What is Arbitrum: improving Ethereum's scalability

The challenges of Ethereum's network are well-known: relatively high gas fees and congestion that can slow transaction times, especially during periods of high demand.

Arbitrum is a Layer-2 solution that aims to address these frustrations, having been built to boost network efficiency by taking some of the work off Ethereum mainnet. Whether you’re a developer working with decentralized applications (DApps) or a user sending tokens, Arbitrum helps to make the experience smoother and more cost-effective.

Let's take a closer look. In this article, we'll help you understand what is Arbitrum, how Arbitrum works, how it compares to Ethereum, and much more.

TL;DR

• Arbitrum helps to speed up the Ethereum network by processing transactions offchain, cutting fees, and boosting speed without compromising security.

• The Layer-2 solution bundles transactions using Optimistic Rollups. It then sends a summary to Ethereum to make transactions faster.

• Arbitrum Classic and Nitro are versions of the technology, with Nitro offering faster transactions, lower fees, and better compatibility with Ethereum’s tools.

• Arbitrum offers a better experience by letting you use Ethereum DApps with your usual wallets, but transactions are faster and cheaper.

• Bridging assets between Arbitrum and Ethereum is simple. Deposits are almost instant. Faster withdrawals are also possible.

What is Arbitrum?

Arbitrum is a suite of technologies created to make Ethereum faster, scalable, and more affordable. If you’re familiar with Ethereum, you know it’s a blockchain used for building DApps, deploying smart contracts, and transferring value.But similar to a traffic jam, Ethereum can get clogged up, making transactions slower and more expensive. Arbitrum was built as a Layer-2 solution to help scale up Ethereum, without compromising security or the user experience.

You can think of Arbitrum as an express lane for Ethereum transactions. When you use an Arbitrum chain, you do the same things you’d do on Ethereum — like sending tokens, interacting with DApps, or executing smart contracts. But you’re getting the benefits of cheaper and faster transactions.

How exactly? Arbitrum processes these transactions offchain before they're settled back on Ethereum. This approach eases the load on Ethereum’s mainnet while keeping its much-needed security features intact.

The flagship chain is called Arbitrum Classic (previously called Arbitrum One), which uses Optimistic Rollup technology. Put simply, Optimistic Rollups bundle up bulk transactions and then send them to the Ethereum mainnet in one go. Instead of every transaction being processed on Ethereum, they’re handled together offchain by Arbitrum and only a summary is sent back. This makes the process faster and a whole lot cheaper, because Ethereum doesn’t have to process every little detail.

What about security? One of the problems with scaling solutions is whether they can maintain Ethereum's robust security. While the rollup assumes transactions are correct — hence the “optimistic” — there’s a process in place to challenge fraudulent transactions. If someone tried to cheat, their claim is sent back to the Ethereum network for verification. This keeps the protocol safe, while processing transactions quickly.

What's the difference between Arbitrum Classic and Nitro?

Arbitrum has come a long way since its release in 2021, which started with Arbitrum Classic before the technology was upgraded to Arbitrum Nitro. Both versions shared the same goal of making Ethereum more scalable.

Arbitrum Classic was the original mainnet release that introduced the idea of running a separate chain to process Ethereum transactions more quickly. Classic built its own custom virtual machine called AVM (Arbitrum virtual machine).

The AVM allowed Arbitrum to process transactions offchain while still syncing up with Ethereum. However, even though Classic made strides in Ethereum scaling, it still had some limitations with performance and compatibility with Ethereum’s ecosystem. Now Arbitrum has Nitro, which represents a major upgrade. It takes everything that worked in Classic and supercharges it. Here are some of Nitro’s improvements:

Better performance

Nitro significantly improves transaction speeds. It’s designed to handle higher transactions per second, which means a smoother, faster experience for community members.

Lower fees

While Classic made Ethereum transactions cheaper, Nitro takes it further. Thanks to improved optimizations, you pay even lower fees to get your transactions through.

Wasm (WebAssembly) and Go-based technology

One of the big differences is that Nitro moves away from the AVM and instead uses Wasm (WebAssembly). This allows Arbitrum to use a technology called Go, which brings better performance and more flexibility in processing transactions.

Improved EVM compatibility

Ethereum virtual machine (EVM) compatibility is crucial because it allows Ethereum-based apps to work seamlessly on Layer-2 solutions like Arbitrum. Nitro makes this compatibility almost one-to-one, meaning developers don’t need to make huge changes to their code to migrate from Ethereum to Arbitrum. This lowers the barrier to adoption and makes the user experience nearly identical to using Ethereum directly.

How does Arbitrum's Optimistic Rollup work?

Arbitrum’s Optimistic Rollup technology is designed to speed up transactions and reduce costs on Ethereum. Let's break it down.

When you interact with Ethereum, each transaction is processed and stored on the blockchain. This makes things slow and costly when there’s high traffic.

Arbitrum addresses this by processing most transactions offchain and only posting summaries to the main Ethereum blockchain, called Layer-1. This process is known as a Layer-2 transaction, and it’s where Optimistic Rollups come into play.

The basics of Optimistic Rollups

• “Optimistic” assumption: The idea is to assume that most transactions are valid by default — in other words, being “optimistic.” Transactions are bundled up (or “rolled up”) offchain, and a single proof summarizing all of them is submitted to Ethereum. With this approach, you don’t have to pay gas fees for every individual transaction, only for the rolled-up batch.

• Layer-2 transactions: Transactions happen offchain on a separate Layer-2 Arbitrum chain. This chain operates much faster and cheaper than Ethereum because it doesn’t have to process every single transaction on Layer-1.

How security is maintained: fraud proofs

You may now be wondering that if transactions are always assumed to be valid, what happens if someone tries to cheat? That’s where fraud proofs come in. If someone believes that a transaction in the rollup is incorrect, they can challenge it. Here’s how the system handles this.

• Validators: Validators are like referees for Arbitrum. Their job is to monitor transactions and challenge any fraudulent activity. A validator can initiate a dispute resolution process if they spot an error.

• Dispute resolution: When a validator challenges a transaction, it triggers a back-and-forth process on Ethereum’s Layer-1. During this process, validators must prove which side of the dispute is correct. If the challenger is right, the fraudulent transaction is rejected, and the offending party is financially penalized.

• Trustless system: You don’t need to trust any single party to keep Arbitrum secure because validators keep each other in check. Even if only one validator is honest, the network can identify and reject fraudulent transactions.

Arbitrum’s Optimistic Rollup recap

• Bundling transactions offchain.

• Posting only the proof of those transactions to Ethereum.

• Relying on fraud proofs and validators to ensure that all transactions are honest and correct.

How does Arbitrum compare to Ethereum?

If you’re familiar with Ethereum DApps, using Arbitrum might feel almost identical. You can use the same wallets, interact with the same DApps, and perform similar transactions. The main difference? Arbitrum offers faster speeds and lower fees, making the experience smoother for the crypto curious and veterans.

Accessing Arbitrum chains

Switching to an Arbitrum chain is easy. All you need to do is configure your wallet to connect to the Arbitrum network, and from there, everything works like it would on Ethereum.

Whether you’re trading tokens on a decentralized exchange, making NFTs, or working with any other DApp, the process is the same as on Ethereum.

Transaction speed and fees

By now it's clear that one of the main benefits of using Arbitrum over Ethereum is the improved transaction speed. Because Layer-2 transactions happen off the Ethereum mainnet, they’re processed much faster. For you, this means:

• Near-instant transactions: Your actions — whether sending tokens or performing a swap — are completed much quicker than they would be on Ethereum.

• Lower fees: Since transactions are bundled together before being sent to the Ethereum blockchain, you save on gas fees. Instead of paying high costs, you experience low fees, which is a significant advantage during times of high network congestion on Ethereum.

Bridging assets between Arbitrum and Ethereum

Of course, if you’re using Arbitrum, there might be times when you need to transfer your assets back to Ethereum. This is called bridging. Depositing assets from Ethereum to Arbitrum is almost instant. However, there’s usually a delay if you want to withdraw back to Ethereum. This is due to the security model of Optimistic Rollups, which allows time for any potential fraudulent transactions to be disputed.

There are alternatives to avoid this wait:

• Fast bridge services: If you want to bridge assets back to Ethereum without delays, you can use fast bridge services that offer almost immediate transfers for a small fee.

Seamless DApp usage

The Arbitrum experience is all about speed and affordability. You can use your favorite DApps without worrying about high transaction costs, which makes daily interactions like trading, lending, or gaming far more practical. The interface of the DApps themselves doesn’t change — they remain user-friendly, as they're simply being used on a Layer-2 chain.

Recap

Using Arbitrum is similar to Ethereum, but consider it an upgrade that can help enhance your experience.

• Same tools and DApps: Use the same wallets and DApps you’re already familiar with.

• Faster transactions: Get near-instant transaction confirmations.

• Lower fees: Pay a fraction of the cost in transaction fees.

• Easy bridging: Move assets between Arbitrum and Ethereum, you can speed up the withdrawal process.

What are AnyTrust chains?

An AnyTrust chain is designed to be a cheaper option for people and developers who don’t need the same level of strict decentralization as the Arbitrum rollup.It achieves this by handling data availability differently. With an Arbitrum rollup, every transaction’s data is posted directly to Ethereum, ensuring transparency and security. In contrast, AnyTrust chains store data offchain using a Data Availability Committee.

• Data Availability Committee: This group of selected parties is responsible for storing transaction data off-chain. As long as most of these committee members are honest, the data remains available and the chain operates securely. This is different from the trustless model of Arbitrum rollup, which posts all data on Ethereum for anyone to access.

Advantages of AnyTrust chains

The design of AnyTrust chains brings several benefits, especially in terms of cost and performance.

• Lower transaction costs: The main cost associated with posting data on Ethereum is greatly reduced because data is managed offchain. This makes transactions on AnyTrust chains much cheaper than on the rollup chain.

• Higher throughput: With data not being sent to Ethereum for every transaction, the chain can process a much larger number of transactions per second. This makes it ideal for applications that need quick responses and low fees.

Decentralization vs. cost

While AnyTrust chains provide cost savings and faster transaction speeds, there’s a trade-off — they aren’t as decentralized as Arbitrum rollup. Because a committee stores data, there’s an assumption that at least a subset of committee members are honest. If most of them act maliciously, there’s a risk they could censor or withhold data — although in practice, this is unlikely given the structure of the committees.

When to use AnyTrust chains

Arbitrum Nova is an example of an AnyTrust chain. It’s designed for use cases that prioritize cost and speed over full decentralization. For example:

• Gaming DApps: Games often require high throughput and low transaction fees to maintain smooth gameplay. AnyTrust chains are a perfect fit here.

• Social applications: Apps that involve frequent, small transactions (like tipping or posting) benefit from the low fees and quick transaction speeds.

How does the Arbitrum DAO govern the network?

The Arbitrum DAO (decentralized autonomous organization) encourages the community to build a path for the network's future. With the distribution of the ARB governance token, holders can propose, debate, and vote on protocol upgrades and other governance decisions.

The purpose of ARB

Unlike other tokens, ARB doesn’t represent a share in the protocol’s profits but is used exclusively to give holders a voice in Arbitrum DAO governance. By holding ARB, users can vote to help decide how the Arbitrum network changes. This includes modifying the Arbitrum rollup and AnyTrust chains, which are the two main protocols of the network.

How governance works

• Voting and proposals: ARB holders can propose changes or upgrades to the protocol. These can range from adjustments to transaction costs to the development of new features. All token holders can vote on proposals, making the process democratic and community-driven.

• Delegation: Not everyone may want to participate in every vote actively. In such cases, ARB holders can delegate their voting power to someone they trust to represent their views. This allows the DAO to function efficiently, even if not all token holders are directly engaged in every decision.

The role of the Security Council

The DAO has a Security Council. It's made up of trusted entities that can act quickly in emergencies, like critical bugs or vulnerabilities. While the typical voting process may take some time, the Security Council can bypass delays to make urgent decisions when necessary.

Progressive decentralization

The goal of the Arbitrum DAO is progressive decentralization. Over time, the DAO will have full authority over all protocol upgrades and management of the network. The governance structure makes sure the community, rather than a centralized party, will have the power to decide how Arbitrum chains are developed and maintained.

Why participate in the DAO?

Being part of the Arbitrum DAO means you get to help influence the future of a major Layer-2 solution in the Ethereum ecosystem. Whether you’re passionate about decentralized governance, reducing transaction costs, or supporting new features for DApps, your vote can impact the network.

The final word

Arbitrum is a solution designed to improve the Ethereum experience, providing faster transactions and lower fees. As a Layer-2 technology, Arbitrum processes transactions off the main Ethereum chain, before settling them back on Ethereum. This helps reduce network congestion and boosts performance.

The technology uses Optimistic Rollups, which bundle transactions together and assume they’re valid, only sending a summary back to Ethereum. This approach significantly speeds up processing times and reduces costs.

With the change from Arbitrum Classic to Arbitrum Nitro, the system works better, costs less, and is more compatible with the Ethereum ecosystem. This makes it easier for developers to move their DApps, while network participants can enjoy a smoother experience.

Interested in learning more about other Layer-2 solutions built for Ethereum? If so, check out our guides to Blast and Mantle Network.