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Key Takeaways

Arbitrum is a suite of Ethereum scaling technologies designed to make transactions faster and cheaper while preserving Ethereum’s security.

The suite includes Arbitrum One (a rollup chain), Arbitrum Nova (an AnyTrust chain), and customizable Orbit chains that can operate as Layer 2 or Layer 3 networks.

Both Rollup and AnyTrust chains use optimistic rollup technology for execution and dispute resolution, but differ in data availability.

Orbit chains let developers launch their own Rollup or AnyTrust chains with customizable features, such as governance, gas token, privacy, and settlement layers.

Introduction

Arbitrum is a Layer 2 scaling solution for Ethereum that uses optimistic rollups to deliver faster, cheaper, and more scalable transactions. This allows developers to build and launch decentralized applications (DApps) just like they would on Ethereum, but with lower fees and quicker confirmations for users.

What Is Arbitrum? 

Arbitrum is a suite of Ethereum scaling technologies built on the Arbitrum Nitro tech stack. The network uses optimistic rollups to execute transactions off-chain, bundle them together, and post a summary to Ethereum. These results are treated as valid unless challenged, in which case Ethereum verifies the disputed transactions.

The Arbitrum suite includes:

Arbitrum One: A public rollup chain implementing the Arbitrum Rollup protocol, where all transaction data is posted to Ethereum for maximum trustlessness.

Arbitrum Nova: A public AnyTrust chain implementing the Arbitrum AnyTrust protocol, which stores transaction data off-chain with a Data Availability Committee (DAC) to reduce fees.

Arbitrum Orbit Chains: Fully customizable chains that can operate as Layer 2 networks (settling to Ethereum) or Layer 3 networks (settling to another L2), tailored to specific performance, governance, and cost requirements.

How Arbitrum Works

Sequencer

When you submit a transaction on Arbitrum, it first goes to the sequencer, which sets the order of transactions and provides instant confirmation, so results appear right away. This ordering information is broadcast in real time through the sequencer feed, allowing wallets and applications to update immediately.

Once transactions are ordered, the sequencer bundles them into batches, compresses the data to reduce size and cost, and posts the batch to Ethereum (or another parent chain). This approach keeps costs low and speeds up processing because Ethereum doesn’t have to verify every transaction immediately and assumes they are correct unless proven otherwise.

Dispute resolution 

If someone notices suspicious activity, they can raise a challenge during a set dispute window. In such cases, Ethereum replays only the disputed part of the batch using Arbitrum’s Bounded Liquidity Delay (BoLD) protocol, a multi-round fraud-proof system that verifies whether the transaction outcome is correct. 

If an error or fraud is found, the incorrect transaction is re-run, the state is fixed, and anyone who approved the fraudulent transaction loses their stake as a penalty. Transactions are considered to have soft finality when confirmed by the sequencer and hard finality once the batch is posted to Ethereum and the dispute period has ended.

Technology stack 

Arbitrum runs on Arbitrum Nitro, a technology stack built on a modified version of Ethereum’s software (Geth). Nitro incorporates WebAssembly (WASM) into its virtual machine to verify transactions when disputes occur. This architecture is similar to Ethereum and is designed to handle more transactions at lower costs. 

Currently in public testnet, the Stylus upgrade introduces a second virtual machine that works alongside the Ethereum Virtual Machine (EVM), creating a dual-environment setup. The EVM continues to support Solidity smart contracts (as on Ethereum), while Stylus runs WASM-based contracts written in popular, high-performance languages, such as Rust, C, and C++. Contracts written in Stylus and Solidity can easily interact, giving developers the flexibility to speed up specific parts of an application or build entirely new applications using Stylus.

The Arbitrum Ecosystem

All Arbitrum chains use the same underlying technology and rely on optimistic rollups to resolve disputes. What sets them apart is how they store transaction data and how each network is designed to balance decentralization, cost, and performance.

Arbitrum One 

Arbitrum One is a public optimistic rollup chain. It processes transactions off-chain and posts all the transaction data to Ethereum, so anyone can independently verify the chain’s state without trusting any third party. This approach prioritizes decentralization and transparency, which makes Arbitrum One suited for high-value, trust-sensitive applications like decentralized finance (DeFi) platforms and non-fungible token (NFT) marketplaces.

Arbitrum Nova

Arbitrum Nova runs on the AnyTrust Protocol, which also uses optimistic rollup technology but handles data availability differently. Instead of posting all transaction data to Ethereum, Nova stores it off-chain with a Data Availability Committee (DAC). The DAC is a group of permissioned entities responsible for providing the data when needed.

This setup greatly reduces transaction costs but introduces a trust assumption that at least a small number of DAC members are honest. If the DAC fails to provide data or a dispute occurs, Nova switches to rollup mode and posts the data to Ethereum to resolve the issue. This trade-off makes Nova suited for high-volume, low-cost applications, such as gaming platforms and social apps that process a large number of small transactions.

Orbit chains 

Orbit chains give developers the ability to create their own Rollup or AnyTrust chains, either as Layer 2 networks that settle directly to Ethereum or as Layer 3 networks that settle to another Layer 2, such as Arbitrum One or Nova.

These chains are fully customizable while still benefiting from the security and compatibility of the Arbitrum ecosystem. Developers can configure aspects such as governance models, the choice of gas token, privacy settings, throughput capacity, and data availability options. This flexibility makes Orbit chains suitable for specialized uses, such as enterprise systems and private networks. 

Arbitrum bridge 

The Arbitrum Bridge allows you to move assets between the Ethereum and Arbitrum networks. Depositing ETH or tokens from Ethereum to an Arbitrum chain is usually quick, often taking just a few minutes. However, withdrawing from a rollup chain back to Ethereum takes about seven days because of the fraud-proof dispute period. 

If you don’t want to wait, you can use a fast-bridge service that settles almost instantly for a small fee. AnyTrust chains follow the same process but can usually offer quicker withdrawals because of how their data is stored.

Limitations

While Arbitrum offers improvements in speed and cost, there are still some trade-offs to keep in mind.

Withdrawal delay

Moving funds from a rollup chain back to Ethereum usually takes about a week because of the fraud-proof period. Fast bridges can reduce the wait to minutes, but it often comes with extra fees and means trusting another service to deliver your money.

Centralization concerns

Not every part of Arbitrum’s infrastructure is fully decentralized yet. AnyTrust chains rely on a small group of permissioned entities responsible for storing transaction data off-chain. If most of these members were compromised or acted maliciously, data could be withheld, affecting the chain’s ability to resolve disputes. 

On Arbitrum One, the sequencer is still run by Offchain Labs, and validators (who help confirm the chain’s state) are on an allowlist instead of being open to anyone. The Arbitrum Decentralized Autonomous Organization (DAO) plans to gradually open up these roles, but for now, some trust in specific operators is still required.

ARB Token

The ARB token is the native utility token of the Arbitrum protocol. The token is used for a variety of purposes, including:

Voting: Holding ARB lets you participate in the Arbitrum DAO, where token holders vote on proposals that shape the network’s future. This can include approving protocol upgrades, adjusting technical parameters, or deciding how treasury funds are used.

Delegating: If you don’t want to vote directly, you can delegate your ARB tokens to a trusted community member or organization. They’ll vote on your behalf, letting you stay involved without following every proposal.

Funding: The DAO treasury, funded in part through ARB, can allocate grants to developers, research teams, and projects building on Arbitrum. This supports ecosystem growth by funding tools, infrastructure, and new applications.

Security: ARB holders elect the Security Council, a small group with limited emergency powers to act in urgent situations, such as addressing critical vulnerabilities or responding to attacks.

Closing Thoughts

Arbitrum helps Ethereum using optimistic rollups, processing transactions off-chain and settling them on Ethereum for security. With options like Arbitrum One, Arbitrum Nova, and fully customizable Orbit chains, the network can support a wide range of applications, from DeFi applications to gaming platforms and social networks.

Further Reading

What Are Appchains (Application-Specific Blockchains)?

What Are Bitcoin Layer 2 Networks?

What Is Chain Abstraction?

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