Arbitrum： A Much Needed Solution to Ethereum’s Inefficiencies

2022-02-22, 02:31

[TL:DR]

1. Ethereum has a scaling problem and scaling solutions like Arbitrum are helping with these inefficiencies.
2. Many scaling solutions, called layer 2 solutions exist on the market.
3. Users can transfer funds from Ethereum to Arbitrum and then take advantage of Arbitrum’s lower fees and faster transaction processing times
4. You can use Arbitrum to deposit and withdrawal ETH assets on Gate.io

Ethereum, and Being a Victim of Its Own Success

Ethereum, the world’s largest smart contract blockchain, seems to have fallen on the sword of its own popularity, with high fees and poor scalability as a direct result of network congestion. The blockchain industry has been busy looking for solutions to these problems, and this has spawned a rapidly growing area of the crypto space, more formally known as layer 2 solutions.

Layer 2 protocols have emerged as one of the most effective ways to solve the technical limitations of Ethereum. One of the leading projects among these protocols is Arbitrum, and in this article we’ll explain what layer 2 solutions are, why they’re critical for helping Ethereum scale, and why Arbitrum is helping lead the way in this area of the blockchain space.

What Are Layer 2 Solutions?

In blockchain’s multi-layer architecture, core networks such as Ethereum, Bitcoin, Solana, or Cardano, are referred to as layer 1 blockchains. A layer 2 in blockchain then refers to the protocols built on top of the underlying layer 1 networks, and these layer 2s are designed to solve technical limitations of the core network, typically by moving some of the transaction processing off-chain.

A variety of layer 2 solutions exist on the market, with rollups being the most popular. Rollup protocols process a large number of transactions off the main network, and then post the processed data to layer 1 in batches. The off-chain batch-based processing allows rollup solutions to significantly reduce the cost of blockchain transactions and boost the speed and scalability of network operations.

How Does Arbitrum Fit Into The Layer 2 Space?

Arbitrum is one of the leading layer 2 protocols for the Ethereum platform. Arbitrum uses a variety of rollup technology called optimistic rollups. In optimistic rollups, batches of transactions are posted to the underlying network, Ethereum in the case of Arbitrum, and they are presumed to be valid unless a network node challenges this presumption.
The presumption that a processed batch contains a priori valid transactions is the reason why this rollup methodology is called optimistic.

Source: The architecture of Optimistic Rollups

(source: https://ethereum.org/en/developers/docs/scaling/layer-2-rollups/)

Arbitrum does not have a token of its own. Any Ethereum-based token may be used on the platform to transact.

Arbitrum had its mainnet launch in May last year under the banner of “Arbitrum One”. Initially, the platform was available for testing purposes to blockchain developers only. On August 31, 2021, Arbitrum One was made available to the wider public.

How Does Arbitrum Work?

The platform supports a number of popular wallets, such as MetaMask and Math Wallet. Using a supported wallet, you may transfer funds from Ethereum to Arbitrum and then take advantage of Arbitrum’s lower fees and faster transaction processing times.

Arbitrum already supports around 400 decentralized apps (DApps) based on Ethereum, including popular decentralized finance (DeFi) services such as AAVE, Maker, Balancer, Curve, and many more.

However, do note that, as of the time of writing, Arbitrum still applies throttling to its network processing due to being in the “mainnet beta” format. That means that cost and time savings are still not vastly lower than on Ethereum. As the project progresses, it is expected that fees and transaction confirmation times will be further reduced.

In general, typical transactions take just seconds to confirm on the platform, and the average transaction fees are currently $1.8 USD, nearly three times lower than Ethereum’s average fee of around $4-$5 USD.

Who Are the Competitors of Arbitrum?

Several layer 2 solutions compete with Arbitrum to offer more cost-efficient and scalable transacting using the Ethereum ecosystem. Among the protocols that implement optimistic rollups, the processing variety employed by Arbitrum, include other notable solutions such as Optimism, ZKSync, and Boba Network.

Similar to Arbitrum, all of these projects currently apply throttling to their network operations while they are in the process of scaling up their capacity. As of the time of writing on January 25, the average transaction fees on Optimism and Boba are $0.8 USD and $1.4 USD, respectively.

Other layer 2 solutions use methods of improving Ethereum’s transaction speed and costs via technologies other than optimistic rollups. The leading ones among them are Loopring, ZKSync, and Polygon. These platforms feature average transaction costs in the low tens of cents, somewhat lower than the leading optimistic rollup solutions.

The fees on the leading optimistic rollup platforms, Arbitrum, Boba, and Optimism, may reduce in the future when these solutions move beyond the beta stage and stop throttling. At that stage, their fees will likely become comparable to those on Loopring, ZKSync, and Polygon.

Source: The average transaction fees on Ethereum and the main layer 2 protocols as of January 25, 2022

(data source: https://l2fees.info/)

As for the transaction speeds, a typical transaction takes only a few seconds to confirm on all of the leading layer 2 solutions, including Arbitrum, however, for most consumers, the real differentiator in the layer 2 game is the price of transacting.

For now, Arbitrum may not be the cheapest layer 2 platform, but as the project progresses and the capacity throttling is lifted, expect the price of transacting to fall further on this promising protocol.

Looking Ahead

Arbitrum developers are working hard to move this innovative and much needed scaling solution beyond mainnet beta and allow even more assets to be used within the protocol. That said, with Gate.io you can already use a number of cross-chain solutions to transfer many assets on and off the platform, and you can see exactly which ones here on our cross-chain solution page. Further, you can use Arbitrum to deposit and withdraw Ethereum by using your account’s Deposit/Withdrawal page as shown in the below image:

Source: gate.io accounts page

We encourage you to follow us on social media and stay up to date as to when we add more assets to be transferred through Arbitrum, as well as stay up to date with Arbitrum developments by checking out the Gate.io blog.

Author: Gate.io Researcher: Chuk. U
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