What Is Arbitrum (ARB) and How Does It Work as a Layer 2 Network?

What Is Arbitrum (ARB)?

Arbitrum is a platform with different blockchains built to scale Ethereum. The best-known blockchain in the platform is Arbitrum One. This is a Layer 2 rollup that processes transactions outside Ethereum and posts the related transaction data to Ethereum in bundled and compressed form.

You can think of Arbitrum One as an extra layer on top of Ethereum. Transactions are processed on Arbitrum One first, while Ethereum is used for final settlement and for keeping the transaction data available. Because of that, Ethereum nodes do not have to execute every Arbitrum transaction separately. This usually makes transactions on Arbitrum One a lot cheaper than doing the same thing directly on Ethereum Mainnet.

ARB is an ERC-20 token and the governance token of the ArbitrumDAO. Holders can use ARB to vote on proposals or delegate their voting power to someone else. The DAO makes decisions about things like Arbitrum’s development and how treasury funds are used.

ARB is not used to pay gas fees on Arbitrum One. For normal transactions on Arbitrum One, you pay gas in ETH. So you pay in the same cryptocurrency as on Ethereum, but gas fees on Arbitrum One are usually lower.

Arbitrum is more than just Arbitrum One. The platform also includes Arbitrum Nova and technology that lets developers build their own Arbitrum chains.

Arbitrum One is the main public Layer 2 in the platform. Nova was originally set up for applications with lots of transactions and very low costs. It used the AnyTrust model for this, where a Data Availability Committee kept part of the transaction data available instead of putting everything on Ethereum by default. That lowered costs, but it also added an extra trust assumption.

Since September 2026, Nova has published new transaction data directly on Ethereum, and this committee is no longer active. In addition, developers can use Arbitrum technology to build their own chains and customize them for their application. Because of that, Arbitrum is better seen as a platform for multiple chains rather than one single blockchain.

Key Takeaways

• Arbitrum is a platform with different chains built to scale Ethereum.
• Arbitrum One is the best-known Layer 2 chain in the platform.
• Transactions on Arbitrum One are usually cheaper than directly on Ethereum Mainnet.
• ARB is the governance token of the ArbitrumDAO and is not used for transaction fees.
• Transaction fees on Arbitrum One and Nova are paid in ETH.
• Arbitrum One uses an optimistic rollup model where incorrect state claims can be challenged.

How Does Arbitrum Work?

Arbitrum consists of different chains that can execute transactions outside Ethereum. The general idea is that not every action has to be processed directly by Ethereum. An Arbitrum chain executes transactions itself and then uses Ethereum to record or verify important data and results.

That means a lot of computation can happen outside Ethereum, while Ethereum still plays an important role in final settlement. This allows Arbitrum chains to process more transactions and usually keeps costs lower for users than on Ethereum Mainnet.

The exact setup differs by Arbitrum chain. Arbitrum One uses the Rollup model and is the main public Layer 2 in the platform. So to understand how Arbitrum works technically, Arbitrum One is the most important example.

For example, if you send ETH or use a dapp on Arbitrum One, your transaction first goes to a sequencer.

A sequencer is a system that collects incoming transactions and decides the order in which they are processed. You can think of it as a traffic controller for transactions. This lets transactions be processed quickly on Arbitrum One without every transaction first having to be recorded separately on Ethereum.

After that, a batch poster makes sure the data from many transactions is published together on Ethereum. A batch is simply a bundle of transactions. The data is compressed, which means less space is needed on Ethereum and the costs can be spread across many Arbitrum transactions.

Arbitrum One can post this data on Ethereum as calldata or through blobs. Blobs are a way for Layer 2 networks to temporarily publish large amounts of transaction data on Ethereum more cheaply.

The transactions themselves are executed through Arbitrum Nitro. Nitro is the technical software that Arbitrum One runs on. This software calculates, for example, which balances change when someone sends ETH and what happens when someone uses a smart contract.

After execution, a claim can be made about the new state of Arbitrum One. You can think of that state as the updated record of the network: which accounts have which balances and what data has changed in smart contracts.

Validators can then check whether such a state claim is correct by redoing the execution themselves. That gives validators a different job from the sequencer. The sequencer mainly decides the order of transactions, while validators check whether the final result is correct.

Arbitrum One uses the BoLD protocol for this. It makes permissionless validation possible. That means parties do not need prior approval to make state claims, check them, and challenge an incorrect claim.

Anyone who makes a state claim or actively takes part in certain parts of the dispute process does have to lock up crypto as financial security. This is called a bond. On Arbitrum One, WETH is used for this.

If there is a dispute over a state claim, BoLD uses an interactive process to determine where the calculations of the different parties differ. The dispute is narrowed down step by step until eventually a small part of the calculation can be checked on Ethereum.

Even if the sequencer temporarily stops working or does not want to include a transaction, there is an alternative route. Through the Delayed Inbox, a user can submit a transaction via Ethereum. After the force-inclusion period, that transaction can be included without the sequencer’s help. On Arbitrum One, this period is 7,200 Ethereum blocks, which works out to about 24 hours at an average block time of around 12 seconds.

Arbitrum Nova uses the same Nitro technology, but it was designed with a different approach to transaction data availability. That difference is covered in more detail later.

Arbitrum (ARB) Overview

How Do Optimistic Rollups Work at Arbitrum?

Arbitrum One is an optimistic rollup. The word 'optimistic' refers to how the network handles claims about the state of the blockchain. A state claim is initially treated as correct unless someone challenges it.

A state claim describes what the new state of Arbitrum One should be after a set of transactions has been executed. Think, for example, of changed balances and changes in smart contracts.

The required transaction data is published on Ethereum. That allows independent parties to re-execute the transactions and check whether the state claim is correct.

If a validator thinks a claim is wrong, it can be challenged through the BoLD protocol. BoLD uses interactive fraud proofs for this. The parties involved do not have to have the full calculation checked on Ethereum right away. Instead, the dispute is reduced step by step until it becomes clear which specific part of the calculation they disagree on.

In the end, Ethereum only has to check a small part of the calculation itself to determine which side is correct. This saves computation on Ethereum.

The system assumes that at least one honest and active party will notice and challenge an incorrect claim. With BoLD, validation on Arbitrum One is permissionless. So a party does not need special approval to take part in this process.

On Arbitrum One, the challenge period currently lasts about 6.4 days. If no one challenges a state claim during that period, it can be confirmed. If there is a dispute, BoLD is designed so that the dispute is resolved within a limited period.

This waiting time is also important for a regular withdrawal from Arbitrum One to Ethereum. The state the withdrawal is based on must first be finalized before the withdrawal can be completed on Ethereum.

Arbitrum One and Arbitrum Nova were originally set up with different data availability models. Arbitrum One uses the Rollup model and posts the required transaction data on Ethereum.

Nova was built as an AnyTrust chain. In this model, a Data Availability Committee could store and provide the transaction data. That meant not all data had to be posted on Ethereum by default, which could lower costs further. The tradeoff was that users had to trust that enough members of this committee would keep the data available.

Since September 2026, Arbitrum Nova has been in a minimized mode. New transaction data is posted directly in blobs on Ethereum and the Data Availability Committee is dormant. So the original AnyTrust technology still exists, but the active committee is not currently used for new transaction data.

What Is ARB Used for Within Arbitrum?

ARB is the governance token of the ArbitrumDAO. Holders can use ARB to vote on proposals that affect Arbitrum One, Arbitrum Nova, and other parts managed by the DAO.

Voting is token-weighted. The more ARB voting power a wallet represents, the more weight its vote has. ARB holders can also delegate their voting power to another crypto wallet without transferring their ARB tokens themselves.

The DAO can make decisions about things like protocol upgrades, how DAO treasury funds are used, and parts of governance, including the Security Council. So ARB is mainly meant for governance and decision-making within the Arbitrum ecosystem.

ARB is not used to pay gas fees on Arbitrum One. ETH is used for that. ARB is also not used as the standard bond for validators on Arbitrum One. Under the current BoLD system, WETH is used for that.

At launch, ARB had an initial supply of 10 billion tokens. There is no fixed maximum supply. The ArbitrumDAO can mint new ARB through a constitutional proposal. The supply may be increased by up to 2% per year.

What Is the Difference Between Arbitrum and Other Layer 2 Networks?

Layer 2 networks are all meant to help scale an underlying blockchain like Ethereum, but they can be very different technically.

One important difference is how a network checks whether transactions were executed correctly.

Arbitrum One is an optimistic rollup. That means state claims are first treated as valid, and other parties then get time to challenge an incorrect claim. Arbitrum uses BoLD and interactive fraud proofs for this.

ZK-rollups take a different approach. They produce cryptographic validity proofs that show the execution was correct. Because of that, they do not depend on the same kind of challenge period as an optimistic rollup.

Arbitrum Nitro uses parts of Geth, the widely used software for Ethereum’s execution layer. That means the execution environment closely matches the Ethereum Virtual Machine. As a result, developers can use many Ethereum-compatible smart contracts and development tools on Arbitrum too.

Other Layer 2 networks may make different choices for their proof system, transaction data storage, sequencer, and the way transactions are ultimately settled on Ethereum.

Those differences affect things like transaction costs, speed, withdrawal times, and the parties or systems users have to trust. So you cannot decide which network is always faster, cheaper, or safer just based on the labels 'Layer 2,' 'optimistic rollup,' or 'ZK-rollup.'

How Did Arbitrum Start?

Arbitrum came out of research into Ethereum scalability and was further developed by Offchain Labs. The company was founded by Ed Felten, Steven Goldfeder, and Harry Kalodner.

Arbitrum One became publicly available on mainnet on August 31, 2021. One year later, on August 31, 2022, the network moved from the earlier Arbitrum Classic technology to Nitro. The existing state of the blockchain was preserved during this upgrade. Users and applications therefore did not have to move to a new chain.

In March 2023, Arbitrum governance was further decentralized with the introduction of the ArbitrumDAO, the Arbitrum Foundation, and ARB as the governance token.

The public airdrop of ARB could be claimed starting on March 23, 2023. Through this airdrop, ARB tokens were distributed to, among others, users who had previously been active on Arbitrum One and Arbitrum Nova.

What Are the Benefits of Arbitrum?

One major benefit of Arbitrum One is lower transaction costs compared with Ethereum Mainnet. Many transactions are executed on Arbitrum, and the related transaction data is published together and compressed on Ethereum. That allows Ethereum’s costs to be spread across many Layer 2 transactions.

Arbitrum One uses Ethereum for settlement and data availability, but executes transactions itself outside Ethereum. Here, settlement means Ethereum is ultimately used to determine which state of Arbitrum is valid if there is a dispute about it.

Arbitrum Nitro also closely matches Ethereum. It uses parts of Geth, which means developers can use many Ethereum-compatible smart contracts and development tools on Arbitrum too.

BoLD makes permissionless validation possible on Arbitrum One. Parties do not need prior approval to make and challenge state claims. The system is designed so that one honest participant can challenge an incorrect state claim, even if other parties submit false claims.

The Delayed Inbox also reduces dependence on the sequencer. If the sequencer is unavailable or does not want to include a transaction, there is a route through Ethereum that can still get the transaction included eventually.

Lower transaction costs are not guaranteed forever. Part of the cost on Arbitrum One depends on publishing transaction data on Ethereum. If it becomes more expensive to post data on Ethereum or if Arbitrum usage rises sharply, costs on Arbitrum One can also go up.

What Are the Downsides and Risks of Arbitrum?

Arbitrum One currently uses a centralized sequencer to collect and order transactions. This sequencer can influence the order in which transactions are processed and can temporarily delay transactions. However, the sequencer cannot by itself finalize an invalid Arbitrum state.

A regular withdrawal from Arbitrum One to Ethereum is also not completed right away. State claims have a challenge period of about 6.4 days. This waiting time is part of the optimistic rollup model and gives validators time to challenge an incorrect claim.

The security model also assumes that at least one honest and active party notices and challenges an incorrect state claim. If no one challenges a false claim, this protection does not work as intended.

You pay transaction fees on Arbitrum One in ETH. Those costs include both executing the transaction on Arbitrum and publishing transaction data on Ethereum. If the cost of posting data on Ethereum rises, that can also affect the costs for Arbitrum One users.

Governance also comes with a tradeoff. The ArbitrumDAO uses token-weighted voting. A wallet with more ARB voting power therefore has more influence over proposals than a wallet with less ARB. Voting power can also be delegated, which can concentrate a large number of votes in a smaller number of delegates.

Arbitrum also includes multiple chains that do not have to use exactly the same security model or settings. So the properties of Arbitrum One do not automatically apply to every blockchain built with Arbitrum technology.

Nova is an example of that. This chain was originally built with the AnyTrust model and a Data Availability Committee. Since September 2026, new transaction data has been posted directly on Ethereum and the committee is not active, but Nova’s technical setup and history are still different from Arbitrum One’s.

Conclusion

Arbitrum is a platform for scaling Ethereum. It includes different chains and technology that also lets developers build their own Arbitrum chains.

The best-known chain is Arbitrum One. This Layer 2 executes transactions outside Ethereum and publishes the required transaction data in bundled and compressed form on Ethereum. Because of that, Arbitrum One can usually process transactions more cheaply than doing the same thing directly on Ethereum Mainnet.

Arbitrum One uses an optimistic rollup model. State claims are first treated as correct, but they can be challenged through BoLD. Ethereum ultimately plays an important role in resolving a dispute. The system assumes at least one honest and active party will challenge an incorrect claim.

ARB is the governance token of the ArbitrumDAO. Holders can use it to vote or delegate their voting power. ETH, not ARB, is used for transaction fees on Arbitrum One.

There are also risks and limitations. Arbitrum One currently uses a centralized sequencer, regular withdrawals to Ethereum have a waiting period, and the fraud-proof model depends on active validators. In addition, different Arbitrum chains can make different technical choices.

So it is especially important to distinguish between Arbitrum as a platform, Arbitrum One as a Layer 2 network, and ARB as the governance token.