Arbitrum calls itself the most decentralized level 2 scalability solution for Ethereum. The platform serves as a solution for the slow and pricy transactions in the Ethereum blockchain. For the same reason, the story of Arbitrum can’t be told without saying a few words about Ethereum.
A Word About Ethereum
It is fair to say that Ethereum is considered the second most important blockchain platform in the crypto space. At around $280 billion, its native coin Ether is the second largest in terms of market capitalization, only behind Bitcoin(BTC).
In terms of the number of average daily transactions, it is at the top spot, ahead of BTC. Ethereum is the platform of choice for developers building decentralized applications (dApps), thanks to the Ethereum Virtual Machine (EVM), robust Smart Contracts, and a polished developer interface. So far so good.
Who Ate All the Electricity
However, before 2022, Ethereum followed the energy-intensive Proof-of-Work mechanism for verification of transactions.
At one point, the yearly energy consumption of the Ethereum blockchain was comparable to that of a medium-sized country like Chile. This has resulted in the emergence of various technologies that aim to solve this issue.
The Blockchain Trilemma
According to Vitalik Buterin, every blockchain struggles to achieve a balance between three features- decentralization, security, and scalability.
As the first two among these are the major value propositions of the crypto technology, Ethereum has been compromising with scalability.
Until they decided to change that. To make it scalable, the team has decided to change the Ethereum protocol itself. This is known as a type-1 scalability solution or on-chain scaling.
But there was already a thriving community that developed, what is known as type-2 solutions, building roll-ups on top of the Ethereum blockchain.
How Arbitrum Work
Arbitrum is a popular type-2 scalability solution on the Ethereum blockchain. This would mean that Arbitrum operates Ethereum transactions off-chain.
It uses a technology called optimistic rollups, which, by default, assumes that all transactions are valid but can be challenged during a dispute period. It is faster compared to zero-knowledge (ZK) rollups, the other popular type-2 technology.
| History Of Arbitrum |
|---|
| Arbitrum was conceived in 2018 May when OffChain Labs began researching and developing Arbitrum as a scaling solution for Ethereum. |
| In August 2019, OffChain Labs released a whitepaper explaining the design of Arbitrum. |
| In October of the same year, the alpha version of Arbitrum was released for testing without integrating into the Ethereum network. |
| In August 2020, Arbitrum Beta went live, still not integrated with the main net, and in November, OffChain Labs raised $12 million in a series A funding round. |
| Arbitrum One was released in August 2021, integrated into the Ethereum main net, and listed on SushiSwap. |
| OffChain Labs raised $120 million in series B funding in October. |
| In February 2022, Arbitrum Nitro was launched in the testing phase. In August, it was integrated into the Ethereum chain. |
| In September the user base of Arbitrum crossed 2 million and OffChain Labs closed the series C rounds with $400 million in funding. |
| The value of assets deposited on Arbitrum crossed $3 billion in January 2023. GMX, a decentralized exchange was deployed on Arbitrum. |
| In June Arbitrum integrated with Chainlink and daily transactions crossed 1 million in August. In October Arbitrum Nova was announced. |
| The total value locked (TVL) in Arbitrum crossed $10 billion in February 2024. |
Price Predictions
From the data available on CoinGecko, in March 2023, Arbitrum was trading at $1.35 and the volume of transactions was just over $2 billion.
The price has gradually moved downward to reach $0.78 on October 18 and has gained steam since. As I am penning this article, the price of Arbitrum stands at $1.84 with about a billion dollars in volume. It has over $2 billion in market capitalization and the technical indicators suggest strong upward momentum.
Where Can You Buy Arbitrum
Arbitrum is listed on many of the major centralized exchanges (CEX), including Binance, Coinbase, Kraken, etc. You can also find the token from decentralized exchanges (DEX) like Uniswap or SushiSwap.
Final Thoughts
With a sound function and a thriving developer base, Arbitrum is a promising scalability solution for Ethereum. In theory, the utility of a platform will sooner or later reflect on its native token.
However, market conditions and the broad sentiments of the crypto community also play a part. As always, all the opinions in this article are personal and should not be considered as financial advice. The cryptocurrency market is highly volatile and investing in the same carries very high risks.
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