Arbitrum Co-Founder Says Ability to Process Transactions is Finite

With its Nitro upgrade in the rearview mirror, Ethereum Layer 2 scaling solution Arbitrum is now turning its focus to research and development in hopes of solving its own major challenges long before they appear.

In a recent interview with The Defiant, co-founder and chief technology officer Harry Kalodner said Arbitrum faces the same major challenge as Ethereum – finite capacity.

Arbitrum and competing Layer 2 blockchains, like Optimism and zkSync, are built to scale Ethereum — to enable it to handle more transactions, at a lower cost. They achieve this by bundling, or rolling up, transactions and submitting them in batches for validation on Ethereum.

Arbitrum’s ability to process transactions is finite, however. That became painfully clear this summer when an adoption campaign exceeded expectations, briefly sending transaction fees skyrocketing beyond even those on Ethereum. The program, dubbed Arbitrum Odyssey, had to be paused.

Traffic At ATH

Since its first major upgrade at the end of August, Arbitrum has been handling more transactions than ever at a fraction of what they would cost on Ethereum.

Arbitrum Daily Transactions. Source: arbiscan

If the Ethereum ecosystem is to challenge the world’s major payment processing platforms or become the distributed world computer its proponents envision, however, it’ll have to handle even more traffic than it does (or can) today. Far more.

Arbitrum is looking at two approaches, Kalodner said: scaling vertically and horizontally. The former — the more challenging problem, in Kalodner’s view — means improving Arbitrum so it can handle “more transactions, more users, more capacity.”

The latter means creating many Arbitrums, “so that the sum of the capacity between them is greater,” Kalodner said.

Historical Data

Solving “state bloat” will be key to scaling vertically. State bloat refers to the ever-expanding historical data stored on Ethereum and the strain it places on the distributed network of nodes that validate Ethereum.

“Containing how much memory you need to run a node is a really hard problem. It’s one that Ethereum has been facing for a long time,” Kalodner said. “They have for now, sort of been kicking the can to rollups. But rollups run into the same problem.”

“Even if we can just do the same amount of state but a ton more computation, that’s very useful,” he said.

Sharding

Scaling horizontally already has a name in the Ethereum developer community: sharding.

“For rollups, this is even harder,” Kalodner said. “The problem is, because there’s a one-week messaging delay from [optimistic] rollups to Ethereum, that communication path is very slow and impractical for anything other than value transfer.”

Optimistic rollups like Arbitrum assume that transactions submitted by block producers are accurate and honest, but provide a seven-day window for network participants to identify and challenge fraudulent transactions. Block producers must post significant collateral which will be slashed should they misbehave.

With its recent acquisition of Ethereum developer team Prysmatic Labs, Arbitrum doesn’t have to choose one avenue of scaling research over another, according to Kalodner.

“This is one of the advantages of growing,” he said. “We can spread our bets much more. And I think that, fundamentally, it’s not going to be one or the other, because they’re going to both have downsides.”