Arbitrum Explained

29 Nov 2023 by Harry Newman 3 min read

Arbitrum explained. Arbitrum is a layer 2 solution on the Ethereum network, aiming to address key issues such as scalability and transaction costs that have challenged Ethereum.

Arbitrum uses optimistic rollups to help achieve its goal of improving speed, scalability and cost-efficiency on Ethereum.

Arbitrum boasts the speed and scalability of a layer 2 and the security of Ethereum.

Arbitrum Explained - What is it?

Arbitrum is a layer 2 scaling solution designed to improve the efficiency and scalability of Ethereum.

Developed by Offchain Labs, a New York-based development company, the founders include Ed Felten, Steven Goldfeder and Harry Kalodner who are all former Princeton University researchers with years of experience in cryptography and blockchain technology.

Arbitrum is cheap and quick to use compared to Ethereum, and all transaction information is relayed back to the Ethereum blockchain.

Transactions are handled off the main Ethereum layer 1 blockchain and instead handled on Arbitrum the layer 2 blockchain, once transactions have been processed the data is sent to the main blockchain.

Arbitrum uses optimistic rollups with transactions settled on a sidechain. A blockchain that is connected to the main chain, Ethereum.

Arbitrum collects batches of transactions, settles them on the sidechain, and then feeds the data back into the Ethereum blockchain.

Validators have to stake ETH before they can confirm transactions on the Arbitrum blockchain. This incentivises validators to act honestly and truthfully on the network.

If they do not act honestly and truthfully they will be penalised and lose their ETH stake.

Arbitrum supports any Ethereum dApps without the need for any code changes.

ARB Token

The native token for Arbitrum is called ARB. This token is used for governance.

Offchain Labs have shifted to a DAO structure, the Arbitrum DAO, with this ARB holders vote on proposals that affect features, upgrades, elections and fund allocation.

ARB is not used as a gas fee token like ETH is used on the Ethereum network. Fees on Arbitrum are paid in ETH or any other ERC-20 token.

Users do not need to spend their ARB using Arbitrum services and instead can stake them to earn reward fees for securing the network.

The total supply of ARB is fixed at 10 billion.

Token allocation is as follows:

Arbitrum DAO Treasury: 4.278 Billion or 42.78%

Offchain Labs teams and advisors: 2.694 Billion or 26.94%

Investors: 1.753 Billion or 17.53%

Airdrop to Users: 1.162 Billion or 11.62%

Airdrop to DAOs: 113 million or 1.13%

Final Thoughts

Arbitrum is positioned to play a significant role in the Ethereum ecosystem as the demand for scalable blockchain solutions grows.

Arbitrum is currently the top Layer 2 network on Ethereum, its approach to processing transactions off-chain and posting the data back on-chain offers a promising solution for supporting more extensive and complex applications on the Ethereum blockchain.

Layer 2 solutions have become integral to improving existing layer 1 blockchains, offering cheaper and faster transactions. There is no doubt they are here to stay.

FAQ

Arbitrum Explained

Arbitrum is a layer 2 solution for the Ethereum network, aiming to address key issues such as scalability and transaction costs that have plagued Ethereum.

Arbitrum uses optimistic rollups to help achieve its goal of improving speed, scalability and cost-efficiency on Ethereum.