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Arbitrum deserves your attention

Investor Highlights

  • Layer 2 network Arbitrum surpassed Ethereum in daily transactions, highlighting the growing importance of Ethereum scaling solutions in the blockchain space.
  • Arbitrum's recent processing of 1,100,333 transactions on February 21, higher than Ethereum's 1,084,290 transactions, demonstrates its growing popularity and adoption, with a 590% increase in daily transactions in less than two months.
  • The platform's ability to run unmodified Ethereum Virtual Machine (EVM) contracts and transactions on a second layer, while still benefiting from Ethereum's layer 1 security, is an important advantage for developers, and investors can expect to see new opportunities for growth and innovation in the blockchain space as Layer 2 solutions continue to evolve.
  • Layer 2 solutions like Arbitrum offer significant benefits for the Ethereum network and its users, including increased scalability, improved user experience, greater decentralization, and new opportunities for innovation and investment.¬†

What happened and why is it important?

Last week, Layer 2 network Arbitrum surpassed Ethereum in daily transactions.

Arbitrum has been gaining significant traction in the blockchain space. This was demonstrated by the platform's recent processing of 1,100,333 transactions on Tuesday, February 21, which is higher than the number of transactions processed on Ethereum on the same day (1,084,290).

The Arbitrum blockchain, ranked fourth in total value locked (TVL), has recently experienced a significant surge in daily transactions. According to Arbiscan, the number of daily transactions on the platform rose from 159,919 to over 1,103,398 in less than two months, an impressive 590% increase.

Additionally, the number of unique addresses on the network has reached a record high of about 2.95 million addresses. Data indicates that the total value locked on Arbitrum has increased by 81% since January 1, reaching around $1.85 billion. This data shows the growing popularity and adoption of the platform, which could be an important factor for investors looking to make informed investment decisions in the blockchain space.

Source: https://arbiscan.io/chart/tx

What is Arbitrum?

Arbitrum is a Layer 2 scaling solution for the Ethereum blockchain, designed to help solve some of the scalability issues that have plagued Ethereum, such as high transaction fees and slow confirmation times.

Arbitrum is one of the largest blockchain overall in terms of total value locked (TVL). Itis designed to help solve some of the scalability issues that have plagued Ethereum, such as high transaction fees and slow confirmation times.

What are Arbitrum’s advantages?

One of the key advantages of Arbitrum is that it enables developers to run unmodified Ethereum Virtual Machine (EVM) contracts and transactions on a second layer, while still benefiting from the high level of security provided by Ethereum's Layer 1. 

This means that developers can use the same tools and programming languages they are already familiar with, and can deploy their contracts and transactions to the second layer with minimal changes.

Who competed with Arbitrum?

Arbitrum's main competitor, Optimism, processed 191,479 transactions on the same day, and it is worth noting that Optimism had set a record of 799,462 daily transactions back in January.

It is clear that Arbitrum's optimistic rollup approach, utilizing fraud proofs, is gaining in popularity due to its scalability and fast transaction processing times. This is an important development for investors to consider, as Layer 2 solutions like Arbitrum are becoming increasingly important for the growth and adoption of decentralized applications and smart contracts on the Ethereum network.

Overall, the increasing adoption of Layer 2 solutions like Arbitrum and Optimism demonstrates the growing importance of Ethereum scaling solutions in the blockchain space, which can provide investors with new opportunities to participate in the growth of decentralized finance (DeFi) and other blockchain-based applications.

Layer 1 vs. Layer 2

The distinction between Layer 1 and Layer 2 is an important concept for investors to understand, as it highlights the potential for increased scalability and usability of the Ethereum network. 

As more Layer 2 solutions are developed and adopted, the potential for growth and innovation in the blockchain space is expected to continue to increase, presenting new investment opportunities and driving the growth of decentralized finance (DeFi) and other blockchain-based applications.

  • Layer 1, or the Ethereum Mainnet, is the primary blockchain network responsible for executing smart contracts and recording transactions on-chain. It is the main source of truth for the network, and all transactions are processed on-chain, which can lead to slower transaction speeds and higher fees.
  • Layer 2 solutions, on the other hand, are designed to process transactions off-chain, while still maintaining the same level of security and decentralization as the Mainnet. This can lead to faster transaction speeds and lower fees, making it a more efficient way to process transactions.

Why are Layer 2 solutions important for Ethereum?

Layer 2 solutions can offer significant benefits for the Ethereum network and its users, including increased scalability, improved user experience, greater decentralization, and new opportunities for innovation.

  1. Increased scalability: One of the primary benefits of layer 2 solutions is increased scalability. By processing transactions off-chain and then submitting them to the Ethereum blockchain, layer 2 solutions can significantly increase the number of transactions that the network can handle. This can lead to faster confirmation times and lower transaction fees.
  2. Improved user experience: Layer 2 solutions can also improve the user experience of Ethereum applications. By reducing transaction fees and confirmation times, users can interact with dApps more easily and cheaply. Additionally, many layer 2 solutions are designed to be user-friendly and compatible with existing Ethereum wallets and applications.
  3. Greater decentralization: Many layer 2 solutions are designed to be more decentralized than the main Ethereum blockchain. For example, Optimistic Rollups and ZK Rollups use decentralized networks of validators to process transactions, which can help to reduce the risk of centralization and increase the overall security of the network.
  4. Innovation: Layer 2 solutions can also enable new types of Ethereum applications that would not be possible on the main blockchain. For example, state channels can support real-time micropayments, while Plasma can enable new forms of gaming and decentralized marketplaces.

What are Layer 2 Rollups?

Rollups act as smart contract relays between the Ethereum mainnet and Layer 2, where transaction computations occur.

What sets Rollups apart from other Layer 2 solutions is that they are secured by the same Layer 1 security measures. This means that even though the transaction operations occur off-chain, they are still protected by the same high level of security as the main Ethereum blockchain.

This is an important feature for investors to consider, as it demonstrates the potential for Rollups to significantly increase the scalability and speed of the Ethereum network, while still maintaining a high level of security and decentralization. As more rollup solutions are developed and adopted, investors can expect to see new opportunities for growth and innovation in the blockchain space.

What are the three properties of a Layer 2 rollup?

Layer 2 Rollups are an important development in the blockchain space, providing investors with new opportunities to participate in the growth of decentralized finance (DeFi) and other blockchain-based applications.

There are three key properties of a Layer 2 rollup. These properties are designed to reduce gas fees, maintain security, and enforce proper transaction execution.

  1. The first property is that transactions are executed outside of Layer 1, which can help to reduce gas fees. By processing transactions off-chain, Layer 2 Rollups can significantly increase the number of transactions that can be processed, while still maintaining a high level of security and decentralization.
  2. The second property is that the data and proof of transactions reside on Layer 1, which helps to maintain security. By using Layer 1 as the source of truth, Layer 2 Rollups can ensure that all transactions are verified and validated, which can help to reduce the risk of fraud or malicious attacks.
  3. The third property is that a rollup smart contract, which is found on Layer 1, can enforce proper transaction execution on Layer 2, by using the transaction data that is stored on Layer 1. This helps to ensure that all transactions are executed properly and accurately, while still benefiting from the scalability and cost-effectiveness of Layer 2.

Investor Summary

In conclusion, the recent surge in daily transactions on Layer 2 network Arbitrum is a significant development in the blockchain space. This demonstrates the growing power and adoption of Layer 2 solutions, which offer increased scalability, improved user experience, greater decentralization, and new opportunities for innovation. 

As investors consider their options in the blockchain space, it is important to understand the differences between Layer 2 solutions, and the potential benefits of investing in various projects, products, and coins. 

With the continued growth of decentralized finance (DeFi) and other blockchain-based applications, Layer 2 solutions like Arbitrum are expected to play an increasingly important role in the growth and development of the Ethereum network and the wider blockchain ecosystem.

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