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The Arbitrum Nitro Upgrade

Arbitrum Nitro is an upgrade to Arbitrum Classic (the first tech stack released on Arbitrum One). Nitro significantly increased network capacity and reduced transaction costs. After implementing the Nitro upgrade, the network’s throughput increased by 7-10x.

Nitro’s design has four different features, making Arbitrum One more efficient and Ethereum-compatible.  

• Geth at the core: The custom-built EVM emulator of Arbitrum Classic was replaced by open-source go-ethereum (Geth), the most popular and supported execute layer node software. Geth handles the core execution and state maintenance functions in Nitro. Using Geth, the execution and state of a rollup become highly compatible with Ethereum. Most of the benefits of Nitro were possible due to the design choice of using Geth.
• Separation of execution from proving: Code of state transition function is compiled for two purposes. First, it’s compiled for native execution in ordinary operations. Secondly, code is compiled into portable web assembly (Wasm) code for use in fraud proofs in case any dispute arises. This approach ensures fast executions of transactions.
• Optimization in fraud proofs: Nitro uses optimized dissection-based interactive (multi-round) fraud proofs.
• Sequencing: is followed by deterministic execution of transactions
  
  

Handling of submitted transactions takes place in two stages:

1. Transactions are put into the sequence for processing and the sequencer commits to that sequence. 
2. Deterministic state transition function is applied to each transaction in sequence. The state transition function only gives results of the valid transactions submitted to it.

2 major benefits of Nitro

1. Lower fees for end users, which is possible due to two reasons. First is the separation of execution from proving, which makes execution fast and increased node performance. Second, advance calldata compression is done using brotli, a well-known general-purpose compression method to compress each batch of transactions. Using this method, transaction fees on Arbitrum are reduced further as fewer data now needs to be posted to layer 1.
2. More EVM compatibility due to the use of Geth and Ethereum layer 1 gas compatibility, which ensures improvement in pricing and accounting for EVM operations perfectly in line with Ethereum.

AnyTrust (A variant of Arbitrum Nitro technology)

AnyTrust is a type of “honest minority” sidechain with rollup fallback and functions as a mode of Arbitrum that allows for ultra-low-cost transactions with strong security guarantees. These types of chains operate similarly to any alternative layer-1 or sidechain, but with significantly higher security due to a different consensus model, using a “1-of-N” consensus rather than “%-of-N” consensus. They also feature a “fallback” mode in the case of one or two validators dissent, which makes the chain fall back into a rollup. 

AnyTrust chains are superior to alternative L1s and also to sovereign rollups since they can allow for much lower cost and faster withdrawals in exchange for a minimal extra trust assumption. Compared to sidechains, AnyTrust’s key advantage is it’s built on top of Ethereum, so it doesn’t require a separate set of validators and, therefore, less trust. However, the “gold standard” of rollups would be a secured Ethereum rollup, which will also be negligibly cheap post-EIP-4844 and danksharding.

AnyTrust works by using a chain that's operated by a committee of nodes with a minimal assumption about how many committee members are honest. For example, there might be 20 committee members and an assumption that at least two of them are honest. This is a much easier trust assumption compared to conventional BFT sidechains, which require more than two-thirds of the members (14 out of 20) to be honest. The trust requirement can be reduced from 14 to two because of AnyTrust’s unique “fallback to rollup” feature built on top of Ethereum.

Assuming the trust assumption holds and the committee members participate, users get two big advantages when using AnyTrust. First, there’s no need to record L2 transaction data on the L1 chain because nodes can rely on the committee to provide data if needed. Instead, with the committee’s promise to provide data, it’s safe to simply record the hash of a transaction batch on the L1, which saves the largest cost of running a rollup. Secondly, withdrawals to the L1 can be executed immediately as soon as the committee vouches for them.

Safety and Consensus

It’s safe to do either of these two actions described above as soon as 19 of the 20 committee members have promised (by signing) it’s acceptable. The logic is: if there are at least two honest members, and 19 of 20 have signed, then at least one honest member must have signed, since the quorum must contain an honest member. 

If a quorum signs a promise to provide the data backing a batch of transactions, we know data will be available to anyone who wants it. Therefore, we know it’s safe to post the hash of the data, rather than the full data, on the L1 chain. Similarly, if a quorum signs a statement saying a particular state transition is correct, the state transition can be accepted without waiting for a challenge period. This relationship allows withdrawals to L1 to be processed immediately with AnyTrust.

In the case of lacking an active quorum willing to sign statements, neither of those things can happen. However the chain can still operate and make progress by using the original Arbitrum rollup protocol as described below. 

Fallback to Rollup Mode

If the committee doesn’t sign anything or several committee members crash, or refuse to cooperate, the chain can still operate, but by falling back to a standard rollup protocol. 

In this mode, transaction data will be posted on the L1 Ethereum chain and withdrawals will have a delay period, just like on a standard rollup, until the committee resumes operation. Then the chain will switch seamlessly back to the cheaper, faster mode of operation.

While Arbitrum is off to a hot start, it’s not without issue. In January 2022, the Arbitrum rollup network came to a halt. Offchain Labs soonafter released a post-mortem explaining the issue was due to the main sequencer experiencing a hardware failure during a software upgrade. This issue cascaded down the system, preventing even the redundancy measures in place from working. Eventually, the issue was corrected and has since been restored to full functionality. During the downtime, no funds were at risk (thank you, rollup!), but no transactions could be executed, including deposits and withdrawals.

In summary, if at least two members are honest, the chain operates correctly, and it follows that if there are 19 members available and cooperating, it operates at minimal cost. In fallback to rollup mode, the chain will operate at the cost of an Ethereum-based rollup and it will be evident who the non-cooperating or unavailable members are so they can eventually be replaced.

Therefore, AnyTrust can be best thought of not as an L2, but rather as a sidechain with a 19/20 liveliness assumption, a 2/20 safety assumption, and 1/20 DA assumption, which falls back to an ORU during a liveliness failure, which would be a safety failure putting funds at risk. However, this security model is worse than Validium. In Validium, only the DA assumption is needed, whereas in AnyTrust, both the DA and the safety assumptions must hold.

Arbitrum Nova

Arbitrum Nova was launched for the public on August 9th, 2022. Reddit deployed its community points system to Nova, initially with two communities on the day of launch. Nova is built using AnyTrust technology. It’s suitable for gaming, social applications, and NFT ecosystems with high volume requirements or for projects that are open to using an off-chain data availability solution.

There are two key differences between the working of Arbitrum Nova and Arbitrum One:

1. The sequencer sends transaction data to the data availability committee (DAC) instead of posting all calldata to layer 1. This is the reason that a minimal trust assumption is added to Nova. It assumes that at least two committee members are honest. 
2. Since only data availability certificates are posted to layer 1 instead of full transaction data, the result is cost savings as the smaller amount of data needs to be posted on layer 1. Thus, transactions on Nova are significantly cheaper than on Arbitrum One.

Currently, there are six members in the data availability committee: Consensys, Google Cloud, Offchain Labs, P2P, Quicknode, and Reddit. Over time, more members will join the DAC.

You can bridge your assets over to Nova from the Ethereum mainnet using the official Arbitrum bridge. 

At the time of writing, the Total Value Locked (TVL) on Nova is ~$850,000. Three protocols capture all of the TVL and all of them are DEXes: Sushihswap, Arbswap, and RCPswap. It shows that Nova is in its early phase of adoption and has yet to attract much attention from developers and users. Launch during weak market conditions and no incentives to build on Nova are two major reasons for Nova’s slow adoption. 

Prysm Acquisition, Token Speculation, and Risks Involved

Offchain Labs announced on October 12th, 2022 that they’ve acquired Prysmatic Labs, an Ethereum core development team. This was met with some controversy, shaking up the L2 space and merging the L1 layer even closer to rollups.The competitive and for-profit aspect of Layer-2 protocol development has many advantages, including greater financing, attention, and innovation speed. The goals of Prysmatic Labs remain the same and it will remain a fully open-source and neutral consensus client. It will continue contributing to Ethereum’s core development.

Offchain Labs has not commented on the confirmation of any native token. Right now, all Arbitrum users are speculating in case the Arbitrum token gets launched and an airdrop occurs. To increase your chances of getting an airdrop, you can use various dApps on Arbitrum One and Arbitrum Nova and use the official bridge to transfer assets. 

In this article, all of the features of Arbitrum One and Nova have been described, but currently, not all of these features are fully implemented yet. Currently, both Arbitrum One and Arbitrum Nova are in mainnet beta. 

Below are various risks you should be aware of while using Arbitrum chains 

1. Funds can be stolen if the invalid state gets submitted to layer 1 and none of the whitelisted validators checks the published state. Currently, permissionless access to become a validator is not present. Funds can also be stolen if the contract receives a malicious code upgrade. Currently, there’s no delay present on code upgrades.  
2. User funds can be lost if some mistakes are present in Nitro and Wasm one-step prover implementation. 
3. MEV can be extracted as there is only one sequencer present because it can front-run user transactions as only the sequencer can order transactions.
4. If transaction data becomes unavailable, user funds can be lost.
5. Users can also be censored if members of data availability committed (DAC) restrict their access to external data