Arbitrum: The Layer-2 Scaling Solution for Ethereum

Known for its cheap transaction costs, Arbitrum is a leading layer-2 network built atop the Ethereum blockchain. Read on to learn how it works

Layer-2 scaling solution Arbitrum has become a popular choice among Ethereum users due to its low transaction costs and high speeds. Here's a closer look at Arbitrum and how it works.

What is Arbitrum?

Arbitrum is a layer-2 network that sits on top of the Ethereum blockchain, aiming to improve transaction speeds and reduce costs. It is known for its fast transaction processing capabilities, handling over 35,000 transactions per second (TPS) compared to Ethereum's 14 TPS. Additionally, Arbitrum is compatible with the Ethereum Virtual Machine, enabling developers to seamlessly migrate their decentralized finance (DeFi) protocols to the scaling solution without requiring any adjustments.

How does Arbitrum work?

Arbitrum utilizes a method called optimistic rollup to process transactions. Users and smart contracts can direct Arbitrum to perform tasks by placing their transactions in the layer-2 network's "inbox." Afterward, Arbitrum processes these transactions off-chain and provides transaction receipts.

To elaborate on optimistic rollup, it is essential to understand the concept of a rollup. In the crypto domain, a rollup is a technique employed by blockchain networks to compress multiple transactions into a single transaction. By bundling thousands of transactions into one, blockchains can reduce the time and cost needed to process them.

There are several types of rollups, and optimistic rollup is one of the popular ones. To enhance transaction speeds, this rollup assumes that all transactions delivered in a blockchain's "inbox" are valid. However, validators on Ethereum can challenge the validity of transactions processed on Arbitrum and have the ability to reject invalid transactions.

What currency do Arbitrum users use to settle transaction costs? Arbitrum has its native token, ARB, but it requires users to pay for gas fees using ETH, the native crypto for Ethereum.

Popular decentralized applications on Arbitrum

Due to its low transaction costs and fast speeds, Arbitrum has attracted the attention of developers in recent months. As of October 2024, over 100 DeFi apps are operating on Arbitrum, including Curve, Abracadabra, Pendle, and SushiSwap. These protocols have a total value locked of nearly $2.5 billion, with SushiSwap accounting for about 30% of the funds.

How to use the Arbitrum network?

To begin exploring the Arbitrum ecosystem, you first need to add the network to a compatible wallet. For this guide, we'll be using MetaMask. After downloading the wallet from Metamask.io, be sure to write down the secret phrase and create a unique password. Next, head over to Arbiscan.io and scroll down to the bottom of the homepage. On the right side, you'll notice an "Add Arbitrum to MetaMask" button. Click on it to add the network to your wallet.

Once the Arbitrum blockchain is added to MetaMask, you can now proceed to transfer ETH from an external source to explore various decentralized applications. If you wish to transfer ETH from Ethereum, you can utilize Arbitrum's token bridge, which can be accessed on Arbitrum.io. Usually, it takes around ten minutes for the bridged tokens to be deposited in your wallet.

The ARB token

As mentioned earlier, Arbitrum has its native crypto called ARB, which entered the market in early 2023. It serves as a governance token, allowing holders to participate in voting on proposals raised via Arbitrum's decentralized autonomous organization (DAO).

Among cryptocurrencies, ARB ranks in the top 50 by market capitalization. According to data from CoinGecko, the digital asset has a market valuation of $1.92 billion. Its total supply is set at 10 billion, while its circulating supply stands at 3.61 billion tokens.

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