Blockchain continues to shape the cryptocurrency space. Using blockchain can improve both transparency and traceability as well as reduce administrative costs.
The adoption of blockchain-based technologies by organizations can bring benefits in terms of firms’ profitability, productivity and efficiency. Hence, innovations are very necessary in blockchain technology.
Arbitrum provides a scaling solution for Ethereum by facilitating layer 2 smart contracts for decentralized applications on the blockchain.
By processing transactions off-chain, it increases transaction throughput on the Ethereum. Arbitrum improves the scalability of decentralised finance (DeFi) protocols while cutting transaction costs and network congestion.
In this article, we will understand Arbitrum in detail, its use cases and top dApps on Arbitrum. We will also learn how to bridge funds from Ethereum to Arbitrum.
What is Arbitrum?
Launched in August 2021 by Offchain Labs, Arbitrum is a scaling solution for Ethereum. It reduces network congestion and transaction fees. This layer 2 network is developed with an aim to scale Ethereum, without compromising security.
Arbitrum (ARB) functions on an approach known as “Optimistic Rollups”. This technology combines the security of the Ethereum (ETH) mainnet with better scalability, lower transaction costs, and faster processing times.
Optimistic rollups get their name for making an optimistic assumption that layer-2 transactions are valid unless proven otherwise. They rely on users to identify transactions that are invalid.
Due to its off-chain processing, Arbitrum can handle a much higher volume of transactions per second (TPS) than Ethereum, resulting in faster confirmation times.
Currently, Arbitrum can carry out close to 40,000 TPS, whereas Ethereum can only handle around 14 TPS. Therefore, several decentralised money protocols, such as Curve, Abracadabra, and SushiSwap have launched their applications on Arbitrum.
According to DefiLlama, there is about $3.429 billion worth of total value locked (TVL) within the Arbitrum ecosystem.
To ensure user and developer engagement, Arbitrum’s native token ARB, an ERC-20 token, is offered to participate in the governance protocol and decision making process.
Understanding Arbitrum One and Arbitrum Nova
Arbitrum One is the official mainnet of the Arbitrum ecosystem. It powers the entire ecosystem and processes transactions on the Arbitrum Virtual Machine (AVM). Mainly it is intended for usage in typical decentralised finance use cases like trading.
Arbitrum Nova is a new chain, which focuses on reducing individual transaction fees for high-throughput decentralised applications like gaming. It is especially useful for games and social dApps with higher volume of transactions but low individual transaction value.
In contrast to Arbitrum One, Arbitrum Nova leverages a Data Availability Committee (DAC) to verify transactions. The DAC receives transaction data, verifies it, and then issues an availability certificate for posting on the Ethereum blockchain. Nova is comparatively more centralized.
Top Decentralised Applications (dApps) on Arbitrum
Uniswap
Uniswap is a decentralized exchange built on the Ethereum blockchain. It uses smart contracts to create a liquidity pool driven by a constant product formula.
It acts as an automated market maker for peer-to-peer cryptocurrency transactions. Also, it eliminates the need for middlemen, making it more secure and resistant to censorship.
Jumper Exchange
Jumper Exchange is a decentralised cryptocurrency exchange platform that allows users to bridge and swap tokens across various blockchains using a single interface. Users can identify the most efficient path for their transactions as it supports more than 20 networks.
1inch Network
1inch Network is a decentralised exchange (DEX) aggregator that helps users to perform a trade at the best price in the market, finding the most favorable option among numerous DEXes.
Odos
It is a DEX aggregator that allows users to swap multiple input and multiple output tokens in a single atomic transaction. Its native token ODOS is used for both governance and Odos’s Loyalty Program rewards.
Use Cases of Arbitrum
Decentralized Finance and Non-Fungible Tokens
The increased popularity of DeFi and NFTs has increased the demand for scalability and efficient blockchain solutions. Popular DeFi platforms like Uniswap, Aave, and SushiSwap can leverage Arbitrum that provide faster transactions, improving liquidity.
Arbitrum can improve the user experience on NFT marketplaces, allowing for smoother buying and selling of digital collectibles.
For instance, in December 2024, NFTs marked a resurgence with a sale volume reaching $562 million, while the DeFi market is projected to cross a market size of $51 billion by 2025, showing increased adoption.
Ethereum Compatibility
Arbitrum is compatible with Ethereum and is primarily used for deploying decentralized applications that require high transaction volume and low fees. Developers can easily port existing Ethereum smart contracts to Arbitrum with minimal adjustments, allowing for a smooth transition.
Microtransactions
Arbitrum can execute microtransactions due to its low transaction fees and high throughput, opening up new use cases including tipping, pay-per-use services, and content monetization.
Games
Arbitrum facilitates the creation of scalable blockchain-based games, enabling easy and affordable in-game trades. By running game logic off-chain and settling transactions on Ethereum, developers can create immersive gaming experiences.
Decentralised Applications
Using Arbitrum’s scalability characteristics, developers can create and implement a variety of decentralised applications that provide better user experience and reduced transaction costs.
How to Bridge Funds from Ethereum to Arbitrum
Let us understand how you can easily move funds from Ethereum to Arbitrum by following simple steps.
Step 1. Get Funds
For you to be able to bridge funds from Ethereum to Arbitrum or vice versa, you will need funds on your crypto wallet currency. For instance, if you want to bridge Ethereum to Arbitrum, you will need ETH on the Ethereum network to initiate the process.
Step 2. Go to Arbitrum Bridge and Connect Wallet
Use the Arbitrum official platform to move your funds and connect your wallet.
Step 3. Select Preferred Network
Select the preferred network from where you want to swap, either Ethereum or Arbitrum.
Step 4: Enter Amount and Initiate Deposit
Choose ETH or ARB and the amount you wish to bridge. By selecting the “Manage Token” lists button located in the lower right corner of the drop-down box, you can enable or disable the token lists.
Press “Move Funds” after entering the quantity of ETH or tokens you wish to bridge. Once these steps are completed, your assets will be bridged from one chain to another.
Conclusion
As the most sophisticated Layer 2 scaling solution platform, it is believed that the future of Arbitrum looks promising. It uses optimistic rollups to bundle transactions off-chain and submit them to Ethereum in batches. This reduces Ethereum’s computational load, which lowers gas fees and speeds up transactions.
Arbitrum enhances Ethereum’s potential by offering a scalable and effective solution, creating opportunities for a variety of applications in industries including gambling, banking, and decentralised apps.
