CoinMarketCap takes a deep dive into a new layer 2 protocol.
While some circles believe that the best way to scale Ethereum is through on-chain tweaks and upgrades, others are instead pursuing different routes, known as second layer solutions.
Arbitrum One Mainnet Launch and $120 Million Funding
Offchain Labs also announced that they have raised $120 million in a series B funding round led by Lightspeed Venture Partners. This gives the company a valuation of $1.2 billion. Other notable investors in Offchain Labs include Coinbase Ventures, Pantera, Compound and Blocknation.
What Is Arbitrum?
It’s built to address some of the shortcomings of current Ethereum-based smart contracts — such as poor efficiency and high execution costs — which have damaged the Ethereum user experience and frequently make transacting an expensive task.
How Does Arbitrum Work?
It’s optimistic in the sense that any validator is able to post a rollup block and confirm the validity of other blocks, while the term rollup is used to describe how public information can be used to reconstruct a complete history of the chain from an optimized log of events. The Arbitrum protocol ensures that code will run correctly (i.e. as intended) so long as any validator is honest, helping the network resist collusion and other forms of attack.
Future versions of Arbitrum will also have two other modes: channels and AnyTrust sidechains.
As with many blockchains, individual nodes can choose to participate in the Arbitrum chain. Validator nodes are involved in observing the state of the chain, and full nodes help to aggregate layer 1 transactions. Aggregators that submit transactions to the layer 1 chain earn rewards paid in ETH, while the rest of the user transaction fees are distributed to other network participants — such as validators.
Arbitrum introduces a challenge step for rollup blocks, which sees other validators check the correctness of a block and issue a challenge if they believe it is wrong. If the block is proven to be incorrect or a challenge is proven unjustified, the lying validator will have their stake confiscated, ensuring validators always play fair or risk the consequences.
The platform also has its own custom virtual machine, aptly named the Arbitrum Virtual Machine (AVM). This is the execution environment for Arbitrum smart contracts and exists above the EthBridge — the set of smart contracts that interfaces with the Arbitrum chain. Ethereum-compatible smart contracts are automatically translated to run on the AVM.
What Makes Arbitrum Unique?
The project is designed to provide an easy-to-use platform developers can use to launch highly efficient and scalable Ethereum-compatible smart contracts.
But it’s not the first platform looking to overcome Ethereum’s limitations, there are at least a dozen other solutions looking to offer similar functionality. So what separates Arbitrum from the rest? Well, it has several distinguishing features, including:
High EVM compatibility
Arbitrum is considered to be one of the most EVM-compatible rollups. It’s compatible with the EVM at the bytecode level, and any language that can compile to EVM works out of the box — such as Solidity and Vyper.
This makes it easy to develop on, since developers do not need to get to grips with a new language before building on Arbitrum.
Robust developer tooling
The team behind Arbitrum are doing what they can to minimize barriers to entry when it comes to building on their layer 2 solution. As such, they have produced comprehensive developer documentation for Arbitrum, and the developers can get started using existing tooling for Ethereum. There is no need to download anything specific to Arbitrum, such as plugins, or compilers like Hardhat or Truffle.
As a layer 2 scaling solution for Ethereum, Arbitrum isn’t just designed to boost Ethereum’s transactional throughput, it also minimizes transaction fees at the same time.
Thanks to its extremely efficient rollup technology, Arbitrum is able to cut fees down to just a tiny fraction of what they are on Ethereum, while still providing sufficient incentives for validators.
Arbitrum has run several testnets since October and is currently live on mainnet for developers. Unlike many other layer 2 scaling solutions, Arbitrum doesn't have its own native utility token — hence there was no token sale.