A Comprehensive Exploration of the Layer 2 Scaling Solution - Part I


Over the last few years, the buzz around cryptocurrencies has grown exponentially. We've all seen Bitcoin, Ethereum, and other digital currencies make their mark on the global economy. However, despite their burgeoning popularity, cryptocurrencies haven't become mainstream for day-to-day purchases yet. Why? One word: Scalability.

Scalability can be understood as a system's ability to handle a growing amount of work in a capable manner or its potential to expand to accommodate that growth. This is where Ethereum has encountered a road bump. Transacting using Ethereum 1. 0 was slow and expensive due to its current capability of processing only 15-30 transactions per second (TPS). This makes it difficult for it to be adopted for everyday use.

Hope is not lost. Enter Arbitrum, a second-layer solution designed to scale Ethereum's capabilities while maintaining its security and composability. If you're unfamiliar with the jargon, don't worry – we'll peel back these layers and dive into the captivating world of Arbitrum.

Understanding Arbitrum: A Primer

Before delving into Arbitrum specifics, let's take a step back and unpick Layer 2. Simply put, Layer 2 is a collective term for solutions designed to help scale Ethereum by handling transactions off the Ethereum mainchain (Layer 1). All while still maintaining the network's security and decentralization principles.

So, how does Layer 2 help with scalability? It can potentially increase Ethereum's capacity to deal with thousands of transactions per second. In the case of Arbitrum, it can handle an impressive 40,000 TPS, which is quite a leap from Ethereum's modest capacity.

Arbitrum is built upon years of academic research and employs innovative techniques to boost Ethereum's capabilities without compromising on its security or composability. This means you can expect faster, cheaper transactions while enjoying the security benefits of the underlying blockchain.

Key Players Behind Arbitrum

To fully appreciate the brilliance that is Arbitrum, we should take a moment to look at its creators, Offchain Labs. This tech company solely focuses on making smart contracts more private, secure, and scalable. With its team's deep-rooted expertise and experience in the blockchain and scaling space, it has pioneered solutions like Arbitrum.

Among the notable members of this powerhouse team is Ed Felten, Director of Princeton's Center for Information Technology Policy (CITP). He brings years of experience in computer science to the mix.

Another instrumental figure is Steven Goldfeder, a computer science Ph.D. from Princeton University who is also a co-founder of Offchain Labs. His contribution adds immense value, considering his deep understanding and cryptocurrency experience.

The knowledge capital within Offchain Labs is incredible, with over 50 years of combined academic excellence focusing on building systems for secure computation. Leveraging this expertise with their passion for blockchain usability has created rich technical innovations like Arbitrum.

Arbitrum's Technical Architecture: A Deep Dive

Arbitrum is a masterpiece powered by a rich technical architecture that has been carefully engineered to revolutionize the way transactions are done on Ethereum.

Optimistic Rollups

To begin with, at the heart of Arbitrum's design are Optimistic Rollups. This might sound complex, but stay with us. It's simply an ingenious way to execute transactions off-chain while still relying on the Ethereum mainchain for maximum security. By executing most transactions off-chain and only posting a summary on the chain, capacity is drastically enhanced without compromising quality.

Now, let's address the 'optimistic' part of Optimistic Rollups. This might give you a déjà vu of your law classes. Much like the central principle in criminal law, where a person is considered innocent until proven guilty, the 'Optimistic' in Optimistic Rollups means that the system trusts that all transactions are genuine unless challenged.

In the unlikely event of a fraudulent transaction, it's like an alarm raises and triggers Arbitrum's sophisticated fraud-proof mechanism. A step-by-step review of the transaction is carried out to identify any discrepancies. If found faulty, the transaction gets nullified, and hefty penalties are enforced on those trying to cheat the system.

The beauty of this solution also lies in its compatibility with Ethereum Virtual Machine (EVM). With EVM-compatible Optimistic Rollups, existing apps on Ethereum can zoom off to high speeds and low fees, all while maintaining crucial contact with their mother blockchain.

Arbitrum One

Arbitrum One is Arbitrum's commercial product developed with the idea to revolutionize Ethereum's capacity and scalability. It is an open-source platform for developers who wish to create secure, highly scalable applications – All while enjoying reduced gas fees. It offers the ideal environment for creating great apps minus the scalability limitations witnessed with direct Ethereum deployment.

One striking use case could be taken directly from our everyday life. Think of any app you often use that involves many people simultaneously transacting small amounts quickly, something like splitting lunch bills among colleagues or friends. On the Ethereum mainnet, this app would work excruciatingly slow due to its limited TPS and would cost each user quite some money per transaction.

By deploying such an app on Arbitrum One instead, transactions could potentially become as fast and convenient as sending text messages.

More on this incredible project next week in Part II.

Disclaimer: This article is not intended to provide investment, legal, accounting, tax or any other advice and should not be relied on in that or any other regard. The information contained herein is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of cryptocurrencies or otherwise.