What is Arbitrum (ARB)?
The world of high technologies, such as blockchain and cryptocurrencies, might seem otherworldly and futuristic from afar, but upon closer inspection, it has its own flaws.
In our new comprehensive guide, we'll explain the perpetual problem that blockchain faces and how Arbitrum (ARB) helps to address it.
Introduction to Arbitrum and its purpose
Arbitrum is a Layer 2 scaling solution (Layer 2, L2) designed specifically for the Ethereum blockchain.
L2 scaling solutions aim to enhance Ethereum by addressing a fundamental problem that is widespread and affects all first-layer blockchains (Layer 1, L1) to some extent. Of course we are talking about blockchain scalability.
The challenge of blockchain scalability
A blockchain is essentially a distributed ledger stored on hundreds of thousands of computers around the world. These computers are not interconnected nor controlled by any central authority. All participants in the blockchain network are equal. This brings the principle of decentralisation to blockchain technology, which is a fundamental concept for cryptocurrencies in general.
While a blockchain can grow and expand infinitely, a significant issue arises as it grows—the speed of transaction processing decreases, and transaction fees increase. This is particularly pertinent for the Ethereum blockchain, where popular decentralised applications (dApps) can cause network congestion.
How Arbitrum addresses Ethereum's limitations
Arbitrum is a prime example of a scalability solution for Ethereum. Initially, it might sound a bit complex, but the concept is actually embedded in the name itself: the second layer is built on top of the first (the primary blockchain—in this case, Ethereum).
Arbitrum achieves this with the help of rollup technology, which essentially "bundles" numerous transactions into a single package, or rollup. This significantly reduces the amount of data the blockchain needs to store. We'll delve into the details of this technology a bit later in the text.
The integration of Layer 2 solutions helps distribute the workload. Previously, the substantial task of processing all transactions rested solely on Ethereum. Now, with Arbitrum's assistance, part of the transactions are processed off-chain. This reduces the load on the main network, increases transaction processing speed, and lowers Ethereum gas costs.
The technology behind Arbitrum
We’ve already understood that Arbitrum significantly eases the burden on the Ethereum blockchain. Now, let’s take a closer look at these mechanisms and understand how they work.
Understanding rollup technology
We’ve already begun to understand rollups and realised that they are the foundation of scalability solutions at the second layer. Arbitrum, an L2 solution, employs a technology called optimistic rollups. This allows the network to process more transactions in less time and enables users to pay lower fees for blockchain operations. Here’s a simplified outline of how rollup technology works.
1. Offloading transactions. An L2 solution like Arbitrum takes a portion of transactions from the main blockchain (such as Ethereum) to reduce the load on the network. During this phase, off-chain computation occurs—transactions are processed outside the main chain to speed up and reduce the cost of this process.
2. Grouping transactions. The second-layer blockchain groups these multiple transactions into a single rollup. This reduces their digital weight and saves space on the blockchain.
3. Returning rollup to main chain. The L2 network returns this rollup of transactions back to the L1 network as a single transaction. The transaction data is then recorded on the Ethereum blockchain. Done!
By using optimistic rollups, Arbitrum efficiently manages transaction loads and improves the overall performance of the Ethereum network, benefiting both the blockchain and its users.
The role of ARB token in the Arbitrum ecosystem
The ARB token plays a pivotal role within the Arbitrum ecosystem, extending beyond its primary aim of addressing Ethereum's challenges. As the native token of the Arbitrum blockchain network, ARB serves several crucial functions within this ecosystem:
1. Gas fees payment. ARB is used to pay for gas fees within the Arbitrum network, which is one of its fundamental purposes.
2. Governance. Holders of ARB tokens have the right to vote on proposals and other initiatives related to the project's development, allowing them to voice their opinions directly to developers.
3. Market position. Additionally, ARB token enjoys popularity among traders and investors. As of the time of writing, it ranks among the top 50 digital assets by market capitalization, holding the 41st position and trading at a price of $0.7388.
ARB token in the crypto rating by market cap. Source
Benefits of using Arbitrum for developers and users
The concept of second-layer blockchain solutions and rollups aims to simplify the lives of all cryptocurrency market players and unlock previously inaccessible benefits. Let's delve into the specific advantages brought by Arbitrum.
Reduced gas fees and faster transactions
As we've explored, Arbitrum's primary goal is to address scalability issues. In the case of the Ethereum blockchain, this problem manifests as follows:
Increased network activity—meaning more users entering the network to conduct transactions. This leads to network congestion. → The network fails to scale—that is, it struggles to quickly process all new transactions. → To cope with the influx of users, the network adjusts its operations—temporarily increasing gas fees to reduce the number of users wanting to transact immediately, and taking more time to process operations. Simply put, this creates unappealing conditions for users.
Arbitrum steps in to tackle these challenges. During peak user times, it offloads some transactions from the main network and processes them independently. Interestingly, this L2 solution can handle thousands of transactions per second, significantly outperforming Ethereum's transaction throughput. Thus, Arbitrum frees up blockchain space and enables the main network to operate faster and cheaper.
Enhanced security and decentralisation
And these are just the most obvious benefits. Few pay attention to this, but Arbitrum actually enhances Ethereum's operations in several other ways.
1. Security. As discussed multiple times, the second-layer blockchain essentially re-verifies a large array of transactions before sending them back to the main network. The old reliable principle of double-checking holds true here—transactions are processed on Arbitrum and confirmed and recorded on the Ethereum blockchain. This approach significantly boosts the reliability of networks.
Moreover, this second-layer network employs innovative zero-knowledge (ZK) proofs technology. This term refers to a special cryptographic method that verifies transaction authenticity without revealing any additional data. This is crucial for many users who aim to protect their digital privacy.
2. Decentralisation. Arbitrum introduces principles of decentralised management, allowing its community to make actual decisions about the network's further development. This is extremely important in the crypto world, where centralisation is criticised as relics of the old financial system.
How to get started with Arbitrum
After hearing about all the benefits Arbitrum offers, many of you are probably wondering how to start using the Arbitrum network. Well, let's get into it!
Accessing Arbitrum Layer 2 solutions
Getting access to Arbitrum's second-layer solutions is actually quite straightforward—all you need is a suitable crypto wallet. Many popular hot wallets will do the trick, such as MetaMask, Coinbase Wallet, or Trust Wallet.
How to switch networks in MetaMask wallet.
To set it up, simply switch networks—by default, when you create a wallet, it's set to Ethereum Mainnet. Instead, you can choose Arbitrum by selecting it from the dropdown menu in the top left corner of your desktop wallet interface.
If you don't have a crypto wallet yet, now is the perfect time to create one! Check out our step-by-step guide on setting up a cryptocurrency wallet.
Still complicated? You can find more details in our dedicated article on how to bridge to Arbitrum.
Participating in the Arbitrum network
However, the Arbitrum network isn't just about conducting transactions. As mentioned earlier, it's a comprehensive cryptocurrency system with its own community and development plans.
One of the easiest and most accessible ways to become a full-fledged participant in this network is to purchase ARB tokens and follow the project's official social media channels, such as their account on X. This way, you'll stay updated on all the development team's plans and have voting rights to support or critique their ideas—this is where the native Arbitrum token comes into play.
The future of Arbitrum and Layer 2 scaling
The secret to Arbitrum's success lies in its experienced and proactive developers who always listen to their community's feedback. The project team consistently announces new features and network improvements, detailed in the project's official blog.
Arbitrum appears to have a bright future ahead, as its innovative solutions are not only applicable to Ethereum but can also benefit other major networks.
To stay informed about all developments concerning Arbitrum, Ethereum, and other cryptocurrency projects, remember to keep reading our itez blog!
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This article is not investment advice or a recommendation to purchase any specific product or service. The financial transactions mentioned in the article are not a guide to action. It’s not intended to constitute a comprehensive statement of all possible risks. You should independently conduct an analysis on the basis of which it will be possible to draw conclusions and make decisions about making any operations with cryptocurrency.
