How ARB (Arbitrum) Works

Arbitrum, represented by the token ARB, is a Layer 2 scaling solution for Ethereum, designed to make transactions faster and less costly. Its primary purpose is to alleviate the congestion and high fees users typically experience with Ethereum's Layer 1. ARB operates through a system known as optimistic rollups, where transactions are rolled together and executed outside Ethereum’s main chain, only to be validated later on the Ethereum blockchain.

Optimistic Rollups Explained

The fundamental technology behind ARB is optimistic rollups. These rollups allow for off-chain transaction processing, meaning computations and most transactions happen off of the Ethereum mainnet, which reduces the burden on Ethereum and ultimately lowers fees. "Optimistic" refers to the way these transactions are verified: instead of immediately validating every transaction like Ethereum’s traditional Layer 1 process, optimistic rollups assume all submitted transactions are valid. They are only checked if someone detects an error, which can be flagged through a process known as a fraud proof.

How Fraud Proofs Work

The system ensures integrity by allowing validators or other users to review transactions and submit fraud proofs if they see a discrepancy in any of the off-chain batches. If someone successfully proves that an off-chain transaction was fraudulent, that transaction is reverted, and the malicious participant must pay a penalty, which incentivizes network integrity. If no fraud proofs are submitted, transactions processed off-chain are eventually finalized on the Ethereum blockchain.

Interaction With Ethereum

Even though ARB processes transactions off-chain, the final data is still settled on Ethereum’s Layer 1. When a batch of transactions is processed off-chain, the aggregated result is posted to the Ethereum mainnet for final processing. By doing this, ARB keeps Ethereum secured but without having to execute each transaction-heavy computation directly on the chain.

Arbitrum and Gas Fees

The key benefit of Arbitrum is its potential for reducing gas fees and speeding up transaction times. Since Ethereum's gas fees fluctuate based on demand and network congestion, using a Layer 2 solution like Arbitrum allows for much cheaper transactions. Additionally, the reduced load on Ethereum helps tackle high latency times that arise during network congestion.

Validators and Governance

The ARB token is primarily used for governance within the Arbitrum ecosystem. Token holders can vote on protocol upgrades, future developments, and other ecosystem-based decisions. Validators are responsible for monitoring and validating transactions, helping keep the system decentralized and secure. Furthermore, validators earn rewards for participating in the validation process and ensuring transaction integrity.