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When Ethereum came out as a way to fix a lot of Bitcoins problems, and add more functionality, it was championed as the future. The Ethereum blockchain allowed for the incorporation of code bits and smart contracts, and the emergence of Ethereum-backed decentralized applications (dApps) blew up. This Ethereum-based blockchain created the foundation for new innovations like NFTs and Crypto based gaming to come out into the spotlight.
However, as the world embraced crypto the uses of blockchain technology pushed Ethereum to its limits. The amount of network traffic led to high gas fees (fees paid to miners, validators, and other blockchain personnel). These fees grew to be as high as $50. These steep prices made it hard for smaller programmers and businesses to use this network.
This is where applications like Arbitrum come into play. But what is Arbitrum?
Via Yahoo Finance
What is Arbitrum
The purpose of Arbitrum at its outset was to decrease the gas fees and costs of doing transactions on the network. They utilize something called a 2-layer solution to the Ethereum network to offload a lot of the computing and data storage the Ethereum network has to do.
The Arbtitrum Blockchain was founded by Offchain Labs, based in New York, by Ed Felten, Steven Goldfeder, and Harry Kalodner. Ed Felton was a computer science professor at Princeton, Steven earned his Ph.D., and Harry was, and still is, a Ph.D. student at Princeton University.
Via Offchain Labs
This 2 layer solution did a lot to increase security, efficiency, and utility. Arbitrum allows developers to utilize a lot of Ethereum’s functions as it is Ethereum compatible. They do this by running Arbitrum on Ethereum Virtual Machine.
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Blockchain Basics
When person A does a transaction with person B what is happening in the Ethereum blockchain? When an ETH token is created, it contains a lock and key. The lock is a series of functions that take many small pieces of data and turn them into the hash. The key is the hash itself.
When a transaction takes place, a miner is using brute force to guess the key millions of times. When they finally get it right and it matches with the hash, the function is added to a new block that has the new user’s transaction time and wallet address.
Via Business Insider
Ethereum Blockchain
Currently, Layer 1 solutions process and hold the transactions, proofs, and hashes on one blockchain when a person owns Ethereum and wants to trade it with someone else.
The Ethereum Blockchain uses PoW (Proof of Work Consensus protocol). This is simply how the blockchain determines who gets rewarded for validating the transaction. In PoW, the miners compete with each other to get a value under the hash and then add it to a block of transactions. The miner is rewarded with ETH which comes from a gas fee that the transactor has to pay.
Ethereum’s algorithm will change hash difficulty in response to how fast miners solve the hash. If it is too fast it will make it more difficult, or too slow it will make the computations easier.
In proof of work, the amount of energy and time to validate transactions is high, since many miners are simultaneously trying to solve the same problem.
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What is Arbitrum’s relationship to Ethereum: Arbitrum Blockchain
The change that Arbitrum is bringing to the table is the usage of a parallel blockchain that computes a lot of the data that the Ethereum network would have to do on its own.
How Arbitrum works is that user’s that want to do a transaction would do so on the Arbitrum network. The Arbitrum network would handle transaction processing and report their findings back to the Ethereum network to be recorded.
Via Chainlink
What is Arbitrum’s Optimistic Rollup
Optimistic Rollup confirms the transactions in batches and settles them off chain, then feeds the transaction data to the Ethereum main net. Each of these Rollup blocks is marked as unresolved until it is marked confirmed or rejected by a Validator.
Each block contains the rollup block number, the predecessor block number, the amount of computation that the chain has done (measured in Arb Gass), the number of inbox messages, a hash of the outputs produced over the chain’s history, and the hash and AVM (Arbitrum Virtual Machine) state.
The basis of this process is the assumption that the data is correct utilizing the fraud-proof protocols. One of those protocols has the Validator stake crypto before validating a transaction. On the chance the Validator is lying or is wrong, the stake is taken from them.
To ensure that the Validators do the job, the transaction can be challenged for a week. If a Validator lies or does not do their job, their stake in the transaction will be eliminated. After a week, the transaction is assumed to be correct.
Via Ethereum
Arbitrum is also Ethereum compatible as it is running EVM (Ethereum Virtual Machine) which operates like the Ethereum blockchain, allowing for the deployment of Smart Contracts in the transaction, as it would be deployed on the Ethereum blockchain.
What is Arbitrum Bridge
This feature allows the user to send ERC-20 tokens to Arbitrum One. You won’t have to worry about buying other currencies just so you can make transactions, Arbitrum handles it for you.
Via Medium
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How to Use Arbitrum
1. Connect your Ethereum wallet to the Arbitrum Bridge. Examples of wallets that work are MetaMAsk, WalletConnect, and Coinbase Wallet.
2. Deposit however many ERC-20 tokens you want to work with into the Arbitrum network.
- Add Arbitrum network to your wallet to see how much Ethereum you have.
Side notes
- The transaction will take 10 minutes and will prevent you from withdrawing for 8 days.
- Note that your transaction will be subject to Ethereum’s high gas fee.
- When you’re in the Arbitrum One Portal, you can immediately see Ethereum apps.
Why you should use Arbitrum
Instead of paying the large gas fees on the Ethereum network to make a trade, it is better to use the Arbitrum network as the gas fees are mere cents. Once you have your wallet connected, you can do virtually anything that the Ethereum network can do, just with fewer fees.
