What is Arbitrum and How Arbitrum Works: Inside Ethereum’s L2

Despite the fact that Ethereum (ETH) remains the dominant smart contracts platform, its computational opportunities are limited and can’t meet the evolving demands of dApps any longer. Ethereum can only process 15 transactions per second which is not enough for the ever-growing ecosystem of dApps.

So Arbitrum Network was launched to help the network scale to make it more suitable for high-performance DeFis, NFT marketplaces and on-chain games. Let’s take a deep dive into Arbitrum.

Arbitrum is developed by Offchain Labs, a team of Web3 veterans. Its progress is helmed by CEO Steven Goldfeder, CTO Harry Kalodner and chief scientist Ed Felten. Its mainnet was unveiled to the general public in Q3, 2021. Initial concept was proposed back in 2015 while the first tech paper was published in 2018.

Arbitrum network secured over $20 million in Series A (April, 2021) and $100 mln in Series B (August, 2021); both rounds yielded contributions from a clutch of top-tier VC including the likes of Polychain Capital, Redpoint Ventures, Pantera Capital, Alameda Research. Legendary tech investor Mark Cuban also backed the protocol in its fundraising efforts.

How does Arbitrum work?

Literally, Arbitrum transactions are sent through a plethora of ‘regular’ Aggregators and ‘privileged’ Sequencer. Aggregators act like Ethereum (ETH) nodes: they make calls to EthBridge and return the results of computations to the users who authorized transactions.

Despite transactions being posted to the mainnet, Arbitrum validators (stakers) are responsible for off-chain transaction execution. Like in classic Proof-of-Stake (PoS) chains, a staking mechanism is required to ensure that validators can’t authorize fraudulent transactions.

Validators in the network can check each other; if malicious activity is detected, the ‘whistleblower’ receives a large bonus while ‘malefactor’ is penalized by losing his/her stake. Validators can check their peers within the so-called ‘challenge window’. Once the ‘assertion’ is confirmed and accepted by the mainnet, all transactions included into this or that batch are deemed confirmed by L1. In turn, funds withdrawals from L2 require confirmation.

How to use Arbitrum?