Secure Scaling for Ethereum

In the world of blockchain technology, scalability has long been a hot topic. As the popularity of dApps and smart contracts on platforms like Ethereum soared, the need for faster and more scalable solutions became apparent. This is where scaling solutions such as rollups become relevant.

What is Arbitrum?

Arbitrum is a suite of Layer-2 scaling solutions for Ethereum. It includes two operational blockchains: Arbitrum One, for general-purpose DApps and smart contracts, and Arbitrum Nova, focused on gaming and social apps. Both offer permissionless deployment and faster, cost-effective transactions. This technology aims to overcome Ethereum's scalability challenges and empower a more efficient and user-friendly blockchain ecosystem. Layer 2 solutions are designed to address the scalability and congestion issues of base layer blockchains such as Ethereum.

How does Arbitrum work?

Arbitrum works by moving most of the transaction processing and smart contract execution off the Ethereum mainnet and onto a second layer running on top. This layer acts as a scaling solution by bundling multiple transactions together and submitting them as a single batch to the Ethereum network. Transaction batching on Arbitrum happens off-chain where smart contracts are executed in a highly efficient and parallelized manner. These transactions are validated by a set of validators before being rolled up and submitted to the Ethereum mainnet as a single proof. If a fraud is detected, the entire rollup can be rolled back.

At the core of Arbitrum's design is an optimistic rollup, a layer 2 scaling technique to enable fast, secure, and low-cost transactions while maintaining the security of the Ethereum blockchain. Optimistic rollups use fraud proofs instead of validity proofs known from zk-rollups. While validity proofs provide evidence that a state transition is correct, fraud proofs come with a dispute time delay and provide evidence that a state transition was incorrect. As such, they use an "optimistic" approach to transaction verification. Instead of executing and validating each transaction on the main Ethereum network, optimistic rollups assume the validity of transactions by default, only resorting to on-chain verification in case of disputes. With that, Arbitrum ensures the security of the transactions and smart contracts by utilizing Ethereum's security guarantees. In case of any dispute, anyone can submit a fraud proof to the Ethereum mainnet, triggering an on-chain verification process. As far as can be seen, this mechanism ensures that any fraudulent or invalid transactions are caught and penalized, thus maintaining the integrity of the system. The lifecycle of a transaction involves the following: After sending a transaction the sequencer posts a transaction batch to Ethereum, validators then process transactions and post assertions after which the assertions are checked and fraud proofed if wrong. Finally, the assertion is confirmed.

Arbitrum is designed to be fully compatible with existing Ethereum smart contracts. Developers can easily port their contracts to Arbitrum without major modifications, enabling a seamless transition to the layer 2 solution.

How does Arbitrum compare to other rollups?

While rollups are still a rather new way of scaling base layer blockchains, there is plenty of competition. Arbitrum ranges among the most utilized and adopted rollups dominating the rollup market share. In terms of on-chain activity, Arbitrum stands out among alternative layer-two-solutions, ranking first both in Decentralized Exchanges (DEX) volume and Total Value Locked (TVL). In addition, Arbitrum has achieved the most progress towards full decentralization and removal of trust assumptions among general-purpose optimistic rollups, as Arbitrum One is the only Stage 1 Rollup in its class, as defined by Vitalik Buterin's roadmap on rollups taking off "training wheels".

While gas fees on Arbitrum are paid in ETH, the ARB token itself is used to govern the ecosystem.

What is the token utility of ARB?

Token holders of ARB form the DAO which then decides on protocol upgrades within the smart contract landscape, approves new layer-two-chains using the Arbitrum stack, manages the treasury and elects validators for the layer-two-chains. Thanks to its significant influence over the platform assets and future developments, the ARB token has established itself as a valuable piece of the greater Ethereum ecosystem. In this article, we delve into what Arbitrum is and how it works.

Arbitrum and the Dencun upgrade

According to our knowledge, Ethereum will soon mount an additional afterburner on rollups making them more efficient and cheaper. The upcoming Ethereum Cancun-Deneb (Dencun) upgrade with Proto-Danksharding at its heart will provide cheaper storage of transaction and state proof data on Ethereum’s consensus layer. This temporary data sink is crucial for dispute resolutions and will help to make transactions on Arbitrum even cheaper and more scalable.

For this upgrade, a secret is needed, which is used to cryptographically ensure the integrity of the data stored on Ethereum. This secret is created in a multi-party ceremony, with more than 100’000 participants. As long as 1 honest party contributes to the ceremony, the secret is safe (see https://ceremony.ethereum.org/ for further details).

Bitcoin Suisse contributed as well. We used our internal process for seed ceremonies, to ensure that no one, not even ourselves, knew the secret that was provided. Instead of using the website, we decided on an alternative client that doesn’t require us to manually enter the secret. On a high-level, the following steps were performed:

• A notebook was wiped multiple times and installed directly via Microsoft cloud.
• A script directly fetched randomly, with atmospheric noise generated, secrets from an external source.
• Those secrets were pseudo randomly mixed again, combined into one secret, and provided to the ceremony.
• After the ceremony the notebook got wiped multiple times.

The whole process was overseen in a 4-eyes ceremony, orchestrated by our head of risk. By contributing to the ceremony, Bitcoin Suisse ensured that the secret used for the upcoming Ethereum upgrade is secure and we can further trust the layer two solutions which build on it. Every participant is important – if you care as well, feel free to visit the above mentioned ceremony link.