What Is Arbitrum And How Does It Work?

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The term “Ethereum Killer” gets thrown around a lot on Crypto Street. But “Ethereum Enhancer”? Not so much. Is it the tribalistic nature of the vertical that makes us inclined to want to dethrone, or “flip” another project? Perhaps.

But the folks at Arbitrum One see it differently. Introducing Arbitrum – potentially the greatest scaling solution brought to Ethereum of all time. Some of the biggest issues that have plagued Ethereum since its inception are around transaction finality, and cost. With Arbitrum, could this all be a thing of the past?

What Is Arbitrum And How Does It Work?
Arbitrum has taken the Ethereum ecosystem to a new level.

How Does Arbitrum Work?

The protocol utilizes an “inbox” when it comes to facilitating transactions. In the literal sense, smart contracts and users place transactions in the inbox, and are then honored as per the hierarchy of transactions within the inbox. This is referred to as the “chain state”, of which then Arbitrum processes a transaction receipt as an output.

What then makes these transactions final, is through integration and processing of optimistic rollups. “What are they?” – we hear you say!

Optimistic Rollups

Probably the biggest use case that Arbitrum can parade is its utilization of Rollups. Rollups are, in essence, transaction compressing functions that allow for a batch of transactions to be bundled together as one. 

Optimistic Rollups however, go a step further. They work on the assumption that all transactions within the rollup are valid, to save further time vs honoring individual transactions. If validators suspect fraudulent behavior, it is possible to lodge disputes retrospectively, but for the benefit of reduced transaction time, an assumption is made that all within the rollup are legitimate. 

This is all made possible through the use of a sidechain, in the instance of Arbitrum – an Ethereum sidechain. Transactions are collated and bunched together, settled on the sidechain, and then the transaction data is transposed to the Ethereum ledger accordingly.

When this is factored into results for the end user, faster transaction time and reduced fees are an immediate benefit. Moreover, Arbitrum functions as its own standalone bridge – without the need or requirement for a native currency – as all transactions are settled in ETH.

How To Use Arbitrum?

There are a variety of decentralized exchanges (DEXes) and protocols that facilitate the use of Arbitrum.

Arbitrum Bridge

Arbitrum’s own bridge allows for seamless connection to a users’ wallet, utilizing MetaMask, WalletConnect, or even Coinbase Wallet connectivity. Once a user gives permission to Arbitrum to access their wallet, the bridge facility becomes available as long as gas fees are present within the connected wallet.

Another nifty feature, Arbitrum Bridge then provides a redirection window for funds to be moved from CEX accounts or a fiat on-ramp. Once ETH is within the chosen wallet, these funds can then be moved to Arbitrum accordingly using the bridge. Once the transaction to move funds to Arbitrum One is complete, the user can now use them to settle transactions on Arbitrum with 95%+ reduced fees vs Ethereum, and faster finality.

Integral SIZE

Another option for bridging to Arbitrum is through the use of Integral SIZE. Integral is well-suited to whale trading, through the use of its Time Weighted Average Price (TWAP) protocol – that allows trades to execute with minimal or zero price impact – depending on time allowed to execute.

Not only can users save on slippage, while also reducing or nullifying price impact on a token – the Arbitrum DEX integration allows for further savings on gas fees, and quicker settlement. 

Other Platforms

Arbitrum can also be accessed through 1inch, Aave, or Gnosis Safe, making it highly interoperable and available across both leading and budding decentralized exchanges. As with all facets of DeFi, user caution should be exercised when granting any platform with permission to access your wallet.

A best practice is to disconnect your wallet through the Connected Sites menu within your wallet once transacting is complete.

Is Arbitrum Here To Stay?

Looks so, yes. The bridge has been made without any pursuit of profit or ICO in mind, therefore the utility and ability to solve a problem has been put at the forefront of deployment. As with lots of other DeFi protocols, a native token and its respective price is always the inherent precursor to the success of the platform. Low volume or Total Value Locked (TVL), typically makes for a bleak future.

With Arbitrum, that’s not the case. It’s a simple, easy-to-use tool that simply makes Ethereum great again.

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