What is a Layer 2 blockchain?

A blockchain is a digitally distributed ledger that records transactions and information across a decentralized network. In this explainer, we’ll cover Layer 1 blockchains (L1 blockchains) and Layer 2 blockchains (L2 blockchains), although those are only two of multiple types of blockchains.

Layer 1 blockchains are main, or base level, blockchains. They execute and validate transactions on their own, without assistance. Ethereum, Solana, and Avalanche are Layer 1 (also called L1) chains. 

Layer 2 blockchains act as scaling solutions for Layer 1s. Arbitrum, for example, is an L2 scaling solution for Ethereum (an L1 blockchain). Layer 2 chains allow transactions from Layer 1 chains to be processed off-chain so that the original chain only needs to store a summary of the completed actions. Arbitrum is a Layer 2 blockchain that uses an optimistic rollup structure. Its transactions occur off-chain and then are added to the Layer 1 base chain when completed. This significantly lowers the demands on the blockchain, improving scalability and lowering its gas fees.

What is Arbitrum?

Arbitrum was created by Off-chain Labs as an open-source, Layer 2 blockchain. 

As an L2 chain, Aribtrum was designed to address some of the scalability and transaction speed issues that exist while maintaining the security of Ethereum. Due to the way it processes transactions off of the base chain, Arbitrum can lower costs and speed up transactions. Arbitrum offers both builders and users a unique combination of benefits such as:

Compatibility with Ethereum

Arbitrum is EVM compatible, which means it is compatible with the Ethereum blockchain without having to translate or learn a new code. This allows developers to design dApps that work on Ethereum and Arbitrum. dApps is a shortened form of “decentralized applications.” Unlike the apps utilized by web 2.0 that are owned by a single entity, dApps utilize blockchain technology, though they don’t necessarily need to be decentralized themselves. dApps can be operated via peer-to-peer network on the blockchain, or they can operate using traditional hierarchical structures, but what makes them dApps is their utilization of decentralized protocols. 

Scalability through optimistic rollup

Arbirtum uses what’s called an “optimistic rollup” architecture, which enables it to process more transactions per second than Ethereum. Optimistic rollups are a layer 2 scaling solution that bundle multiple transactions into a single batch and processes them off-chain. 

In Arbitrum’s case, the validity of these transactions is then verified using a cryptographic proof. Arbitrum’s validators validate the information off-chain and use an optimistic rollup to post the assertion to the Ethereum blockchain. 

In their assertion process, Arbitrum validators assume that all transactions are valid (this is where the rollup gets its “optimistic” descriptor from). They assume that Ethereum’s consensus method (Proof-of-Stake) accurately validated the information beforehand.

Once Arbitrum validators introduce their assertion to the Ethereum blockchain, anyone can challenge the validity of the information up to a determined end time. If no one challenges the assertion, validators receive a reward and Ethereum officially accepts the assertion. 

This approach enables Arbitrum to achieve high transaction throughput without sacrificing the security and decentralization provided by Ethereum.

Trustless and permissionless

Arbitrum is trustless and permissionless because it is built on top of the Ethereum blockchain, which is a decentralized and trustless network. Specifically, Arbitrum is trustless because of its Optimistic Rollup structure that processes transactions off-chain, while ensuring the validity and integrity of the transactions. These transactions are then written onto the Ethereum blockchain, which provides a trustless and decentralized platform for verifying the validity of the transactions.

Arbitrum is also permissionless because (like with any decentralized blockchains) users can interact with the chain without needing permissions or approvals. Users can create and interact with smart contracts, send and receive tokens, and perform other transactions without intermediaries.

Lower cost

Arbitrum's design includes several optimizations. For example, Arbitrum partnered with Biconomy, a multi-chain transaction platform, to create a gas-free meta-transaction system, which further enhances the chain’s scalability. The system enables users to perform transactions without paying gas fees, which can significantly reduce the cost of using the network.

NFTs on Arbitrum

Arbitrum supports a wide range of NFTs (non-fungible tokens) — unique digital items stored on a blockchain. NFTs can represent almost anything, and serve as a digital record of ownership. Some of the most common types of NFTs that can be found on Arbitrum include:

PFP NFTs

PFP (profile picture) NFTs are NFTs associated with unique digital items that can be used as profile pictures across social media platforms and may grant their owner access to a community or group. 

Art NFTs

Art NFTs are NFTs associated with pieces of art that are minted onto a blockchain, therefore becoming  non-fungible tokens. Art NFTs can be physical pieces of artwork that are digitized, or they can be natively created using digital tools.

Gaming NFTs

Gaming NFTs are NFTs associated with any digital item from the realm of online gaming and the metaverse: in-game items, characters, skins, customizations, maps, modes, tickets, collectibles–any digital creation that one would use in a gaming environment.

Virtual Land NFTs

Virtual land NFTs represent ownership of virtual land or property in virtual worlds.

Membership NFTs

Membership NFTs are a type of non-fungible token, ownership of which provides access to an experience, utility, or community, and in some cases all three.

Music and Media

Music NFTs are unique, digital certificates of ownership that use blockchain technology to verify ownership of a piece of music or music-related content. Music NFTs minted on the blockchain often are linked to an audio and a visual component, and some grant access to a larger online community.

dApps and smart contracts on Arbitrum

dApps

Arbitrum's interoperability with other Ethereum layer 2 solutions and the wider Ethereum ecosystem means that it can work with other networks and applications built on Ethereum.

For example, if a dApp developer creates an application on Arbitrum that requires the use of a particular token that is not available on the network, the developer can easily bridge the token from the Ethereum mainnet or another layer 2 network and integrate it into their application.

Arbitrum also supports the same programming languages and smart contract standards as Ethereum, making it easy for developers to port their existing applications and contracts to the network. This compatibility with the wider Ethereum ecosystem allows for integration and communication between different networks and applications.

Arbitrum's interoperability extends beyond just Ethereum-based solutions. It can also interact with other blockchain networks through cross-chain bridges, which enables the transfer of tokens and data between different networks. This allows for the creation of more complex and innovative applications that span multiple networks and ecosystems.

Smart contracts

Arbitrum's smart contracts are similar to those on other blockchains in that they are self-executing contracts with the terms of the agreement written into code. Arbitrum states that its smart contracts are designed to be highly efficient and scalable, allowing for faster and more cost-effective execution of transactions. This is achieved through Arbirtum’s optimistic rollup architecture.

Does Arbitrum have a token?

Yes. On March 23, 2023, the Arbirtum Foundation announced the launch of DAO governance for the Arbitrum One and Arbitrum Nova networks, as well as the $ARB token which is to be controlled by the Arbitrum DAO. 

According to the Foundation’s blog post announcement, “The Ethereum community has been working for years towards building a secure and decentralized L2, and late last year, Vitalik Buterin proposed a 3 stage schema for classifying the maturity of rollups. With today’s announcement Arbitrum has become the first EVM rollup ever to achieve the second of the three stages.”

Is OpenSea compatible with Arbitrum?

Yes, OpenSea is compatible with a number of EVM-compatible chains, including Arbitrum. You can find the full list of blockchains OpenSea is compatible with here. OpenSea is compatible with the Arbitrum chain Arbitrum One, which will allow you to purchase an NFT on Arbitrum. In order to purchase an NFT on Arbitrum, you’ll need to add Arbitrum to your wallet and bridge your ETH to Arbi ETH.