What Is Arbitrum? A Plain-English Guide to the Ethereum Layer 2

Arbitrum is one of the most widely used 'layer 2' networks built on top of Ethereum. It exists to make Ethereum cheaper and faster to use, while still leaning on Ethereum for security. This guide explains what Arbitrum is in plain English, how its technology works, and how to think about it without the hype.

What is Arbitrum?

Arbitrum is a layer 2 network — software that sits on top of Ethereum to handle transactions more cheaply. Ethereum itself can get slow and expensive when lots of people use it at once. Arbitrum takes the load off by bundling many transactions together, processing them elsewhere, and then settling the final result back on Ethereum.

It was built by Offchain Labs and launched its main network in 2021. Today it hosts a large slice of Ethereum's decentralised-finance activity, from exchanges to lending apps, because doing the same thing on Arbitrum often costs a fraction of what it would on Ethereum directly.

How Arbitrum works

Arbitrum uses a design called an optimistic rollup. 'Rollup' means it rolls up hundreds of transactions into a single batch and posts that batch to Ethereum. 'Optimistic' means it assumes the batch is honest by default, rather than re-checking every transaction up front.

• Transactions run on Arbitrum, where they're fast and cheap.
• Batches are posted to Ethereum, which acts as the final record.
• A challenge window lets anyone flag a fraudulent batch. If a fraud proof succeeds, the bad batch is reverted.

That challenge window is why optimistic rollups exist — security comes from the threat of being caught, not from proving everything in advance. We compare this approach with the alternative in optimistic vs zk rollups.

The ARB token

ARB is Arbitrum's governance token. Holding it lets you vote on proposals that steer the network and its treasury through the Arbitrum DAO. Importantly, you do not need ARB to use Arbitrum — transaction fees are paid in ETH, the same as on Ethereum.

Strengths and trade-offs

Arbitrum's big strengths are low fees, fast confirmation, and a large, established ecosystem of apps. Because it's broadly compatible with Ethereum's tooling, developers can move existing apps over with little friction.

• Strength: much cheaper than using Ethereum directly.
• Strength: inherits Ethereum's security as the settlement layer.
• Trade-off: withdrawing funds back to Ethereum can take time because of the challenge window.
• Trade-off: some components have historically relied on a limited set of operators, which the project has been progressively decentralising.

Where to go next

Now you know what Arbitrum is, it helps to understand the bigger picture: read layer 1 vs layer 2, compare the two main rollup styles in optimistic vs zk rollups, and see a close cousin in what is Optimism. To interact with any of these safely, learn how to store your crypto safely and how to avoid crypto scams.

Frequently asked questions