Arbitrum is an Ethereum layer-two scaling solution that strives to enhance the speed, scalability, and cost-efficiency of Ethereum. It utilizes optimistic rollups to aim for these improvements, moving most of the computation and storage load off-chain. This method seeks to provide higher throughput and lower fees compared to Ethereum, while still benefiting from Ethereum's security and compatibility. The native token of Arbitrum is ARB, which is used for governance. The developers behind Arbitrum, Offchain Labs, have transitioned to a decentralized autonomous organization (DAO) structure, known as the Arbitrum DAO. ARB holders can vote on proposals that influence the features, protocol upgrades, funds allocation, and election of a Security Council.

Arbitrum operates using optimistic rollups, a technology that aims to increase the scalability of Ethereum. It supports unmodified Ethereum Virtual Machine (EVM) contracts and transactions, meaning existing Ethereum decentralized applications (DApps) can run on Arbitrum without any code changes. Arbitrum aims to handle a high number of transactions per second with lower fees and faster finality, while maintaining the security guarantees of Ethereum. It also allows developers to deploy programs written in popular programming languages like Rust, C++, and more using Stylus, its upcoming EVM+ equivalence feature. Arbitrum does not rely on any centralized operator or sequencer to order transactions. Instead, it uses a decentralized network of validators who stake ARB tokens and are compensated for securing the network.

Arbitrum aims to provide a scalable and cost-efficient platform for developers to build and deploy Ethereum-compatible DApps. This positions it as a potential solution for developers who aim to overcome the scalability and cost issues associated with Ethereum. Additionally, with its upcoming EVM+ equivalence feature, Stylus, Arbitrum seeks to enable developers to deploy programs written in popular programming languages like Rust, C++, and more. The ARB token, used for governance, allows holders to vote on proposals that affect the features, protocol upgrades, funds allocation, and election of a Security Council, thereby influencing the future direction of the Arbitrum ecosystem.

Arbitrum was developed by Offchain Labs, a New York-based development company founded by Ed Felten, Steven Goldfeder, and Harry Kalodner, former Princeton University researchers with extensive experience in computer science, cryptography, and blockchain. In 2021, Offchain Labs raised funds in its latest Series B funding round, led by Lightspeed Venture Partners, valuing the company at a certain amount. The Arbitrum DAO was announced as a shift towards a decentralized governance structure, with the ARB token serving as the governance token. In March 2023, Arbitrum announced an airdrop of ARB tokens to early users and DAOs building on Arbitrum. The token generation event took place on March 23, 2023. Arbitrum has a roadmap for 2023.

Arbitrum strives to address the challenges of high transaction fees and network congestion on Ethereum by offloading as much work and data storage as possible from Ethereum's mainnet, also known as Layer 1 (L1). This strategy of storing data off-chain used by the Arbitrum network is referred to as the Layer 2 (L2) scaling solution. Arbitrum employs a technology called Optimistic Rollups, which operates under the assumption that all new chain additions are genuine unless disputed within a week by a network user. This technology allows for the off-chain processing of transactions while striving to maintain the same level of security as the Ethereum mainnet. By processing transactions off-chain and only using the Ethereum mainnet as a final arbiter or validator, Arbitrum seeks to process transactions with less reliance on the main network. This approach aims to address the overall efficiency of the Ethereum network, with the intention of making it more manageable for users.

Arbitrum utilizes a variety of mechanisms that aim to uphold security measures, particularly with respect to user assets. It seeks to leverage the security of Ethereum, its Layer 1 host, through a set of smart contracts that manage communication between the Ethereum mainnet and the Arbitrum sidechain. These contracts strive to ensure that all transactions on the Arbitrum chain are valid. To further enhance security, Arbitrum validators are required to allocate a certain amount of cryptocurrency as a form of assurance. If they behave dishonestly or fail to validate transactions correctly, they may face the possibility of their allocated cryptocurrency being forfeited. Arbitrum also uses a fraud-proof system to detect and potentially penalize any invalid transactions. Data availability is another key feature that aims to allow users’ assets and data to be recovered from Layer 1 at any time, thus aiming to mitigate any potential loss. Users may also initiate a transaction request to the Inbox contract on Layer 1 to facilitate the retrieval of their assets. The AnyTrust mechanism aims to ensure that the retrieval transaction is processed correctly by Layer 2, thus aiming to mitigate any potential loss of assets.

Arbitrum is a platform that supports a variety of decentralized applications (DApps). Developers have the ability to build a range of DApps on Arbitrum, including decentralized finance (DeFi) applications, decentralized exchanges (DEXs), gaming platforms, and NFT marketplaces. Arbitrum supports infrastructure tools, web3 developer tools, and web3 wallet tools. It provides a suitable environment for the development of real-world asset DApps, venture capital firms, and web3 service providers. The platform strives to offer improvements in the scalability of Ethereum, and is utilized by developers who aim to build DApps with high throughput, low latency, and low transaction costs.

Arbitrum is utilized by a variety of projects and applications for their smart contracts. Some of these include GMX, a decentralized derivatives exchange; Radiant, a decentralized lending and borrowing platform; MAGIC (Treasure), a decentralized yield farming protocol; Gains Network (GNS), a decentralized prediction market platform; Camelot, a decentralized asset management platform; and Synapse (SYN), a decentralized exchange. These projects utilize Arbitrum's features with the intention to enhance user interaction while maintaining the security and decentralization of the underlying blockchain. Other projects that have integrated with Arbitrum include OpenSea, a well-known NFT marketplace; Forta, a decentralized monitoring network for real-time detection of web3 systems threats; MetaMask, a well-known EVM compatible crypto wallet; and Pantera Capital, an institutional asset manager with a focus on Blockchain technology.

Arbitrum has encountered a number of challenges and criticisms, particularly in relation to its governance and operational decisions. A significant controversy emerged when the Arbitrum Foundation proposed a budget of 750 million ARB tokens, nearly $1 billion, which was perceived as a ratification of a decision that had already been made. This led to a backlash from the community, with over 70% of tokens voting against the move. In response, the foundation clarified that the proposal was indeed a ratification and not a new proposal, and that some of the tokens had already been exchanged for stablecoins. The foundation also received criticism for transferring nearly 50 million ARB tokens on-chain, which it explained as a loan allocation to an entity in the financial markets space and conversion to fiat currency for operational costs. Another challenge was a partial outage due to an increase in network traffic, which lasted approximately two hours. The Arbitrum team acknowledged the issue, worked to resolve it, and indicated its intention to provide a detailed post-mortem report to clarify the incident and the measures taken to rectify it. These instances highlight Arbitrum's actions in response to community concerns and technical issues.