Arbitrum’s Advantages And Disadvantages Compared To Other Layer 2 Solutions

March 21, 2023 - Around 10 mins mins to read

Key Points:

Layer 2 solutions such as Polygon, Arbitrum, and Optimist were created expressly to handle all of Ethereum’s issues.
In many aspects, Arbitrum is an L2 solution comparable to Optimism.
Polygon is one of the greatest L2 or sidechain scaling solutions for the Ethereum network, allowing for quicker transactions at lower costs.

Every blockchain protocol has a distinct capacity tolerance. They can only tolerate so much traffic before becoming clogged. With a market worth of more than $200 billion, Ethereum is now the most popular blockchain in the crypto industry. As a consequence of this traffic congestion, transaction costs are quite expensive, particularly on the biggest smart contract platform.

Polygon, Arbitrum, and Optimism all offer to address Ethereum’s major issues.

Arbitrum's Advantages And Disadvantages Compared To Other Layer 2 Solutions

The answer to this network congestion issue is straightforward: layer 2 networks connect to Ethereum’s core, layer 1 chain. These L2 scalability solutions function as highways connected to Ethereum’s highway, unloading traffic and allowing it to operate smoothly and economically. Let’s examine today’s top L2 solutions in this Coincu post; is Arbitrum the most remarkable L2?

What is a Layer 2 protocol?

Ethereum Layer 2 scaling solutions are intended to assist in the correction of some of Ethereum’s most visible flaws. Although many people trust Ethereum to handle the decentralization and security elements of transactions, layer 2 solutions may assist in keeping things moving by managing things like payments.

Layer 2 solutions work on top of the primary Ethereum blockchain, while Layer 1 applications and smart contracts interact directly with the main chain.

Why does Ethereum need scaling protocols? Ethereum is well-known for its security, however, this protection comes at a cost. The platform, which is based on the Proof of Work (PoW) consensus process, has inefficiencies such as delayed transactions and excessive gas costs. When a transaction happens on the platform, each node in the network is required to process it, resulting in a scalability bottleneck.

In a figurative sense, they’re like additional checkout lines in a crowded shop that was only meant to have one or two.

On average, Ethereum handles 13-15 transactions per second (TPS), with transaction fees reaching $200. That is why people prefer to look for alternative platforms that do not place such a high financial load on them.

Ethereum Layer 2 scaling solutions help free up platform resources by offloading transactions from the main chain to Layer 2, then sending transaction data back to Layer 1. As a result, the Ethereum blockchain may achieve greater scalability, more transaction processing capacity, and decreased gas prices. Meanwhile, since the transaction data is stored on Layer 1, it is protected by Layer 1 security protections.

This Layer 1 and Layer 2 combination allows you to benefit from the scalability and enhanced throughput while maintaining the integrity of the Ethereum network, allowing for total decentralization and improved security.

Many layer 2 solutions have emerged over the years, but Optimism, Arbitrum, and Polygon have proved to be the most popular.

Arbitrum and Optimism

Arbitrum and Optimism are both Optimistic Rollups, which are another Layer 2 protocol aiming at overcoming Ethereum’s scalability issue. The phrase rollup refers to how the chain groups together many transactions to transmit to the main chain.

Optimistic Rollups

Optimistic Rollups vary from sidechains in that they interact with the main chain and employ Ethereum-based smart contracts. This gives them the major advantage of inheriting both Ethereum’s security features and its safe consensus method.

Another benefit of Optimistic Rollups is that they make use of current Ethereum tools. This eliminates the need for a lengthy onboarding process, since developers can begin creating applications rapidly using Optimistic Rollups.

The term Optimistic Rollups comes from the fact that transaction data relayed back to the main chain is not originally reviewed. They do no computations and instead presume that transactions are genuine and that aggregators, or block producers in the Optimistic Rollups ecosystem, function without cheating.

If fraudulent transactions occur, Optimistic Rollups depend on fraud evidence to contest them. Hence, if someone claims that the data is incorrect, the calculations will be validated. These can be validated using cryptography, and if fraud is discovered, the fraudulent transactions will be reversed, while individuals who perpetrated the scam will be evicted.

This brings us to the fundamental downside of Optimistic Rollups: high on-chain transaction wait times owing to possible fraud concerns.

Arbitrum

Arbitrum is a scaling solution that sits atop the Ethereum blockchain’s foundation layer, enabling inexpensive and rapid transactions. It is intended to improve the performance of Ethereum Smart contracts while also introducing extra privacy protections. It employs a novel approach to make Ethereum transactions more scalable and affordable.

The chain employs a mechanism called as an Optimistic Rollup, which allows the two chains to communicate. While layer 2 completes transaction processing, Arbitrum records the results in the main chain. Through this procedure, the chain hopes to significantly boost its operating speed and efficiency.

Optimism

Optimism, like Arbitrum, is a layer-2 scaling solution for Ethereum that aims to cut transaction costs and time on the Ethereum chain while maintaining decentralization and security. It processes transactions outside the Ethereum chain while using its infrastructure.

Optimism talks with Ethereum’s layer-1 chain, which manages security, decentralization, and data availability, while layer-2 scaling is handled by Optimism. In summary, Optimism lessens the stress on Ethereum by reducing the pressure of financial transactions, which minimizes network congestion.

Polygon

Arbitrum and Optimism are, undoubtedly, quite similar. But, although Polygon may use Optimistic rollups, it is not a one-trick pony. Polygon is not just an L2 solution, but it is also a sidechain. This implies that Polygon is a completely separate blockchain that is linked to the Ethereum blockchain through a number of bridges.

Polygon’s blockchain is unique in that it allows numerous L2 solutions. They include the Optimistic rollups on which Optimism and Arbitrum are based, as well as plasma chains and ZK rollups.

Plasma Chains

Plasma networks are sometimes known as child chains since they are basically smaller versions of the blockchain on which they are meant to operate. To put it another way, a Polygon plasma chain is a young Ethereum. It is intended to assist Ethereum with completing a part of its transactions off-chain.

Plasma chains also serve as bridges, allowing users to move their funds back and forth to Ethereum, retaining part of its security.

ZK rollups

Zero Knowledge rollups, or ZK rollups, are an interesting but very hard scaling idea. The concept is that they execute on scripts meant to validate claims before sending them back to the Ethereum mainnet.

Polygon has unveiled zkEVM, a next-level ZK rollup that is compatible with the Ethereum Virtual Machine. zkEVMs are significant because they provide users with access to all of the same smart contract functionality available on the Ethereum mainnet.

Arbitrum vs. Optimism

While both Arbitrum and Optimism leverage the same Optimistic Rollups technology, the systems work quite differently, notably in terms of the bridge and fraud-proof verification.

When dealing with questionable transactions, Optimism puts the whole transaction through the EVM again, ensuring immediate fraud-proof verification. At the same time, the cost increases since on-chain Layer 1 execution consumes more gas. Also, the Layer 2 cost is limited by the Layer 1 gas block.

Arbitrum, on the other hand, handles suspicious transactions off-chain by returning just the suspect portion of a transaction to the EVM. While it takes longer to reduce the point of contention and identify what is questionable, Arbitrum has a larger transaction capacity than Optimism. Hence, in this specific Arbitrum vs. Optimism match, the former wins.

Arbitrum employs a permissionless bridge for all tokens, while Optimism installs specialized bridges in response to market needs.

Arbitrum’s own virtual machine, Arbitrum Virtual Machine, lowers its need for EVM. Since all transactions in Optimism are handled via EVM, re-executing Layer 1 transactions would produce differing final states if Ethereum had a substantial consensus redesign.

This is why Optimism is now developing a new fraud-proof verification model to serve as an EVM replacement. EVM compatibility is distinct from EVM equivalent in that the former performs the processing on the EVM, whilst the latter uses a compatible virtual computer, such as the aforementioned Arbitrum Virtual Machine.

Arbitrum vs. Optimism vs. Polygon

While Arbitrum, Polygon, and Optimism are all focused on improving Ethereum’s scalability, there are distinctions in their ecosystems and levels of decentralization, as well as how they work, such as consensus procedures, transaction speed, and gas prices.

Polygon employs the Proof of Stake consensus technique, which increases scalability and reduces gas expenses. Users must stake Polygon’s MATIC tokens to signify their commitment to the consensus process in order to participate.

The Polygon PoS validators manage the bridge relay mechanism. To proceed and manufacture the matching quantity of tokens on the Polygon blockchain, at least two-thirds of the validators must agree on the locked token event on Ethereum.

There are no consensus procedures in either Optimism or Arbitrum. Instead of offering their own consensus process, these Ethereum scaling solutions use the parent chains.

When we examine the token withdrawal times of Arbitrum, Optimism, and Polygon, we can find that the Polygon blockchain is speedier than its rivals.

Withdrawal through the Optimism Gateway is a multi-step procedure that may take up to 7 days. With Arbitrum, withdrawals may take up to two weeks, but those on Polygon over the PoS bridge take just three hours.

Arbitrum and Optimism are more decentralized since they are protected by Ethereum’s broadly dispersed network of miners.

In contrast to the miners that safeguard the Ethereum platform, the Polygon blockchain is secured by MATIC staking, which is a smaller pool of wealth.

Polygon, which uses the PoS consensus method, can handle up to 65,000 transactions per second while retaining low costs. They vary from $0 to $5.

According to Layer 2 data aggregator L2 Fees, Arbitrum supports 40,000 transactions per second with gas rates ranging from $0 to $7.

Optimism is capable of processing up to 2,000 transactions per second. Optimism transaction costs, according to L2 Fees statistics, are somewhat higher than Arbitrum and range from $0,6 to $0,9.

Conclusion

Polygon also receives additional points for speed in the quest for the best Ethereum layer 2 scaling solution.

Polygon is the clear winner in this area for two reasons. For starters, it can process more transactions per second than its competitors. One of Ethereum’s key problems has always been that it can only handle a small number of transactions at once.

The second is the speed of transaction processing, obviously, Polygon is the top choice on this list.

However, Arbitrum, with significant development in recent times, has proven this is not entirely true. It is currently preparing to conduct an airdrop of ARB tokens to the community, which is the leading attraction event in the industry right now.

The golden guideline for selecting Layer 2 for your project is, to begin with, an examination of your business needs. You must establish your major objectives and priorities while also describing the functionality that is most important to your project.

In conclusion, L2 networks have unequivocally demonstrated their worth. They preserve Ethereum’s blockchain security while providing users with an easy solution to avoid expensive ETH gas expenses at high speeds.

DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.

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