Like other Layer 2 scaling solutions, Arbitrum is designed to increase Ethereum's transaction throughput and lower transaction costs by "rolling up" thousands of transactions into a single block. Unlike "zk-rollup" protocols like zkSync, however, Arbtrum uses "optimistic" rollup technology - the main alternative.

Optimistic rollups get this name because they optimistically assume that all the transactions contained within a rollup are valid. These networks give everyone on the network a certain amount of time, usually a week, to contest fraudulent transactions.

The benefit of this type of rollup is that it’s fast. Because the network assumes that transactions are correct, it doesn’t need to waste time confirming each transaction individually. The drawback of this system is that if a transaction isn't flagged as incorrect then it is processed as valid. Plus, it usually takes about a week to officially withdraw funds from Optimistic networks like Optimism or Arbitrum.

This article will break down what Arbitrum is, and the five main reasons that developers choose to develop on it.

‍What is Arbitrum?

Arbitrum is a layer 2 Rollup solution built and maintained by Offchain Labs. The official launch of the Arbitrum One mainnet took place in August, 2021, and around the same time, Arbitrum announced that it had raised $120 million in a Series B round led by Lightspeed Venture Partners.

Arbitrum accelerates Ethereum's computing throughput by executing transactions on its L2 blockchain. By moving the execution of transactions to Arbitrum's L2, users experience faster transactions and pay significantly lower fees.

As mentioned before, Arbitrum utilizes "optimistic" rollups to execute its transactions. Optimistic rollups get this name because they optimistically assume that all the transactions contained within a rollup are valid while relying on users to flag invalid transactions.

While Ethereum manages a mere 14 transactions per second, Arbitrum can process transactions at nearly 40,000 TPS. For this reason, several decentralized finance protocols, such as SushiSwap, Curve and Abracadabra have launched their apps on Arbitrum.

Data from DeFi Llama show that over $5 billion worth of cryptocurrency is locked up within Arbitrum’s smart contracts. Approximately 30% is from decentralized exchange (DEX) SushiSwap.

What is Arbitrum One and Arbitrum Nova?

Within the Arbitrum ecosystem, Arbitrum One is used as the primary mainnet, designed to be used for more common decentralized finance use cases such as trading. On the other hand, Arbitrum Nova is focused on reducing transaction costs for high-throughput dApps, like gaming.

Unlike Arbitrum One, Nova validates transactions through a data availability committee (DAC). Transaction data is sent to the DAC, which verifies the data and awards it with availability certificates used for posting on the Ethereum blockchain.

Due to the design of Arbitrum Nova, where a handful of members of the DAC provide data availability to end users, it is more centralized than Arbitrum One. Centralization is the price it pays to bring down costs. Some members include Google Cloud, Reddit, Offchain Labs, Consensys, QuickNode, and Infura.

Arbitrum Nova chain uses trust assumptions to lower costs. Nova is well-suited for projects that are cost-sensitive and require high transaction volumes such as web3 social applications and web3 games.

5 Reasons Why Developers Choose Arbitrum

1. EVM Equivalence

The EVM (Ethereum Virtual Machine) is the computation system that manages the state of the Ethereum blockchain and enables smart contract functionality. Arbitrum supports the EVM by rolling up thousands of transactions into single blocks, which reduces the computing throughput of the mainnet and drives down gas fees.

To do so, it's essential that Arbitrum maintains full EVM equivalence. This ensures that blocks completed on Arbitrum are the exact same as those on the Ethereum mainnet.

EVM equivalence means Arbitrum smart contracts can be written using EVM programming languages such as Solidity and Vyper without any modification. 

This gives Arbitrum a significant advantage over other platforms which require knowledge of domain-specific programming languages and tools for development, such as Solana, which is a non-EVM blockchain.

Arbitrum has achieved EVM equivalence through Arbitrum Nitro. Nitro was launched as a significant upgrade over Arbitrum Classic, and achieves high EVM compatibility, scalability, and lower transaction fees by relying on WebAssembly(WASM) for low-level instructions.

Nitro also uses Geth, which is the most broadly used Ethereum execution client. Geth further improves Arbitrum’s compatibility with the EVM.

2. Lower Transaction Costs

Arbitrum significantly reduces transaction costs on Ethereum due to its optimistic rollup technology. Presently, the high usage rate on the Ethereum blockchain causes users to compete for transactions, driving up transaction costs.

Arbitrum bundles a batch of transactions together as a single transaction before posting it to the Ethereum blockchain, which reduces gas fees.

Arbitrum Nitro significantly reduces transaction costs in two key ways:

1. Data Compression - Nitro uses powerful data compression to reduce the amount of CALLDATA posted on the Ethereum blockchain.
2. Contextualizing Optimistic Execution - Nitro uses WebAssembly instructions to solve disputes during the fraud-proofing process. 

To further reduce transaction fees, Arbitrum Nova makes trust assumptions by sharing transaction data with the Data Availability Committee instead of posting it to the Ethereum blockchain. Nova is perfect for cost-sensitive applications that are willing to make some compromises on Ethereum’s decentralization and security.

3. High Scalability

The Arbitrum blockchain shifts the responsibility of computation and data storage to its layer 2 chain which has been optimized for speed and scalability.

Arbitrum is secured by an optimistic rollup that assumes the validity of transactions. Every validator does not need to re-execute transactions to test their validity. This allows users and developers higher scalability on Arbitrum.

However, scalability also leads to trade-offs. For example, when withdrawing funds from Arbitrum to Ethereum after a transaction, users will usually face a week-long delay. This is because Arbitrum’s optimistic rollup allows validators a 7 days Dispute Time Delay (DTD) to challenge transactions.

Once Arbitrum publishes data on the Ethereum main chain, it has the same finality as that of a normal Ethereum transaction. This is known as Ethereum Equivalent finality. 

4. Consumer and Developer Ecosystem

The Arbitrum ecosystem is the largest L2 solution on Ethereum, with a Total Value Locked (TVL) of $6.17 billion and a market share of over 66% as of May 4th, 2023. Arbitrum also leads the L2 ecosystem in gas costs and the number of active wallets.

Because Arbitrum is EVM equivalent, Ethereum developer tools can be used to build dapps on Arbitrum. Additionally, because of Arbitrum's many cost and scaling advantages, many top protocols like Uniswap, The Graph, and Chainlink support Arbitrum.

Arbitrum has also introduced new tools for developers to scale its operations, such as Stylus. Stylus is a new programming environment and virtual machine based on WebAssembly that claims to provide an EVM+ paradigm.

Developers will be able to deploy smart contracts written in Rust, C, and C++ on Arbitrum. This would provide developers greater interoperability with the EVM.

5. Censorship Resistance

Arbitrum relies upon sequencers to receive transaction requests from users, execute them, and post relevant data on Ethereum. A sequencer receives transactions in its core inbox. Once the transactions are included in the core inbox, they are executed in a deterministic manner and posted on Ethereum.

The sequencer usually acts in good faith. It executes transactions within a few seconds, and it posts this transaction data on Ethereum within a few minutes.

However, Arbitrum has provisions for cases in which a sequencer acts maliciously.

Firstly, the sequencer can only delay posting transactions on Ethereum. It can propose false transactions since that would require a user’s signature.

Secondly, if the sequencer does not execute a transaction, users can forcefully include it by posting it in the Delayed Inbox (a queue that works in a “first come, first serve manner”). The sequencer cannot exclude this transaction without delaying every other transaction behind it.

These techniques makes Arbitrum more censorship resistant.