Note: Wrote this as a twitter thread on April 25 but still very relevant. Happened to be the day before Optimism announced their airdrop.
The crypto ecosystem is growing faster than the internet in its earliest days. However, we still have ineffective on-ramps to crypto, and the ethereum ecosystem has high barriers to entry due to txn fees (gas costs). If we want to bring a billion people on-chain, rollups like Arbitrum will be the answer. This thread below 👇 is more about the applications of Arbitrum than the technical aspects. If you want the technical aspects go read… (Inside Arbitrum)
What is ArbitrumÂ
Arbitrum is a layer 2 Optimistic Rollup, helping to scale and reduce fees for the Ethereum ecosystem. The Arbitrum chain sits on top of and is secured by Mainnet. Once a user is on the Arbitrum network, interacting with the chain feels exactly like using Mainnet, except Arbitrum is faster and cheaper. Arbitrum is host to many prolific DeFi projects like Aave, Uniswap, and Curve, with more devs building on the platform everyday. Check out all dApps, NFT platforms, wallets, etc. here (https://portal.arbitrum.one/).Â
Why lowering fees, while not sacrificing security, is a game changerÂ
Ethereum is a game changing ecosystem but the limited block space currently on mainnet causes the network to be nearly unusable for anyone who didn't buy in early, or has fiat to blow. While many of us are desensitized to the fees, telling your non crypto friends to spend $60 on a txn fee is a tough sell. A little anecdote: When I was buying a house, I had to pay $35 for a bank check and I was agitated. It is important to keep in mind that the common person doesn’t want to spend their daily food bill to stake a token.Â
Given Arbitrum will substantially lower fees, the door will open for non-whales to start interacting on the chain, which will pave the way for a new class of applications that haven’t been feasible thus far due to high costs.
How Arbitrum Compares to other Rollups
Arbitrum is fully compatible with the EVM TODAY, meaning that any project launched on Ethereum can easily be launched on Arbitrum. This offers them a critical advantage over other projects, like the ones using ZK-proof technology, because they can act as a fully functioning chain. This advantage shows in the early TVL that Arbitrum has been able to capture. Of the $6.58B of TVL in L2s today, Arbitrum has $3.71B, or 56% of it. Â
The Experience for Developers
Arbitrum is fully compatible with the EVM, meaning you can deploy your Ethereum contracts to Arbitrum without changing the underlying solidity code (in almost all cases). You can also use the most popular tooling like Alchemy, Chainlink, Hardhat, and the Graph to give you virtually the same experience as if you were developing contracts to deploy to Ethereum Mainnet. This means that developers do not need to reskill, as if they are moving to Solana and need to learn Rust.
Arbitrum On Ramps
When I first started using Arbitrum ~6 months ago, the process to get eth was costly and complex (depending on crypto knowhow). The process looked like this: 1) Link your bank account to an exchange and buy eth ➡️ 2) Transfer Eth to a wallet like MetaMask ➡️ 3) Use a bridge like @HopProtocol to send eth from mainnet to Arbitrum ➡️ 4) Use Arbitrum** **Now, major companies like FTX and Binance have direct on-ramps to Arbitrum. The process looks like this: 1) Link your bank account to FTX and buy eth ➡️ 2) Directly transfer eth to the Arbitrum network. ➡️ 3) Use Arbitrum.
https://twitter.com/arbitrum/status/1509227640951087115
While saving this one step might not seem significant to a seasoned ethereum user, it is essential for a newbie. The bridge was the most costly and complex part of the workflow. I have spent as much as $80 to bridge. While that might not be a big deal for someone transferring 10eth at a time, it is to the person transferring .2eth. The txn fee might be nearly 15%! Second, it reduces complexity. Bridging is clanky, and is unfriendly to the user (Barrier to entry for Crypto!!). The more hoops users need to jump through, the less inclined they are to do something. This is why Amazon has one click checkout, they know there is a direct correlation between accessibility and spending money. The same philosophy applies to bridging. As FTX opens up the door for a direct Arbitrum on-ramp, more exchanges will follow.
Arbitrum Airdrop to Stimulate Activity
While Optimism hasn’t directly confirmed an airdrop, they tweeted that they are entering a new era of “community ownership and governance”. Arbitrum’s technology and ecosystem is further ahead, and if Optimism does an airdrop, Arbitirum would likely follow suit. In fact, Arbitrum’s CEO teased one shortly after Optimism’s statement. https://twitter.com/sgoldfed/status/1516896690019647488?s=20&t=zVgV6_RW-DCxIZoRKfhpiAÂ
Creating a token would likely generate more ecosystem activity. Projects often use airdrops to spread awareness/generate buzz. Turning your users into owners creates a built-in marketing force as they are now highly incentivized to advocate for the project and find ways to improve the network. We don’t know if Arbitrum’s airdrop would simply be a governance token, but regardless, there might be an opportunity for staking which could drive more people onto the platform.Â
Arbitrum NFT’s
NFT’s have been a major reason for activity on the ethereum ecosystem. For arbitrum to start capturing more of this value, two things could happen:
Native arbitrum marketplaces. @treasuredao is one example of this, and we have seen $magic and some of the #nfts on the ecosystem start to explode. Thus far, Treasure has been for only free mints so far in the gaming space, but they are coming out with a more generalized marketplace soon.
Arbitrum comes natively to exchanges like Opensea. I have heard rumors that Arbitrum will be coming to Opensea soon, which would give broader exposure to arbitrum as a whole. Opensea still has the lion's share of market activity (show graph), though CoinbaseNFT could change this really soon. Solana NFT’s were just added to Opensea – it is very reasonable that Arbitrum could be next. In fact, when Opensea decides to enable Arbitrum NFT’s, the integration effort will be much less challenging, compared to integrating Solana NFT’s. Rather than developing an entire new set of smart contracts, like Opensea needed to do for Solana NFTs, the team can deploy their existing Ethereum contracts to Arbitrum, conduct testing, and then launch.
What happens when Arbitrum goes mainstream?
While the exact timeframe is uncertain, it seems reasonable that users won’t directly interact with mainnet in a few years. Due to roll ups like Arbitrum (and other L2’s as well), users would be highly incentivized to use a rollup over mainnet. Besides the development community and first mover advantage, security is the main competitive advantage Ethereum has over other chains. However, less TPS (transactions per second) is a byproduct of its high security, when compared with a L1 like Solana or Avalanche. Since Arbitrum will use Ethereum’s security layer, but with the high-speed and low fees of a faster L1 an, there is little benefit to building on mainnet directly.Â
Why Arbitrum is Needed even if eth 2.0/sharding happens
As Vitalik has said, “it’s not rollups instead of sharding, it’s rollups on top of sharding.” In fact, the Ethereum roadmap has shifted in the last couple years in order to provide a more basic form of sharding than was originally planned so roll ups can use this additional block space. Vitalik said in a post in early 2021, “rollups that use eth2 sharded data can collectively process as much as ~100k TPS, and even more in the future.” Sharding + rollups both help scale ethereum, but when they are done in tandem, you can take Sharding * Rollups to get more scaling than could be done by either one alone.
https://vitalik.ca/general/2021/01/05/rollup.htmlÂ
What is next for Arbitrum?
Arbitrum has recently launched a devnet version of Arbitrum Nitro, which is the next iteration of Arbitrum. Nitro further reduces costs and increases speed and boasts other useful improvements like using geth. This will make Nitro more EVM compatible and thus, transaction costs are calculated in the same way as they are on mainnet (useful for developers so they can optimize gas in the same way on Arbitrum and Mainnet).
Arbitrum has also recently announced Arbitrum AnyTrust Chains. The AnyTrust chains are significantly faster and cheaper than even Arbitrum Nitro, however, they make some security tradeoffs by having fewer validator nodes. AnyTrust will be comparable to other sidechains, like Polygon, but with better security because it is built on top of Ethereum (read more about AnyTrust Chains here). AnyTrust Chains will be used for gaming and NFTs, where security is less important and speed is more important.
Thanks to @stevedorn for helping with this thread.