August 31st is a big day for the team at Offchain Labs and the broader Ethereum layer-two (L2) community. On the one-year anniversary of the Arbitrum One release, Offchain Labs is conducting a major mainnet upgrade from Arbitrum One to Arbitrum Nitro. Arbitrum has already gained a reputation as the premier Ethereum L2 scaling solution; so understandably, there is anticipation as Nitro is supposed to further increase the network’s efficiency, resulting in even lower gas fees for Ethereum users.
To help celebrate the upgrade, this article will provide a background and summary of L2s, optimistic roll-ups, Arbitrum One, and Arbitrum Nitro.
Let’s go!
The Problem: High Ethereum Gas Fees
This problem doesn’t need much explaining. During times of high demand, the Ethereum network becomes congested and fees rise as competition for limited block space ensues. 2020 saw average ETH fees from $100 to $500. 2021 had extended periods where average fees ranged from $50 to $150. Not good.
One Solution: Layer 2s
As the free market tends to do, a range of solutions was deployed to cope with the high fees. One solution is L2 blockchain protocols. L2s are built “on top” of the underlying L1 for the purpose of improving the L1’s scalability and efficiency.
Imagine a congested highway. Now imagine a new highway constructed and stacked directly above, and running along with, the congested one. Ramps are built so that cars can get onto the new highway and get moving. Naturally, the first highway becomes less congested. L1 and L2 blockchains work the same way.
One Type of Layer Two: Optimistic Rollups
There are several types of L2 solutions, Optimistic Rollups are one. Optimistic Rollups process and execute transactions on an L2 chain. They then bundle the data of multiple transactions together into a compressed version and send it to the L1 for validation.
What separates Optimistic Rollups from the rest is the fact that they are . . . well . . . optimistic. Optimistic Rollups assume that the L2 transactions are valid when sending over the transaction data to the L1. Thus, Optimistic Rollups are more efficient than other types of L2s because they do not have to expend energy to prove the validity of every transaction.
Optimistic Rollups do have a way to counter fraud and abuse, and this will be discussed in the next section. But at a high level, Optimistic Rollups are ingenious. I think their underlying philosophy is sound – most economic actors, most of the time, act with honesty and integrity. And when the occasional dispute does arise, Optimistic Rollups require the disputing parties to do the heavy lifting to prove validity instead of the network.
Arbitrum One: An Optimistic Rollup L2 for Ethereum
Arbitrum One, launched on August 31, 2021, is an Optimistic Rollup L2 for Ethereum. Its stated purpose was to scale the Ethereum blockchain, which would naturally result in lower gas fees and faster transactions.
And it’s been successful. At the time of this writing, Arbitrum One commands approximately 49% of the Ethereum L2 market share with $2.5B in TVL. Transactions average less than 10 cents, and hundreds of projects are live on the ecosystem, ranging from wallets, dApps, tools, bridges, and NFT products. dApps range from various DeFi…
David learned about bitcoin in 2015 and has closely followed the crypto industry since then.
His professional interests center around bitcoin, layer-one blockchain protocols, decentralized finance, and clean energy.
An attorney by trade, David has held licenses to practice law in the State of Hawaii and in US federal courts.
