Arbitrum is basically a layer 2 solution for Ethereum, it was built on top of Ethereum to perform most of the transactions and lower gas fees.
The approach employed by the Arbitrum network to store data off-chain is known as a layer 2 (L2) scaling solution, which is developed on the basis of the Ethereum network.

Arbitrum was founded in 2018 by Ed Felton, a computer science and public affairs professor at Princeton. Since then, the network has positioned itself as a solution to Ethereum’s problem.

Its primary objective is to alleviate network congestion and reduce transaction costs by transferring a substantial amount of work load and data storage away from the main blockchain, Ethereum.

Ethereum is described as “the world’s programmable blockchain,” positioning itself as an electronic, programmable network that anyone can build on to launch their own network.

Ethereum Congestion

Smart contracts on Ethereum enable programmers to write code that can be utilized to create digital currencies. There are numerous applications built on Ethereum, including decentralized finance apps, Non-Fungible tokens (NFTs), decentralized exchanges (DEX), lending protocols, and many others.

The network’s capacity is determined by its scalability, which also affects the number of network nodes, the number of transactions the network can handle, how quickly the network can handle transactions,

As the number of users and transactions on the Ethereum blockchain increases, the transaction fees also spike, leading to a delay in the confirmations of transactions.

Additionally, every miner on the Ethereum blockchain is required to perform a costly simulation of each step involved in executing a contract, which significantly hinders scalability.

Furthermore, the Ethereum blockchain enforces the public disclosure of every contract’s code and data, unless a privacy overlay feature is employed, which incurs its own costs.

By enabling the transmission of messages between Arbitrum’s second layer chain and Ethereum’s main chain smart contracts, it allows for exponential scaling, significantly increasing speed and efficiency. This solution is capable of processing large volumes of transactions and recording the outcomes on the main chain.

To send ERC-20 and ETH tokens from Ethereum’s Layer 1 to Arbitrum’s Layer 2, the primary method is through the Arbitrum Bridge. However, it’s important to note that a wallet is required to initiate the bridging procedure on the Arbitrum Bridge.

Benefits of Arbitrum

Trustless security:

Arbitrum is a layer 2 solution, or rather an off-chain solution, this automatically provides an added layer of security. On the same premise, off-chain blockchain scalability solutions also provide more privacy, as transactions on the second layer may not be visible to the entire network.

Scalability:

Scalability simply refers to how a system can manage increasing amounts of data. Scalability can be broken down into three categories, storage, consensus protocols, and executions. In this case, Arbitrum is built on top of Ethereum, where transactions are ‘off-loaded’ from the main blockchain to save space and reduce network congestion.

Minimum cost:

To minimize transactional gas costs, it utilizes the optimistic rollup theory. This enables blockchain-based smart contracts to combine off-chain transactions into groups, known as rollups, thus reducing the overall transaction cost of the bundle.

Conclusion

Several Ethereum DeFi mainstays, including Uniswap, Curve, and Aave, have deployed their contracts on the network. Arbitrum is also home to several native protocols, including GMX, Dopex, and Vest Finance.

Decentralization and security were prioritized over scalability by early L1s such as Ethereum and Bitcoin, leading to high gas fees on both platforms. However, Arbitrum aims to tackle this blockchain trilemma by implementing Optimistic Rollups that satisfy all three elements.