Arbitrum Introduction

A product of Offchain Labs: https://offchainlabs.com/

Arbitrum is a true layer 2 solution for Ethereum based on optimistic rollups. In exchange for some ease-of-use trade-offs, transactions on Arbitrum are much faster and cheaper.

"Arbitrum is an L2 scaling solution for Ethereum..." $^{1}$ which uses optimistic rollups to reduce gas fees while offering the security guarantees of the Ethereum network.

Rollup explainer: https://www.youtube.com/watch?v=7pWxCklcNsU

(And how this relates to $$ saved for the user.)

In short, all transaction data is made available on mainnet (Ethereum) but optimistic rollups use a separate network (Arbitrum) to perform network calculations. Transaction validity is guaranteed by a crypto-economic challenge process.

Network security guarantees are especially important platforms in which users lock up a significant amount of capital for a significant amount of time. While there are other networks and sidechains that are cheaper and faster, Ethereum roll-up solutions (Arbitrum, Optimism, ZKrollups, etc.) offer the highest security guarantees while minimizing transaction costs.

Read more about Roll-ups here: https://research.paradigm.xyz/rollups

Read more about Arbitrum here https://medium.com/offchainlabs/how-arbitrum-rollup-works-39788e1ed73f

Arbitrum vs. Optimism: https://twitter.com/krzKaczor/status/1395812308451004419

When creating a non-fungible piggy on the Ethereum mainnet, the gas costs were quite demanding. This is due to the amount of information needed to correctly execute a piggy. Layer 1 gas costs were running around:

Layer 1 action	gas consumed	gas price	fee (ETH)	ETHUSD	fee (USD)
create	319408	10 gwei	0.0031941	$200	$ 0.64
auction	182889	10 gwei	0.0018289	$200	$ 0.37
oracle	211342	10 gwei	0.0021134	$200	$ 0.42

Previously the gas costs and transaction fees were tenable. A lot of gas was consumed when interacting with the SmartPiggies contracts, but the gas costs (~10 gwei) and Ethereum US Dollar cross rate (~$200) were low. When everything goes up, so does the transaction fees. When we look at current prices $^{2}$ the story changes:

Layer 1 action	gas consumed	gas price	fee (ETH)	ETHUSD	fee (USD)
create	319408	100 gwei	0.0319408	$2000	$63.88
auction	182889	100 gwei	0.0182889	$2000	$36.58
oracle	211342	100 gwei	0.0211342	$2000	$42.26

The fees in the current market have increased by a factor of 100. If gas cost fluctuation is taken into account, when there is a market event and the gas price goes above 200 gwei, settling a piggy goes from $42 to $88 right when one may want to take that piggy action. This does not make for a great user experience.

If we look at the reductions from using Arbitrum, we get the following picture:

Layer 2 action	gas consumed	gas price	fee (ETH)	ETHUSD	fee (USD)
create	6752	100 gwei	0.0006752	$2000	$1.35
auction	5728	100 gwei	0.0005728	$2000	$1.16
oracle	2656	100 gwei	0.0002656	$2000	$0.53

Using Arbitrum as a scaling solution, SmartPiggies can be created, auctioned, and settled for under $5. This is more in line with the SmartPiggies mission or bringing access and opportunity, where before there was little to none.

There are other advantages to using a layer 2 solution, for example escaping the code size limitations inherent to the Ethereum mainnet, and yet more advantages to using Arbitrum. For more information, please visit the Arbitrum docs.

Footnotes

1 https://developer.offchainlabs.com/docs/inside_arbitrum

2 At current prices as of 2021https://ethgasstation.info/index.php