Optimism Vs. Arbitrum: Comparing two popular Ethereum Layer-2 rollups | Posted by Codezeros | Coins | February 2024

By Crypto Gloom On Feb 15, 2024

Ethereum, often considered a pioneer in blockchain technology and decentralized applications (DApps), has faced numerous challenges due to its scalability limitations. With high gas fees and network congestion becoming major headaches for users and developers, Ethereum is improving its scalability by default. These changes are marked by Ethereum’s detailed roadmap after switching to a Proof-of-Stake (PoS) consensus mechanism, commonly referred to as the “merge”. However, in the meantime, the Ethereum community has been actively exploring Layer-2 scaling solutions. Two notable competitors in this space are Optimism and Arbitrum. Both aim to solve Ethereum’s scalability issues and improve the overall user experience.

In this blog, we will learn more about Optimism and Arbitrum layer 2 solutions and compare their features, benefits, and use cases.

Layer 2 solutions are designed to alleviate Ethereum scalability issues by creating a secondary layer, or “off-chain” environment, that can handle much of the transaction and computational work. These layers operate independently but are anchored to the Ethereum mainnet to ensure security and decentralization of the entire network.

Both Optimism and Arbitrum fall into the category of Layer-2 rollups, a specific type of Layer-2 solution. Rollups achieve scaling goals by condensing multiple transactions into a single transaction and then appending it to the underlying blockchain. In this way, you can transfer Ether or ERC-20 tokens at a throughput ranging from approximately 2,000 to 4,000 transactions per second (TPS), while incurring significantly lower gas fees compared to the Ethereum mainnet baseline. This approach significantly reduces the computational load on the mainnet while maintaining the integrity of transactions and data, ensuring layer 2 users can interact with the blockchain in a secure and decentralized manner.

Here’s everything you need to know about optimism in a nutshell. It essentially acts as a secondary protocol built on Ethereum’s layer 1 mainnet, effectively streamlining transaction processing. The technology involves aggregating multiple transactions off-chain in batches and then sending the summaries to the mainnet, reducing the computational load on the underlying network. The result is faster, more cost-effective transactions.

Optimism values compatibility. Introducing the Optimism Virtual Machine (OVM), which mirrors the functionality of the Ethereum Virtual Machine (EVM). This ensures that smart contracts deployed on Optimism behave in a similar way to smart contracts on the Ethereum mainnet. This compatibility minimizes migration efforts for developers who can leverage their existing knowledge and infrastructure to seamlessly deploy and interact with contracts in Optimism.

Optimism has also developed unique features such as Optimism Bridge, which enables fast and simple asset transfers between Ethereum and Optimism. This gives users greater flexibility when managing assets on these networks.

Like Optimism, Arbitrum is committed to improving Ethereum’s scalability while maintaining a developer-friendly ecosystem. It achieves this by extending existing Ethereum software to ensure that Ethereum developers can comfortably transition to the Arbitrum platform and efficiently engage in activities such as developing Arbitrum crypto tokens.

Arbitrum’s strength lies in its proprietary technology stack, Nitro, which serves as a blockchain network-based solution. Nitro is purpose-built to increase scalability and throughput, providing a more seamless experience for users and developers. Like Optimism, Arbitrum uses a rollup architecture to aggregate and process off-chain transactions, effectively alleviating congestion on the Ethereum mainnet.

Mainly, Optimism and Arbitrum differ in the way they approach fraud prevention mechanisms. The Optimism Rollup Protocol uses a single anti-fraud mechanism to validate transactions on Ethereum’s mainnet. This approach is known for fast transaction finality, ensuring users experience faster confirmation times. However, it is important to note that this approach may result in slightly higher gas fees due to the need for on-chain computation.

Arbitrum, on the other hand, takes a different route by leveraging a multi-round anti-fraud mechanism that involves multiple verification rounds that occur off-chain. This approach potentially results in slightly longer verification times, but provides improved security and cost-effectiveness. It does this by reducing on-chain computational load and associated fees, providing users and developers with an interesting alternative.

Simply put, Optimism is faster but can be more expensive because it relies on Ethereum’s main network (L1). Arbitrum takes a little longer but is a more economical option.

When it comes to programming language support, Optimism and Arbitrum take different paths, giving developers distinct advantages.

Optimism leverages the Ethereum Virtual Machine (EVM), while Arbitrum provides proprietary Arbitrum Virtual Machine (AVM) functionality. This distinction means that Optimism’s programming language options are somewhat limited to Solidity, Ethereum’s native programming language.

In contrast, Arbitrum supports all Ethereum Virtual Machine (EVM) programming languages, broadening its appeal and ease of adoption for developers with different language preferences and expertise. For example, a versatile feature called Stylus was introduced to help developers deploy programs written in popular languages such as Rust, C, C++, etc. This expanded language support increases flexibility and interoperability, allowing developers to leverage existing codebases and seamlessly integrate diverse technologies within the Arbitrum ecosystem.

Looking at the ecosystems of Arbitrum and Optimism, various indicators show differences in growth and composition.

One key metric to consider is Total Value Locked (TVL), which measures the total value of assets locked within the platform. According to Defillama, as of this writing, Arbitrum’s TVL is $1.69 billion, well ahead of Optimism’s TVL of $600 million. This significant gap indicates that more capital and assets are being deployed and actively utilized on the Arbitrum platform.

auto call activity

Examining activity within the Arbitrum and Optimism ecosystems, it is clear that Arbitrum is leading across several key metrics, demonstrating strong growth and increased user engagement.

In terms of the number of supported protocols, Arbitrum hosts 405, significantly surpassing Optimism’s 164. This means that developers and users within the Arbitrum network have a wider range of choices.

Arbitrum also excels in daily active addresses and daily transactions compared to Optimism, which indicates higher levels of user engagement and overall network activity. The recent Arbitrum airdrop has contributed noticeably to an increase in the number of transactions and addresses, but this is expected to stabilize over time.

Additionally, in a notable comparison between etherscan.io and arbiscan.io, Arbitrum has been processing more daily transactions than the Ethereum mainnet itself. This highlights Arbitrum’s ability to efficiently manage significant transaction volumes. These combined metrics highlight Arbitrum’s strong position in terms of adoption, network activity, and continued growth within the Layer-2 ecosystem.

Gas fees play an important role in determining the cost and efficiency of transactions in both Optimism and Arbitrum. Let’s take a look at how these fees are structured on each platform.

Optimist Gas Fee

Optimism’s gas bill consists of two components:

Layer 1 Data/Security Fees: Unlike Ethereum, all transactions on Optimism are also published to the Ethereum network to ensure security and data availability for Optimism node synchronization. This incurs layer 1 data/security fees, which include factors such as the current Ethereum gas price, gas costs required to post transactions, fixed overhead costs, and dynamic overhead costs. This fee maintains the connection between Optimism and Ethereum.

Layer 2 Execution Fee: Similar to Ethereum’s gas fee, this fee is incurred when executing a transaction on the Optimism network. It is calculated by multiplying the gas used in the transaction covering compute and storage resources by the gas price attached.

Optimism plans to reduce gas costs through the Bedrock upgrade, which aims to reduce gas costs by 40% by optimizing data compression and reduce deposit confirmation times by 90%.

gas cost decision

The gas fee in the Arbitrum chain consists of layer 1 and layer 2 components.

Layer 1 Component: Compensates sequencers for posting transactions to layer 1 Ethereum. Fees are calculated based on the compressed transaction data size and Arbitrum’s current layer 1 data pricing.

Layer 2 components: This includes Layer 2 chain operation costs, including compute and storage costs, and Layer 2-specific precompilation execution costs based on resource usage.

Arbitrum uses various thresholds along the Arbitrum chain to set a gas price floor to prevent layer 2 gas prices from falling too low. In particular, Arbitrum processes transactions on a first-come, first-serve basis, so no priority fees are required.

Both Arbitrum and Optimism have exciting plans for the future as they work to improve their technology and expand their user base. Here are the key initiatives each chain is working on:

OP Stack and Optimism Bedrock: These are components that support optimistic rollup as well as scalability and interoperability for a variety of layer 2 solutions. Optimism Bedrock is the first release that improves the modularity, performance, and future-proofing of the chain. It also reduces transaction fees, optimizes deposits and withdrawals, and improves node synchronization.
Native Layer-2 Blockchain with Coinbase: Optimism is working with Coinbase to develop a new blockchain that uses the OP stack to create an interoperable roll-up network. This enables seamless communication and infrastructure sharing between different Layer-2 networks. This partnership will enable increased adoption and growth of Optimistic rollup solutions.

ARB Token Drop: Arbitrum distributed ARB tokens to decentralize the ecosystem and encourage more users to join the network.
Arbitrum Nova: Arbitrum has launched Arbitrum Nova, a sidechain that offers gas fees up to 90% lower than the main Arbitrum chain. Although it has lower security guarantees, it is ideal for high-bandwidth applications such as gaming and social platforms. Some popular marketplaces, such as OpenSea and TreasureDAO, have already deployed on Nova, providing critical infrastructure for future projects.
Arbitrum Orbit and Stylus Upgrade: Arbitrum Orbit allows developers to leverage Arbitrum’s technology to launch layer 3 solutions on top of Arbitrum without permission. The upcoming Stylus upgrade introduces “EVM+,” which allows contracts written in languages like Rust, C, and C++ to synchronously interact with existing Solidity-based contracts. This opens the door to a wider developer community, improves network performance, and reduces fees.

These initiatives demonstrate both chains’ ongoing efforts to advance their technology and attract more users and developers to the ecosystem.

Both Optimism and Arbitrum emerge as promising solutions to Ethereum’s scalability problems. Their unique approach promises an improved user experience on the Ethereum network by embracing a diverse range of users and developers. As the blockchain landscape continues to evolve, these layer 2 solutions are poised to play a pivotal role in shaping the future of decentralized applications and digital assets. However, the choice between Optimism and Arbitrum depends on specific use cases, developer preferences, and the evolving needs of the Ethereum ecosystem.

Participants in the Ethereum community can closely monitor the progress and evolution of these solutions to make informed decisions. Through this, they actively contribute to the advancement of decentralized finance and blockchain technology, helping to build a more scalable, efficient, and user-friendly blockchain future.

Original source — https://www.codezeros.com/optimism-vs-arbitrum-comparing-the-two-popular-ethereum-layer2-rollups