Arbitrum Launch: Layer 2 Ethereum Unpacked

Key Takeaways

  • Arbitrum, an Optimistic Rollup scaling solution for Ethereum, has successfully launched for developers.
  • Layer 2 scaling aims to reduce congestion on the base chain while still benefitting from its security.
  • Reduced congestion on Ethereum will reduce gas fees for every user, not only the ones using Layer 2.

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Scalability has been Ethereum’s biggest challenge as its popularity rises. One of the key Layer 2 solutions hoping to solve the issue, Arbitrum, has now launched for developers.

The Road to Scaling Ethereum

During the recent market crash on May 19, when BTC and ETH both plummeted over 30% in a day, gas prices reached as high as 1,500 gwei. Some DeFi users reported Uniswap transactions costing upwards of $1,000. Miners earned a record $110 million during the day from gas fees.

The explanation behind these high prices is simple. For a transaction to be committed to Ethereum, the user must incentivize miners to include the transaction in their block by adding a tip. Miners select the highest tips available and include them in priority in their blocks to ensure the most profitability from their transactions.

Ethereum has a low throughput, focusing on security and decentralization over efficiency. While this wasn’t a particularly pressing issue in its early years, the rise in the price of ETH and increasing demand for transactions have led to high dollar values for any transaction on the blockchain.

Ethereum miner revenue split between block rewards and gas fees. Source: The Block.
Source: The Block

As the above graph shows, transaction fees have recently become the main source of revenue for miners ahead of the block rewards received after every block mined. The small throughput of the chain and high demand have led to high gas fees, which have driven DeFi users to other Layer 1 platforms like Binance Smart Chain and Polygon.

The solution to these issues is to increase the throughput of the chain. To do so, there are two options. One of them is to scale the blockchain’s base layer. This is what Ethereum…

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