitrum their second home, if not their only home. You can find almost all the top DeFi names here, including Uniswap (the most traffic), Aave, Curve, DAI/MakerDAO, Balancer to some of the more esoteric ones like Frax Finance, Cream Finance, Beefy Finance and even non-DeFi dApps like IdeaMarket (highly-ranked URLs become the public narrative) and Kaki (play-to-earn NFT games).
Bridges & On-Ramps
Bridges play one of the most essential roles in the crypto sphere due to the siloed nature of the blockchains. When the blockchain projects were initially conceived, it was like a start-up company where the focus was on making it the best it could be. However, as the proliferation of projects grew and the founders had the opportunity to interact with each other, they recognise how some projects might be of use to their own and vice versa, especially in the world of DeFi, where users can often use tokens generated from one blockchain and use them to get yield at another blockchain. Bridges became the necessary component to move these tokens from one blockchain to another.
Arbitrum Token Bridge
After having feasted your eyes on the wide selection of dApps to try out, the most important step is to fund your wallet with ETH to get started. When you buy ETH for the first time, especially if using fiat money, it’s most likely ETH located on the Ethereum network that is L1. Interacting with the Arbitrum dApps requires the extra step of moving the ETH from L1 to L2, which is where the Arbitrum token bridge comes in. This handy tool is specifically designed to transfer not just ETH but any flavour of ERC tokens from L1 to L2. It’s not just a one-way bridge, either. You can also move your ETH from L2 back to L1 again anytime.
To use this tool, connect your Web3 wallet to the site. Since Arbitrum has no native token, all fees are paid in ETH, so be sure to have some available for making payments.
Arbitrum Reddit Project
One of the more exciting projects the Offchain Labs team was involved in was a collaboration with Reddit. When Reddit decided to launch its ERC20 token, known as Community Points, to its members, it had a “Scaling Bake Off” to pick the best blockchain for collaboration. Arbitrum beat out 21 other competitors to win the competition. Reddit users earn these tokens by providing quality comments or contributing in other ways. The tokens can be spent on items within the Reddit ecosystem.
Optimistic vs zkRollups
The design of optimistic rollups involves a challenge period, which can be up to 2 weeks, as it gives people ample opportunity to check that all blocks are actual transactions. For those who want to withdraw their tokens, this can be a long wait time before getting their tokens back. Here is where zkRollups shine.
Unlike Optimistic rollups with the challenge period, zkRollups, also known as zero-knowledge Rollups, generate a validity proof known as SNARK to validate the authenticity of the transactions. SNARK contains only key details of the transaction, not the complete data. This rollup method does not require a challenge period, which makes moving funds around a lot faster.
Fund Security
According to L2Beat, a website that compares L2 projects together with analysis on them, there are a few ways that the security of funds can be compromised on Arbitrum, including, but not limited to:
- Mistakes in the AVM implementation could lead to lost funds.
- The centralised validator going down, which means users cannot create new blocks. However, exiting the system requires a new block to be produced. In this case, funds can be frozen. This recently happened due to the current centralised structure.
- No delays in code upgrades might mean that a malicious code can slip in without knowing. This kind of incident could result in stolen funds.
