Arbitrum (ARB)

What is Arbitrum (ARB)?

Arbitrum (ARB) is a layer-2 scaling solution designed to address the pressing challenges of scalability and high transaction fees within the Ethereum blockchain.

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At its core, Arbitrum operates by executing off-chain transactions and providing scalability to the Ethereum mainnet. These principles enable the L2 solution to reduce gas fees and process transactions faster. 

By offloading most transaction execution to the Arbitrum network, users enjoy reduced fees and faster confirmation times compared to the Ethereum mainnet.

This scalability improvement enhances the overall experience and enables broader adoption of decentralized applications (dApps) in the decentralized finance (DeFi) ecosystem. 

Techopedia Explains

The Arbitrum network adopts a rollup model like several other L2 scaling solutions. In a Rollup model, the system assumes the validity of all transactions by default, streamlining transaction processing without immediate verification on the Ethereum mainnet. 

This off-chain execution proves pivotal in curtailing the time and costs typically associated with on-chain transactions on the network.

Besides scalability, Arbitrum offers numerous functionalities. Users can seamlessly execute the same functions they would perform on Ethereum.

This includes using Web3-based applications, deploying smart contracts, signing wallet prompts for Ethereum connectivity, and more, in addition to maintaining Ethereum-level security.

The L2 solution is compatible with the Ethereum Virtual Machine (EVM), enabling dApps to operate across the Ethereum ecosystem. Web3 platforms can leverage the network’s technology stack to construct permissionless protocols for user utilization.

Similar to other blockchain networks, Arbitrum is powered by a utility token, ARB. This ERC-20 fungible token plays a primary role in enabling frictionless transactions across the decentralized network. 

Additionally, it is instrumental in governance proceedings and contributes to the network’s security against external cyber threats.

The ARB Token

The ARB token serves as the core utility asset within the Arbitrum network. This digital currency is responsible for facilitating transaction resolution and acquiring block space on the decentralized protocol. 

As of January 12, 2024, the total supply of ARB tokens stands at 10 billion, with 1.275 billion tokens currently in circulation. In addition to its role as a payment mechanism, the ARB token is utilized for:

Staking

Staking is essential for new-generation protocols like Arbitrum, which rely on a proof-of-stake (PoS) consensus mechanism and its multiple variants.

To validate transactions on these PoS-powered models and secure the blockchain, validators are required to lock up a certain amount of the network’s token through a process called staking.

 On the Arbitrum protocol, validators stake a predetermined amount of ARB tokens to validate transactions. Stakers are rewarded with a certain quantity of ARBs for locking up their tokens.

Governance

ARB holders play a crucial role in ensuring the seamless operation of the blockchain protocol through governance processes. They exercise their voting rights on network proposals and provide recommendations based on their delegated tokens.

Speculation

Similar to other fungible tokens, Arbitrum crypto is tradable on the open market. Investors can engage in speculation, buying, and selling with the aim of profiting from the token’s price trajectory.

Arbitrum Tokenomics

The Arbitrum crypto has a total supply of 10 billion tokens. So far, 4.06 billion ARB tokens, constituting 50.58%, are locked in the treasury.

Since its inception in 2018, only 15%, equivalent to 1.46 billion tokens, have been unlocked. However, between January 12 and 19, 2024, around 3.59 million tokens (0.28% of the total supply) will be released into the open market.

Arbitrum Airdrop

Token airdrops are normal staples in the crypto space. This practice is aimed at rewarding committed members of the community who contribute significantly to the overall ecosystem’s growth. 

The Arbitrum airdrop snapshot was taken on February 6th, 2023, with the event ending on September 24th, 2023. During the claiming window, 7.5% (or 750 million of its 10 billion total token supply) was allocated to the Arbitrum Foundation. 

A whopping 35.28%, the equivalent of 3.528 billion tokens, was reserved for the decentralized autonomous organization (DAO) treasury, and other core parties of the Arbitrum ecosystem got the remaining percentages. 

How Does Arbitrum Work?

Arbitrum facilitates quicker and cheaper network transactions than the Ethereum mainnet by taking them off-chain. This is due to the fact that it operates as a submodule within the Ethereum mainnet.

The L2 solution does not require Ethereum nodes to process every transaction to achieve scalability without compromising security and decentralization. 

Instead, the Ethereum mainnet adopts an “innocent until proven guilty” stance to all transactions executed on the layer-2 protocol, believing that all processes align with the set-out standards. 

Transactions are verified off-chain by designated validators and then added to the Ethereum mainnet, thereby cutting down on the amount of tasks the primary base-layer protocol shoulders. 

This improves the scalability needs of the older blockchain while ensuring Arbitrum provides a permissionless safe zone for Web3 users to trade digital assets

Who’s Behind the Arbitrum Project?

The Arbitrum network is run by the Arbitrum Foundation. The blockchain team is led by Harry Kalodner and Steve Goldfeder, who play key roles in Offchain Labs, the engineering firm responsible for developing the Arbitrum network.

Besides the two developers, Arbitrum boasts some of the best talents in the tech space, rightly sourced from Amazon, Google, and several other top-tier development firms. 

History of Arbitrum

Arbitrum was first conceptualized in 2015 when Professor Ed Felton of Princeton University tasked Steve Goldfeder and Harry Koldner with scaling the Ethereum network. The protocol then went on to:

Year Event
2018 Launch the Arbitrum One Chain with a whitepaper released the same year
2021 Arbitrum raised $120 million, led by Lightspeed Ventures. This propelled the network’s valuation to $1.2 billion.
2022 Arbitrum One Chain was retired, leading to the introduction of Nitro. The former was called Arbitrum Classic, while Nitro introduced Rollup and AnyTrust.
2023 The network launched Stylus SDK for deploying complex payloads like generative art and cryptography for a fraction of the fee. 

The Arbitrum Roadmap

The Arbitrum blockchain has continued to hit its target of being fully decentralized. In August 2022, the platform upgraded its Abritrum One tech stack to the Nitro version.

It has since announced the addition of 10 new institutional validators who have partnered with it to verify transactions on the network. 

With this out of the way, the Arbitrum team is working closely on handing over the blockchain network to the Arbitrum Foundation (a non-profit tech firm seeking to promote the Arbitrum network) and its DAO arms. 

Arbitrum Tech Stack

While it is fundamentally set up to ensure the smooth operation of the Ethereum network, Arbitrum comes with its own set of technology stack to ensure Web3 apps and users can access the Ethereum mainnet easily.

  • Arbitrum Nitro

One such is the Arbitrum Nitro functionality, which is a tech stack custom-made to boost transaction throughput, lower transaction costs, and achieve compatibility with the Ethereum network. The tech stack is an upgrade from the earlier one released on the Arbitrum One Chain (called Arbitrum Classic) in 2018.

Arbitrum Nitro is also focused on the same mission as Arbitrum Classic, which is to create an execution environment as close as possible to the one on the Ethereum mainnet. It breaks away from its classic counterpart in the programming language and architecture it relies on to achieve this aim. 

On Nitro, programming instructions are stated using WebAssembly (Wasm), allowing for the deployment of its protocol as a sub-module within the Geth implementation system Ethereum uses. However, Nitro does not work alone and is broken down further into the Arbitrum Rollup and Arbitrum AnyTrust. 

  • Arbitrum Rollup

Under the hood, Arbitrum Rollup is responsible for scaling dApps operations on the L2 protocol for a fraction of the fee it would cost on the Ethereum blockchain. On the other hand, AnyTrust focuses on securing the dApps by linking directly to the security apparatus of the parent network. 

This symbiotic operation makes it possible for any dApp and Web3 user to ensure a smooth, sanction-free, and secure blockchain experience without needing the Ethereum network.

  • Arbitrum Orbit

Finally, the Arbitrum Orbit operates as a universe of blockchain networks. On this platform, Web3 developers are able to launch and configure their custom chains permissionlessly.

This makes it possible for blockchain networks to create networks that meet their specific needs as opposed to using a rigid infrastructure. 

  • Arbitrum Bridge

The Arbitrum Bridge serves as a transfer portal between the L2 solution and the Ethereum mainnet. With this feature, Web3 users are able to deploy and receive Ethereum-based tokens from and to the respective blockchain networks. 

The Bottom Line

Arbitrum is one of a long line of L2 scaling solutions propping up the Ethereum mainnet. Its key role involves ensuring that DeFi processes can be executed seamlessly on its modular framework and the older blockchain.

However, it is not the only L2 network on the horizon and competes with established names like Polygon and Optimism. Nonetheless, it offers alternatives Web3 users can explore as the DeFi storm continues to pick up pace.

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Jimmy Aki

A graduate of the University of Virginia and now based in the UK, Jimmy has been following the development of blockchain for several years, optimistic about its potential to democratize the financial system. Jimmy's previously published work can be found on BeInCrypto, Bitcoin Magazine, Decrypt, EconomyWatch, Forkast.news, Investing.com, Learnbonds.com, MoneyCheck.com, Buyshares.co.uk and a range of other leading media publications. Jimmy has been investing in Bitcoin himself since 2018 and more recently in non-fungible tokens (NFTs) since their boom in 2021, with expertise in trading, crypto mining and personal finance. Alongside writing for Techopedia, Jimmy is also a trained economist, accountant and blockchain…