The Ethereum blockchain is one of the most prominent players in the blockchain industry for smart contract development. However, it is plagued with its own set of challenges-high gas fees and network congestion being some of them. This is where layer-2 scaling solutions like Arbitrum come into the picture.
What is Arbitrum?
Arbitrum is a new layer-2 scaling solution for the Ethereum blockchain developed by a new york based company known as Off-chain labs. Layer-2 scaling solutions are networks which sit on top of layer 1 blockchains to provide cheap and fast transactions. They reduce the congestion on the main blockchain by validating transactions separately and integrating them into the main chain.
After its mainnet launch last year, Arbitrum’s scaling solution has seen a lot of success. As a result of this, several developers have used Arbitrum’s solutions to host their dApps.
How Does Arbitrum Work?
Arbitrum is reliable, affordable and super fast. While the Ethereum blockchain clocks 14 transactions per second, Arbitrum zooms ahead with close to 40,000 transactions per second. While transactions on Ethereum might cost several dollars, transactions on Arbitrum just cost a few cents.
Moreover, Arbitrum also supports integration with Ethereum Virtual Machine (EVM) making it easy for developers.
Arbitrum processes Ethereum transactions through what is known as optimistic roll-ups. These transactions are settled on a side chain before being fed to the main Ethereum blockchain through the Arbitrum bridge.
How do Optimistic Roll-Ups Work?
A roll-up essentially is a way to batch a bunch of transactions together into a single transaction. This essentially means that when a bunch of transactions are verified together, they are all verified parallelly, thereby reducing the waiting time and cost.
Optimistic roll-ups assume that the transactions which are part of the bunch are valid. In case of any fraudulent activity, there is a dispute resolution mechanism.
Read more: What Are ZK Rollups
In the case of Arbitrum, the batches of transactions are rolled up on its proprietary sidechain and fed back to the Ethereum blockchain at regular intervals.
These validated transactions are vetted by all the validators on the Arbitrum network through what is called an “AnytrustGuarantee”. Each validator is supposed to stake a certain amount of Ethereum to participate in the validation process. This mechanism will deter bad actors since validating fraudulent transactions will invite a penalty and can put the validator’s staked ETH on the line.
Is Arbitrum a good investment?
Arbitrum token (ARB) was launched on 23rd March 2023. As of now, there are very few technical indicators to time the market. However, its fundamentals look strong, given that it is backed by a team of competent experts. Moreover, Arbitrum’s network also validates transactions at very high speeds making it a good choice for quick and cheap transactions.
On the other hand, Ethereum’s future scaling solutions which aim to improve speed and reduce costs can pose a threat to layer-2 scaling solutions. It is yet to be seen how Arbitrum’s market dynamics will play out. Investors are always advised to research thoroughly regarding any asset in which they wish to invest.
You can now buy Arbitrum (ARB) on ZebPay Australia. Keep yourself updated with the latest crypto news on ZebPay blogs.
