Arbitrum: A Technical Deep Dive

Arbitrum is not a single technology. Instead, it is a suite of products consisting of two Arbitrum chains: Arbitrum One, which is an Arbitrum Rollup chain running on an underlying tech stack (Arbitrum Nitro), and Nova, an AnyTrust chain. Arbitrum Rollups and Anytrust chains are essentially all optimistic rollups, and they both inherit Ethereum-level security. They differ in their fraud-proof and the storage place of transaction data, however - and in their level of decentralization. Let’s take some time to examine Arbitrum’s tech, and perhaps answer the question of why the enthusiasm has endured for this layer 2 solution.

Arbitrum rollups are L2 scaling solutions for Ethereum that inherit its security by adjudicating and proving fraud on the L1 - Ethereum.

In essence, roll-ups compile transactions outside of Ethereum—on the L2— and process them off-chain. Transactions are then grouped in batches and converted into a single piece of data, and submitted back to Ethereum.

Typically, a single batch will contain several hundred L2 transactions, and batching in this way ultimately reduces the overhead cost of interacting with the L1. Furthermore, the transaction data is posted on L1 in compressed form, helping to minimize the transaction’s L1 footprint even more.

In Arbitrum’s case, the lifecycle starts with the sequencer. The sequencer receives a transaction from a client and is tasked with ordering transactions. The Sequencer can receive a transaction one of two ways:

For typical transacting within Arbitrum, a client will connect their wallet to an L2 node and directly deliver a signed transaction. These transactions are sent into the chain’s “core Inbox” of transactions. Once transactions are included in the core Inbox, their ordering is fixed, execution is fully deterministic, and the resultant state can be trustlessly treated as having L1-level finality.

Alternatively, a client can send a message to the Sequencer by signing and publishing an L1 transaction in the Arbitrum chain's Delayed Inbox—most commonly used for depositing ETH or tokens via a bridge. “The delayed Inbox” is effectively a queue that transactions wait in before being moved to the “core inbox.” Messages in the delayed inbox will be "force included" after a delay period - currently ~24 hours.

When transactions are finally posted to the L1 from Arbitrum, Ethereum adopts an “innocent until proven guilty” stance. This means once transactions are sent back to Ethereum for final inclusion they’re subject to a dispute period. The dispute period ensures that anyone monitoring the state of the rollup can submit a challenge if the rollup sequencer has processed transactions invalidly. In the case of a challenge, the dispute resolution process is immediately triggered. When a dispute is triggered, fraud will be proven on the L1, the invalid claim will be disregarded, and the malicious party will be financially penalized.

When the sequencer posts transactions to Ethereum, there only needs to be at least one well-behaved active Arbitrum validator, and the client can treat their transaction's finality as equivalent to an ordinary Ethereum transaction. Validators in Arbitrum are Arbitrum nodes that choose to act as validators, watching the progress of the roll-up protocol and participating in that protocol to advance the state of the chain securely.

Becoming an Arbitrum validator requires that a user runs the open-source validator software, and stake ETH, if need be. There are 3 types of validators:

Active Validators: Staked validators that try to advance the state of the chain by proposing new RBlocks. A chain really only needs one honest active validator. For the Arbitrum One chain, Offchain Labs runs an active validator.

Defensive Validators: Validators that watch the rollup protocol operate. If an incorrect RBlock is proposed, this validator intervenes by posting a correct RBlock or staking on a correct RBlock that another party has posted.

Watchtower Validators: Validators that never stake, instead they simply watch the rollup protocol and if an incorrect RBlock is proposed, it raises the alarm, so that others can intervene.

When the sequencer submits its transactions, an active validator will create a roll-up block (Rblock) and give other validators the chance to dispute it— usually for a week. In a dispute, the two validators play an interactive, call-and-response game to determine the validity of the Rblock. Once all disputes have been handled with the Rblock— if any— the RBlock will be confirmed on the L1.

By requiring all chain data to be posted on layer 1, Arbitrum is able to inherit the security properties of Ethereum, ensuring safety for all users.

Arbitrum Nitro is the underlying tech stack employed by Arbitrum One. Nitro is an upgrade from “Arbitrum classic,” and presents the following upgrades:

• Advanced Call Data Compression: There’s a relatively high cost associated with posting data to L1, and Nitro losslessly compresses data before posting it to Ethereum, leaving the L2 with the task of decompressing it, which reduces costs.
• Separate Contexts For Common Execution and Fault Proving: Nitro allows for different contexts for execution and for proving, which increases the performance of L1 nodes and lowers fees.
• Ethereum L1 Gas Compatibility: Nitro allows for support for transaction tracing, which gives Arbitrum stronger compatibility with Ethereum and brings pricing and accounting for EVM operations perfectly in line with Ethereum.
• Additional L1 Interoperability: Nitro gives Arbitrum tighter synchronization with L1 Block numbers and full support for all Ethereum L1 precompiles.
• Safe Retryables: Nitro allows Arbitrum to safely perform L1 to L2 cross-chain messages, initiated by an Ethereum transaction sent to an Arbitrum chain for execution. This new process eliminates the failure mode where a retryable ticket fails to get created.
• Geth Tracing: Arbitrum nitro uses a specialized fork for Geth, allowing for lower fees, better Ethereum compatibility, and better debugging support.

With Rollups, all data is posted on L1, but in the case of AnyTrust chains, data is managed entirely off-chain, where the fraud-proof system comes into play. Instead of posting to the L1 to prove fraud, AnyTrust transactions are managed by a Data Availability Committee (DAC), consisting of “trusted” entities.

For example, let's assume there is a committee of 20 members where at least 2 must act honestly to verify transactions. If 19 out of the 20 committee members are malicious, they can compromise Nova’s safety and steal users' funds. If at least 2 of the committee members are honest, the AnyTrust chain reverts to "Rollup mode,” and posts the data to the L1.

In a better scenario, where at least 19 of the 20 committee members are honest, the system operates without posting the L2 chain's data on L1, allowing the user to pay significantly lower fees. Anytrust chains are for users looking to make use of Arbitrum’s high throughput, but who are willing to sacrifice decentralization for lower fees.

Arbitrum and Optimism are both Optimistic rollups at their core, but they handle transactions and dispute resolution a bit differently.

Optimism uses a system of fraud proofs and challenge periods to ensure that the sidechain remains securely anchored to the main chain. Additionally, Optimism’s dispute resolution relies more heavily on the Ethereum Virtual Machine (EVM). When someone submits a challenge on Optimism, the entire transaction is considered and run through the EVM.

In contrast, Arbitrum uses a system of smart contracts and proof-of-replacement to ensure that the sidechain remains securely anchored to the main chain. Arbitrum uses an off-chain dispute resolution process to simplify the dispute to a single step. The protocol then sends this “single step,” as opposed to the entire transaction, to the EVM.

Overall, the difference between Arbitrum and Optimism lies in the dispute resolution process, which determines how much it costs and how long it takes to complete a transaction.

The Arbitrum ecosystem has grown aggressively over the past year, with more projects choosing to build on the L2 with each passing week. Due to its speed and cost effectiveness, Arbitrum will continue to gain market share as it provides multiple solutions for users with varying appetites for risk looking to interact with Ethereum.