What is Arbitrum (ARB)?

Arbitrum is a Layer 2 solution that aims to scale the Ethereum blockchain by improving its speed and efficiency using optimistic rollups.  

Rollups are a Layer 2 technology that processes data away from Ethereum before submitting cryptographic proof of the data back to the main chain. Optimistic rollups assume submitted transactions are valid until proven otherwise. 

Rollups aim to enhance transaction throughput and reduce gas fees while maintaining Ethereum’s overall security. 

Arbitrum leverages smart contracts written in Ethereum’s Solidity programming language to enable the creation of decentralized applications (dApps) serving a wide range of use cases, including decentralized finance (DeFi), non-fungible tokens (NFTs), payments and gaming. 

Arbitrum’s native token, ARB, is classified as an infrastructure token. These projects focus on enhancing the functionality, efficiency, and security of blockchains (in this case, Arbitrum) and their dApps. More specifically, ARB is a Layer 2 token used to cover network transaction costs associated with using Arbitrum dApps.

Holders can also stake their ARB tokens with validator nodes to earn rewards, as well as transaction fees from the network’s users (denominated in ARB).

Non-custodial wallets like MetaMask offer access to the Arbitrum network. These crypto wallets allow users to interact with  dApps and manage their digital assets. 

Kraken offers ARB, as well as 250+ other types of cryptocurrencies.

Arbitrum is a scaling solution designed to improve Ethereum by offering a faster and more cost-effective environment for smart contract execution. Arbitrum’s ecosystem includes:

• Optimistic Rollups: Bundles numerous transactions together, executes them off-chain, and submits the rollup batch on-chain without a validity proof, enhancing throughput and reducing costs.

• EVM Compatibility: Allows developers to deploy existing Ethereum contracts without modification, leveraging Ethereum's security with Arbitrum's scalability.

• Fraud Proofs: In case of a dispute about a transaction's validity, Arbitrum uses fraud proofs to enforce correct execution off-chain, ensuring the integrity of the Layer 2 network.

• Sequencer: A special node type that batches and orders transactions before they are processed to improve efficiency and reduce latency on the network.

Ethereum rollups are a Layer 2 technology that processes data away from Ethereum before submitting the transaction data or a cryptographic proof back to the main chain. 

In optimistic rollups, users send transactions to sequencers, who collect these transactions and post them to the Ethereum smart contract as a batch. Validators then process these transactions locally before generating a new Arbitrum state root, which is a snapshot of the current state of Arbitrum, and posting it to the Ethereum smart contract. All validators verify this new state root by comparing it with their local versions.

If one of the validators gets a different state root than the one posted, they may challenge it, requiring the challenger and the validator to post the original state root. Whoever loses the challenge gets their initial stake slashed. 

Of note, if the L2 state root posted is found to be invalid, future validators will not include it in the L2 chain ledger.

Arbitrum also offers several products for scaling Ethereum:

• Arbitrum Nitro – Technology stack upgrade to help improve the performance of the Arbitrum. 

• Arbitrum Nova – Arbitrum AnyTrust chain which adapts Nitro technology to reduce transaction costs and increase transaction speed in exchange for a slight reliance on a trusted third party.

• Arbitrum One – Rollup chain for secure dApps.

Arbitrum addresses the issues of scalability and high transaction fees on the Ethereum blockchain.

With rising demand from Ethereum's dApp network, transactions have become more expensive and slower, affecting user experience and developer capabilities. 

Arbitrum uses optimistic rollups to bundle or "roll up" multiple off-chain transactions into a single transaction. This process significantly reduces the burden on the Ethereum mainnet, allowing for faster transaction speeds and lower fees.

This Layer 2 solution enables Ethereum to scale more effectively, making it practical for everyday use and for developers to build dApps without worrying about high gas costs or network congestion.

Arbitrum is designed to be fully compatible with Ethereum, meaning developers can deploy their contracts without significant changes, facilitating a seamless transition to a more scalable infrastructure.

Someone may wish to purchase ARB for the following reasons:

• Participate in protocol governance: ARB is used to empower the community to actively participate in the decision-making process of its protocols, ensuring a more democratic and inclusive approach to project management. 

• Stake ARB: staking allows ARB owners to earn potential rewards by actively participating in transaction validation. 

• Pay for transaction and gas fees: Fees help compensate validators for their work in transaction processing and verifying.

Arbitrum was launched on August 31, 2021 in the United States by founding members Ed Felten, Steven Goldfeder and Harry Kalodner.

Key Founders

Ed Felten

• Title: Co-Founder

• Background: Ed Felten is a Professor of Computer Science and Public Affairs at Princeton University, with a rich history in computer science research. He served as the Deputy U.S. Chief Technology Officer and as the founding Director of Princeton's Center for Information Technology Policy.

• Contribution: As a co-founder, Felten brings a profound expertise in computer science and technology policy to Arbitrum, guiding the strategic vision and ensuring the platform's technical foundations align with industry standards and regulatory frameworks.

Steven Goldfeder

• Title: Co-Founder and CEO of Offchain Labs (the company developing Arbitrum)

• Background: Steven Goldfeder is a cryptographer and computer scientist who completed his Ph.D. at Princeton University, with a focus on cryptocurrencies and security. His work includes extensive research and publications on privacy in cryptocurrencies and decentralized systems.

• Contribution: Goldfeder leads the development and business strategy at Offchain Labs. His deep expertise in cryptography and blockchain technology plays a critical role in the architectural design and security of the Arbitrum network.

Harry Kalodner

• Title: Co-Founder and CTO of Offchain Labs

• Background: Harry Kalodner is also a graduate of Princeton University, where he focused on blockchain technology and its economic implications during his doctoral research. He has a strong background in developing decentralized systems and blockchain analytics.

• Contribution: As CTO, Kalodner is instrumental in overseeing the technical development of Arbitrum, focusing on optimizing its scalability and efficiency. His research and technical skills contribute to the innovative aspects of Arbitrum's Layer 2 solutions.

Further, Arbitrum is supported by several entities: 

• Arbitrum Foundation: Plays a key role in the development, governance, and promotion of the Arbitrum network. It oversees the strategic direction, technological advancements, and community engagement efforts to foster the ecosystem's growth.

• Offchain Labs: The primary developer behind Arbitrum, focused on research, development, and deployment of Arbitrum's Layer 2 solutions to enhance Ethereum's scalability and efficiency.

To fund the launch and development of the platform, the Arbitrum team successfully completed three major funding rounds, raising a total of $143.7 million.

1. Seed Round: In April 2019, Arbitrum raised $3.7 million with key investors including Pantera Capital, George Lambeth, and Jake Seid.

2. Series A Round: In April 2021, the amount raised was $20 million. Details about the investors from this round weren't specified in the sources reviewed.

3. Series B Round: The most significant round occurred in August 2021, where Arbitrum raised $120 million. This round included high-profile investors such as Lightspeed Venture Partners, Mark Cuban, Polychain Capital, Ribbit Capital, Redpoint Ventures, Pantera Capital, and Alameda Research.

Arbitrum’s native cryptocurrency, the ARB token, was released as an ERC-20 token with a maximum supply limit of 10,000,000,000 tokens.

ARB was distributed via an airdrop, marking the Arbitrum Foundation’s transition to a Decentralized Autonomous Organization (DAO) (the Arbitrum DAO). 

This milestone was celebrated with a substantial airdrop, allocating 1.162 billion ARB tokens (representing 11.62% of the total supply) to users who actively participated in the Arbitrum ecosystem, including those who engaged in transactions and bridged funds on the platform.

The Arbitrum DAO also established a democratic process for electing a 12-member Security Council. This council is tasked with protecting the ecosystem by implementing emergency and non-emergency actions to address various risks.

The ARB token has a controlled annual inflation rate of up to 2%, managed by an L2 smart contract mechanism. This inflation mechanism allows for the gradual issuance of new tokens, incentivizing network participation and ensuring the long-term viability of the Arbitrum ecosystem.

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