Arbitrum has gained considerable attention lately, particularly with their unexpected Main Net debut on May 28th. Developed by Offchain Labs, it's a Layer 2 scaling solution built on the Ethereum network. What does this signify? Allow me to simplify this for you before we delve into the details of the Arbitrum project. It's indeed not as complex as it seems.
To ensure clarity, let's quickly review Layer 2 solutions. Imagine the era before the Federal Reserve went rogue. Gold was akin to layer one and cash to layer 2. Cash was necessary because it wasn't practical to carry a gold block and chip off pieces for everyday purchases.
Cash, while representing gold, was lighter to handle as the infrastructure to use gold in daily transactions was excessively burdensome. Trade mostly used cash, while final settlements, if any, occurred later at the banks' gold reserve level.
The Layer 1 'gold' of the Ethereum network is Ether. Off-chain operating applications are the Layer 2 'cash.' Like gold, when we try to use Ethereum for daily transactions, it becomes congested and costly, due to its inability to effectively handle billions of small transactions. It's better suited for larger, more significant settlements.
Arbitrum is a textbook example of Layer 2 technology.
How Does Arbitrum Rollup Function?
Arbitrum, technically known as an "Optimistic Rollup," operates on a rather appealing principle. Transactions are optimistically executed off-chain without security verifications for enhanced speed. During a 7-day Challenge Period, irregularities can be flagged and any demonstrably false transactions are reversed. The offending party then faces penalties as dictated by the network protocol, a process Arbitrum refers to as 'Slashing.'
The aim is to deter malicious actions through a two-fold approach: the likelihood of detection and the severity of consequences. Arbitrum has sought to strike a balance between transaction speed and costs, and security. While this relaxed approach to fraud detection might pose a security risk at Layer 1, it suits the less critical Layer 2 applications well, promising a transaction volume roughly 100 times that of the main Ethereum network and negligible gas fees.
The term 'rollup' denotes the bundling of many small transactions into a single, larger transaction on the Arbitrum sidechain. This bundle is later verified as a single transaction on the main Ethereum network, alleviating pressure on the main network and reducing transaction fees through shared costs, albeit with reduced security. This is an ideal choice for retailers handling large volumes of smaller transactions.
Pros and Cons of Arbitrum Rollup
The advantages of Arbitrum Rollup are clear. It offers a hundredfold increase in throughput and only charges 2% of the fees. Additionally, it has secured the first-mover advantage over Optimism.
While Arbitrum embraces all the appealing features of DeFi, these traits aren't unique to the platform.
Arbitrum, being a truly decentralized platform, does not require any KYC, which is a breath of fresh air. Caution is advised against any company with DeFi in its name but requests personal details - they don't align with DeFi's ethos and should be steered clear of.
The main downside is the 7-day challenge period necessary for implementing the Optimistic Rollup's security protocols. This delay for Main Net confirmation may not affect retail users, but could be a concern for Dapp developers.
What is the benefit of FuturX built on Arbitrum?
1. Increased scalability: By leveraging Arbitrum's Layer 2 technology, FuturX could process transactions at a much higher throughput, offering a more efficient user experience.
2. Lower transaction fees: Arbitrum significantly lowers the cost of individual transactions by batching multiple transactions together. This means that users of FuturX could benefit from reduced gas fees, making transactions more cost-effective.
3. Greater Interoperability: Since Arbitrum is compatible with all Ethereum applications, FuturX could easily interact with other applications and services in the Ethereum ecosystem.
4. Improved security: With Arbitrum's unique security model, FuturX could ensure a secure environment for its users, fostering trust and reliability in the platform.
5. Faster Confirmation Times: Layer 2 solutions like Arbitrum often provide faster confirmation times than mainnet Ethereum, providing an improved user experience.
