The success of Ethereum, one of the most sought-after blockchain platforms, inevitably comes with a number of challenges: network congestion and ever-increasing transaction fees. Layer 2s, such as Arbitrum and Optimism, are designed to address these challenges and provide users with more efficient ways to interact with the Ethereum network.

In this article, we take an in-depth look at two leading Layer 2 solutions — Arbitrum and Optimism — to help you choose the one that best meets your needs.

How do ETH Layer 2 solutions work?

We have already covered the concept of Layer 2 in the context of the Bitcoin network. In short, Layer 2 (L2) solutions are separate networks that interact with the Ethereum core network to offload it and improve performance. ETH L2s allow transactions to be processed outside the core network (Layer 1) while maintaining Ethereum's high level of security and decentralisation. These solutions help to scale the network, while reducing network load and gas costs.

Arbitrum

Arbitrum is a Layer 2 for Ethereum, created in 2021 to improve network scalability by processing transactions outside the main blockchain and completing them in Layer 1. This approach reduces the load on the network as well as transaction fees.

Arbitrum uses optimistic rollup technology, which allows multiple transactions to be packaged into one and sent to the main Ethereum network for confirmation. This significantly reduces the cost of gas, as each transaction in the batch is cheaper.

The system is compatible with ETH smart contracts, making it easy to migrate existing applications and take advantage of low fees and high transaction speeds. Thanks to Arbitrum's cryptographic design and special virtual machine architecture, developers can create smart contracts that are governed by trusted managers. This ensures the security and correctness of contract execution, reducing the computational workload for validators.

Arbitrum: benefits

- Reduced gas commissions.

Thanks to the optimistic rollup mechanism, users can execute transactions significantly cheaper compared to the main Ethereum network.

- Ethereum compatibility.

Developers can easily integrate their projects into the Ethereum Virtual Machine (EVM) using familiar programming languages such as Solidity and Vyper.

Optimism

Optimism is another L2 for Ethereum, focused on increasing the speed of transactions and reducing their cost. It was developed in 2019 with the aim of speeding up interactions with the blockchain while keeping the network secure.

Optimism also uses optimistic rollup technology, which, similar to Arbitrum, aggregates multiple transactions into a single transaction. Optimism has a simpler architecture that allows for even faster transaction speeds.

Optimistic rollup technology also reduces the cost of gas by aggregating transactions into one and sharing the cost between users in the group. This is particularly relevant for decentralised applications (DApps) such as decentralised finance protocols (DeFi) and gaming applications that require high bandwidth. Transaction data is sent back to Layer 1 for re-validation, providing additional security and reliability.

Optimism: advantages

- High speed.

Optimistic rollup and a simplified architecture allow transactions to be processed extremely quickly.

- Governance tokens.

Optimism has its own governance token, OP, which allows holders to participate in the platform's governance and influence the development of protocols and policies.

Optimism vs. Arbitrum: a comparative analysis

1. Architecture.

Arbitrum and Optimism use different approaches to transaction processing. Optimism uses one-round fraud proof, which allows invalid transactions to be rejected quickly. Although effective, this approach is more expensive due to high gas fees. Arbitrum, on the other hand, uses multi-round fraud proof, where the dispute is resolved through the exchange of evidence and counter-evidence. This method is slower but is more cost effective in the long term.

2. Transaction speed.

Both solutions significantly increase the speed of transaction processing compared to Layer 1, but their throughput differs. Optimism can handle up to 2,000 transactions per second (TPS), while Arbitrum handles up to 4,500 TPS, making it preferable for applications requiring maximum throughput.

3. Scalability approach.

Arbitrum relies on Truebit technology to verify computations outside the blockchain, which increases security but slightly reduces transaction speeds. Optimism, on the other hand, initially assumes that all computations outside the blockchain are correct until proven otherwise. This increases transaction speed, but creates a risk of fraud.

Both Arbitrum and Optimism offer efficient solutions for scaling Ethereum, each with unique advantages. The choice between them depends on the user's priorities: if economy is important, Arbitrum is the best choice, and if transaction speed is a priority, Optimism is the best choice.