What Is Arbitrum?

1. What Is Arbitrum?

Arbitrum is a Layer 2 scaling solution for Ethereum that enhances transaction throughput and reduces costs while maintaining Ethereum’s security. It leverages Optimistic Rollup technology to execute smart contracts off-chain and settle them on Ethereum, enabling faster and more affordable decentralized applications (dApps) without compromising security.

2. Why Arbitrum Was Created

Ethereum faces scalability challenges, processing only 20–40 transactions per second. This causes network congestion and high gas fees during peak usage. Arbitrum was developed to overcome these limitations by offloading transaction processing from Ethereum, increasing scalability, and reducing transaction costs for users and developers.

3. How Arbitrum Works

1. Users submit transactions on Arbitrum, which are processed off-chain.
2. Transactions are aggregated into batches and submitted to Ethereum for final settlement.
3. Smart contracts execute off-chain, with only final state changes recorded on Ethereum.
4. Ethereum’s consensus mechanism ensures transaction and execution validity.
5. A challenge mechanism allows participants to dispute invalid state transitions.
6. After disputes are resolved, the final state is committed to Ethereum, ensuring security and data integrity.

4. Key Features of Arbitrum

• Optimistic Rollups for higher scalability and off-chain execution
• Full Ethereum compatibility, allowing existing dApps to migrate easily
• Strong security through Ethereum-backed transaction validation and dispute resolution
• Lower transaction fees for more accessible dApps
• Developer-friendly tools and documentation for easy dApp deployment

5. Who Can Use Arbitrum?

• Retail users seeking faster, lower-cost transactions
• Developers building or migrating scalable dApps
• Institutions leveraging blockchain for enterprise solutions

6. What Is the $ARB Token?

$ARB is Arbitrum’s native governance token. It allows holders to participate in on-chain governance through the Arbitrum DAO, voting on protocol upgrades, fund allocations, and other network decisions. Voting power is proportional to the number of tokens held, and tokens can be delegated to other wallets for indirect participation.

$ARB has a capped total supply of 10 billion and a maximum annual inflation rate of 2%, subject to DAO approval. It is not used for transaction fees, which are paid in ETH or other supported ERC-20 tokens, but serves exclusively for governance and community decision-making purposes.