02 Arbitrum ONE & Nodit – Why Arbitrum is the top of Layer2?

This series of posts is content created in collaboration with the Aslan Academy research team, ART: Aslan Research Team, affiliated with the blockchain research society Aslan Academy.

This series of posts has been prepared to help understand Arbitrum, following the support of Arbitrum by Nodit.

In the previous post, we briefly looked at Arbitrum and its products. In this post, we will delve into the technical details of Arbitrum ONE and NOVA, and compare them with Optimism.

Arbitrum vs Optimism

Arbitrum ONE is an Ethereum Layer 2 scaling solution based on Optimistic Rollup (ORU). It was introduced in 2021 and is the first EVM rollup technology to achieve the second stage of decentralization. EVM rollup is a technology for improving Ethereum’s scalability by bundling multiple transactions into one and processing them on Ethereum’s L1 chain, reducing gas costs.

Validity Proof vs Fraud Proof

Rollups are divided into two types: Validity Proof and Fraud Proof.

Validity Proof provides a calculation formula that proves the correctness of the state change when transferring transaction data processed on Layer 2 to Layer 1. Through this formula, Ethereum L1 can immediately verify the validity of the submitted data and reflect it on the main chain. It is important to note that the type of Layer 2 solution varies depending on the verification method and technology used. Zero-knowledge Rollup (ZK Rollup) is a L2 solution that uses zero-knowledge proofs to prove the validity of all transactions without assuming any transaction.

Fraud Proof assumes that the transaction data processed on Layer 2 is correct and only verifies it if someone challenges it, submitting it to Ethereum L1. This reduces transaction verification costs.

However, in the case of Fraud Proof, a dispute period of 7 days is usually provided in case the sequencer engages in malicious behavior. During this period, the submitted results from the sequencer are not final, and a fraud proof process takes place between the sequencer and the challenger if challenged. If it is determined that the sequencer engaged in malicious behavior, the sequencer is penalized and the challenger is rewarded. This fraud proof process can only take place for a week, and after the period is over, the transaction data cannot be changed and is finally approved. The most representative Layer 2 solution that adopts this fraud proof method is Optimistic Rollup.

Optimistic Rollup is an effective technology for improving Ethereum’s scalability and reducing transaction costs. However, due to the nature of Fraud Proof, there is a possibility that the sequencer may engage in malicious behavior. To prevent this, it provides rewards and penalties for the sequencer, and security measures such as setting a dispute period.

Optimistic Rollup and ZK Rollup are both technologies for improving Ethereum’s scalability. In addition to the verification method and dispute period, they also differ greatly in EVM compatibility.

ZK Rollup does not have a dispute period and is immediately verified, but currently there are no ZK Rollups that provide EVM compatibility, making development difficult.

Actual TVL occupancy rate

Although Optimistic Rollup and ZK Rollup have their own advantages and disadvantages, they currently (as of 08.10) occupy about 85% of TVL L2. It can be evaluated that the market still shows more trust in Optimistic Rollup than in ZK Rollup.

Interactive Fraud Proof vs Non-Interactive Fraud Proof

There are two main types of Fraud Proof.

Non-interactive fraud proofs

Interactive fraud proofs

Non-interactive fraud proofs do not require the participation of an external party in the proof process of the accuracy of the claim. This method explicitly shows how the claim has changed between two claims by executing all state changes between the two claims on the chain.

The main advantage is that its design and interpretation are very simple. However, without using zk-proofs, the changes between two claims are limited to what can be processed on the chain. Considering the current performance of Ethereum, this style of fraud proof is limited in its ability to process effectively.

In the case of Interactive fraud proofs, two or more parties collaborate to determine the validity of the claim. This process involves a defender who raises the claim and a challenger who challenges it. The challenger only verifies the claim if someone challenges it. The most representative Layer 2 solution that adopts this fraud proof method is Optimistic Rollup.

Single-round Interactive Proof vs Multi-round Interactive Proof

The Single-round Interactive Proof method involves directly re-executing the challenged transactions on Ethereum’s L1 to determine whether the challenge is valid, based on the calculated state root, for validating the validity of a roll-up transaction. This method can easily detect fraud, but it has the disadvantage of relatively high gas costs and an increase in on-chain data.

The Multi-round Interactive Proof method involves dividing the challenged transaction into multiple stages for analysis. The roll-up transaction in question is divided into two equal parts, and the challenger chooses which part to challenge. The selected part is further divided, and this process is repeated until only claims for a single execution step remain. In the last stage, the L1 contract evaluates this execution step to confirm the party responsible for committing fraud. This method is efficient because it minimizes the work of the L1 chain in dispute resolution, making it an advantage over the Single-round Interactive Proof method.

Fraud Proof of Arbitrum

Arbitrum belongs to the category of Interactive fraud proofs among the two types of fraud proofs mentioned above. Arbitrum adopts a unique approach that allows for the coexistence of various state hashes. In this approach, if two parties stake on different state hashes at a certain point, a dispute may arise. It is important to determine whether the cause of the dispute is due to a specific point in time when the state hash branched or due to a branching that occurred before then. To solve this, Arbitrum utilizes a rule called the ‘Bisection type protocol‘ to track the origin of the state hash that branched. This process can be imagined as tracing the Merkle tree backward from the point of dispute. While tracing, the transaction that caused the branching of the state hash is found. This transaction is executed on the Ethereum mainnet, and the resulting state hash is compared to determine which one is correct. In other words, Arbitrum adopts an interactive fraud proof method in which the challenger and defender continuously interact to find and resolve issues.

Specifically, Arbitrum’s Bisection type protocol proceeds in the following steps:

1. Trace the Merkle tree backward from the point of dispute.
2. Find the transaction that caused the branching of the state hash.
3. Execute the transaction on the Ethereum mainnet.
4. Compare the resulting state hash to determine which one is correct.

Through this approach, Arbitrum can allow for different state hashes while efficiently and accurately resolving disputes when they arise.

Arbitrum vs Optimism 

Arbitrum and Optimism are both effective layer 2 solutions that reduce the load on the Ethereum network and improve scalability, and they both use optimistic rollups.

Optimism uses single-round fraud proofs, while Arbitrum uses multi-round fraud proofs. The difference in these fraud proof methods leads to differences in speed and gas fees between the two solutions.

Speed is faster with Optimism, while cost is lower with Arbitrum.

Arbitrum takes longer to perform fraud proofs than Optimistic Ethereum because it requires finding the fundamental branching point on the Merkle tree after a dispute occurs. However, it has the advantage of costing less because it greatly reduces the transactions that need to be directly executed on the Ethereum mainnet.

In conclusion, both Optimism and Arbitrum are effective layer 2 solutions for improving Ethereum’s scalability, but the suitable technology for specific applications differs. Fast and expensive Optimism is suitable for applications that require fast speed, while slow and cheap Arbitrum is suitable for applications that need to save costs.

In fact, Arbitrum is a layer 2 based on Optimism’s technology, so the two have many similarities. However, they have clear differences in the structure of each layer 2 and the way fraud proofs are carried out during the dispute period. Through these differences, it can be said that Arbitrum, despite being a latecomer, has about 2.5 times the scale difference compared to Optimism.

Optimism stores both transaction data and state root, so fraud proofs do not take long. However, due to the fact that these data must be directly brought to the Ethereum mainnet and transactions must be performed, it is relatively expensive.

In this post, we covered Abitrum ONE and Nova, discussing the various verification methods of optimistic rollups, as well as DAC and AnyTrust. In the next post, we will delve into the meaning of the Abitrum token ($ARB) in more detail through Abitrum DAO & Orbit.

OUTRO

3 Line Summary

• Arbitrum is an optimistic rollup that uses interactive fraud proofs through a bisection type protocol.
• Arbitrum uses multi-round interactive proving, while Optimism uses single-round interactive proving. Arbitrum has the advantage on the cost side, while Optimism has the advantage on the speed side.
• Arbitrum Rollup and Arbitrum AnyTrust are protocols that make Ethereum transactions faster and cheaper. DAPPs can be built using the chains that implement these protocols, Arbitrum One and Arbitrum Nova respectively.

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