Polygon, Arbitrum, Optimism — each of them promises to tackle Ethereum’s main sticking points. But how do they go about dealing with them, and, more importantly, which one should you choose for your own project?

Ethereum is currently the most popular blockchain in the crypto community, with a market cap of more than $200 billion. Each year more and more decentralized applications, or dApps, are built on top of it. However, the platform clearly was not ready for this uptick in the number of users and transactions. The result has been poor scalability and enormous transaction fees.

Layer 2 solutions like Polygon, Arbitrum and Optimism were designed specifically to address all the challenges of Ethereum. But the question is this: which of the three does so in the most efficient way?

In our projects, we have tested all these protocols, selecting different ones based on the specific needs of each project. For example, we chose Polygon for developing a video NFT marketplace due to its robust ecosystem and eco-friendly PoS consensus. This choice aligned with our client’s goal of creating a carbon-neutral ecosystem.

In contrast, for a transportation company looking to use blockchain for connecting shippers, carriers, and drivers, and for tokenizing cash flows, we recommended Optimism. This was because Optimism provided the enhanced security of Ethereum, which was a priority for the client, while also significantly reducing gas fees and improving transaction speed.

Based on our experience, we believe that each Layer 2 solution has its unique strengths and weaknesses. It’s crucial to understand these differences to select the most suitable one for your project.

For further guidance, check out our Polygon vs Arbitrum vs Optimism comparison to make an informed decision.

What is a Layer 2 protocol?

Layer 2 refers to a series of different protocols that are designed to facilitate the creation of smart contracts on the Ethereum main chain, commonly known as Layer 1. So, while Layer 1 apps and smart contracts deal directly with the main chain, Layer 2 solutions operate on top of the core Ethereum blockchain.

On average, Ethereum processes about 13-15 transactions per second (TPS), while the cost for the transaction could reach $200. That is why users like to search for new platforms that don’t impose such a heavy financial burden on them.

Ethereum Layer 2 scaling solutions help free up the platform by taking transactions off the main chain, offloading them to Layer 2, and then posting transaction data back to Layer 1. This way the Ethereum blockchain can ensure better scalability, higher transaction processing capacity, and lower gas fees. Meanwhile, as the transaction data is placed on Layer 1, it is secured by the same Layer 1 security measures.

This combination of Layer 1 and Layer 2 means you can benefit from scalability and increased throughput while retaining the integrity of the Ethereum network, allowing for complete decentralization and better security.

Introduction to sidechains: Polygon

Polygon, formerly known as Matic Network, is a Layer 2 scaling solution that runs alongside Ethereum and enables the connecting and building of networks compatible with Ethereum.

It’s important to differentiate Polygon from other Layer 2 solutions like Arbitrum and Optimism since Polygon is technically a sidechain. The difference is that Layer 2 solutions are fully secured by the Ethereum platform, while side chains use their own consensus algorithms. So, sidechains are independent, EVM-compatible solutions that run in parallel with the mainnet.

When it comes to Polygon, it is based on the Proof of Stake (PoS) consensus mechanism, which has multiple benefits over PoW — such as faster transactions and lower gas fees. For instance, Polygon has the capacity to process up to 65,000 TPS, outperforming Ethereum by a factor of five.

Polygon also applies a layer 2 scaling technology named Plasma, as well as ZK rollup scaling solutions and Optimistic Rollups, the scaling solutions that allow the platform to validate transactions almost in real time.

The platform has its native token, called MATIC. To use Polygon, you will need to swap ETH for MATIC over a chain bridge that leverages a lock and mint mechanism allowing you to deposit your ETH. Once it gets locked in the smart contract, Polygon mints you an equal amount of MATIC tokens when going through the chain bridge the other way, from MATIC to ETH. The MATIC tokens are then destroyed while ETH is released from the smart contract.

On Polygon, token withdrawals take from several hours to a week depending on the chain bridge being used. For example, using the PoS bridge, the withdrawal will take roughly three hours; using the Plasma bridge, this could increase to seven days.

The main advantage of sidechains is that they ensure flexibility, enabling developers to add new features or software updates before pushing them on the main chain.

Nevertheless, they have their drawbacks as well, such as lower security. Being separate blockchains, they do not have the security of Layer 1. If they are hacked, though, the damage will be contained within this chain while the main chain will not be affected. At the same time, if the main chain is compromised, sidechains can still operate.

Introduction to Optimistic Rollups: Arbitrum and Optimism

Both Arbitrum and Optimism fall into the category of Optimistic Rollups — another Layer 2 protocol aimed at solving Ethereum’s scalability problem. The term rollup is used to explain the way the chain bundles many transactions to submit to the main chain.

Understanding Optimistic Rollups

Optimistic Rollups differ from sidechains in the way that rollups interact with the main chain and use smart contracts that reside within Ethereum. This produces their main benefit — the potential to inherit both Ethereum’s security features and its secure consensus mechanism.

Another advantage of Optimistic Rollups is that they use the existing Ethereum tooling. This means that there is no need for a long onboarding process, as developers can quickly start building apps using Optimistic Rollups.

Optimistic Rollups owe their name to the fact that the transaction data transmitted back to the main chain is not initially checked. They do not perform any computation but assume that transactions are valid and that aggregators, block producers in the Optimistic Rollups ecosystem, work without cheating.

Optimistic Rollups rely on fraud proofs to dispute fraudulent transactions, should such cases occur. So, if someone says that the data is invalid, then the computations will be checked. They can be verified through cryptography and, if it turns out that fraud has taken place, the fraudulent transactions will be rolled back while those who committed the fraud get ejected.

And this leads us to the main disadvantage of Optimistic Rollups — long wait times for on-chain transactions due to potential fraud challenges.

Now that we’ve got our heads around Optimistic Rollups, let’s take a look at their main representatives, Arbitrum and Optimism respectively, and dive deep into the differences between the two Ethereum scaling solutions.

What is Arbitrum?

Arbitrum describes itself as a Layer 2 platform that aims to improve Ethereum smart contracts by streamlining their transactions and boosting scalability while adding more privacy features.

It enables developers to run unmodified EVM contracts and Ethereum transactions on a second layer while leveraging Ethereum to ensure correct results and to benefit from its excellent security.

The platform has proven to be one of the leading players among Ethereum Layer 2 scaling solutions. According to the 2023 Developer Report, the Arbitrum network stands out as one of the rapidly expanding Layer 2 solutions, experiencing a year-over-year (YoY) increase in developer team size exceeding 50%. Moreover, in December 2023, its daily transactions increased by 58%, recording an all-time high of 5.4 million.

What is Optimism?

Optimism is a Layer 2 scaling protocol for Ethereum apps which aims to make transactions affordable and accessible to anyone. Optimism is compatible with EVM and is designed on the principles of simplicity, pragmatism and sustainability.

Optimism looks, feels and behaves as Ethereum, yet it is cheaper and faster. In December 2023, the Optimism ecosystem accounted for 39.5% of Layer 2 TVL. The remarkable success of the Optimism’s Stack ecosystem has resulted in Arbitrum’s Total Value Locked (TVL) dominance in the L2 sector falling below 50% for the first time in over two years.

Arbitrum vs Optimism: what are the differences between these two?

Although both Arbitrum and Optimism use the same technology of Optimistic Rollups, the platforms have some fundamental differences in the way they function, particularly in respect to bridging and fraud proof verification.

Take a look at the Optimism vs Arbitrum comparison table below to quickly grasp the key differences.

Fraud proof verification

When dealing with suspicious transactions, Optimism sends the entire transaction again through the EVM, so the fraud proof verification is instant. At the same time, the result is higher cost, since on-chain Layer 1 execution requires more gas. Moreover, the Layer 2 fee is limited by the Layer 1 gas block.

As for Arbitrum, it processes suspicious transactions off-chain by sending only the suspicious part within a transaction back to the EVM. Although it takes more time to narrow down the point of dispute and detect what is suspect, Arbitrum can boast higher transaction capacity compared to Optimism. So, in this particular Arbitrum vs Optimism battle, the former scores the first point.

Bridging and native tokens

Both platforms apply bridges to interact with other blockchains and ensure the flow of tokens. However, Arbitrum uses a permissionless bridge for all tokens, whereas Optimism deploys dedicated bridges based on the market demands.

As for the native tokens, Optimistic Rollups leverage the OP token while Arbitrum relies on the ARB token.

Dependence on EVM

Arbitrum has its own virtual machine, Arbitrum Virtual Machine, which reduces its dependence on EVM. In Optimism, all transactions are processed through EVM, so if Ethereum receives a major consensus overhaul, re-executing Layer 1 transactions would result in divergent final states.

This explains why Optimism is currently working towards a new fraud proof verification model, to act as an EVM equivalent. EVM compatible differs from EVM equivalent in the sense that the former does the processing on the EVM while the latter uses a compatible virtual machine like the aforementioned Arbitrum Virtual Machine.

It is also worth of note that Arbitrum recently introduced Arbitrum Nova — a new chain that aims to lower individual transaction costs by minimizing data storage on the Ethereum blockchain. Instead, transaction data is stored with third-party providers, including Infura and Google Cloud, in a “data availability committee.”

In contrast to Arbitrum One, the official mainnet of the Arbitrum Ecosystem, which stores transaction data on Ethereum, Arbitrum Nova relies solely on Ethereum to store data signatures provided by third parties. This approach makes Nova more centralized, leading to a trade-off where it sacrifices some of Ethereum’s security in exchange for lower transaction fees and improved scalability.

Arbitrum vs Optimism vs Polygon: key differences

Although Arbitrum, Polygon and Optimism all are aimed at providing better scalability to Ethereum, there are differences in their ecosystems and level of decentralization, as well as the ways they function, including consensus mechanisms, speed of transactions, and gas fees.

Before reading a more detailed comparison, you can examine the Polygon vs Arbitrum vs Optimism comparison table below, which displays the main differences between the platforms.

You can also find a detailed comparison of the three Layer 2 platforms in our video. In it, our business analyst compares Polygon, Arbitrum, and Optimism in detail.

Ecosystem

Established in 2017, Polygon quickly gained trust among companies of all sizes that started to build dApps on top of the platform. At present, there are 53,000 dApps built on the Polygon blockchain, with the most popular ones being Uniswap V3, QuickSwap, My Crypto Heroes, Pegaxy, Aave, and Smart Cats.

At the time of writing, Polygon has $881,46M TVL.

Optimism was established in 2021 and currently has around 370 dApps and integrations in its ecosystem. Some of the popular Optimism dApps are Uniswap V3, Stargate, Ox Protocol, Jumper Exchange, ParaSwap, and Move Stake. Its current TVL is $884,81M.

As for the Arbitrum solution, it was introduced to the market in 2021 and now has around 580 dApps and tools, such as Curve, Cream Finance, Uniswap V3, Forta, and Aave. At the time of writing, Arbitrum has $2,63B TVL.

Consensus algorithm

Polygon leverages the Proof of Stake consensus algorithm, which provides increased scalability and lower gas fees. To participate in the consensus process, users need to stake Polygon’s MATIC tokens to indicate their commitment to the process.

The bridge relay mechanism is run by the Polygon PoS validators. At least two-thirds of the validators need to agree on the locked token event on Ethereum in order to go on and mint the corresponding amount of tokens on the Polygon blockchain.

Neither Optimism nor Arbitrum have their consensus mechanisms. These Ethereum scaling solutions take advantage of the consensus mechanism of their parent chain instead of providing their own.

Token withdrawals

If we compare Arbitrum vs Optimism vs Polygon by their token withdrawal time, we’ll see that the Polygon blockchain is faster than its competitors.

Withdrawals through Optimism and Arbitrum can take 7 days, while those on Polygon through the PoS bridge will be completed in just 3 hours.

Decentralization

In terms of decentralization, Arbitrum and Optimism occupy safer positions since they are secured by Ethereum’s widely distributed network of miners.

In contrast, the Polygon blockchain is secured by MATIC staking, which is a smaller pool of capital if we compare it to the miners who are securing the Ethereum platform.

Scalability and transaction fees

Ethereum’s slow speed of transaction and huge gas fees were the key reasons behind the creation of Ethereum Layer 2 scaling solutions. So how do Arbitrum, Polygon and Optimism deal with these problems?

Based on the PoS consensus algorithm, Polygon is able to process up to 65,000 transactions per second, while maintaining low fees. At the time of publication, the average gas fee is 42 gwei, with 1 gwei equal to 0.000000001 MATIC.

Arbitrum allows for 40,000 transactions per second, with gas fees ranging between 0.011$ and 0.016$, according to Bitbond.

Optimism has the capacity to process up to 2,000 transactions per second. Previously, Optimism’s fees were around $0.60. However, the network’s Bedrock upgrade, which aimed to enhance chain functionality by reducing deposit confirmation times from 10 minutes to 1 minute and lowering gas fees, has successfully reduced the gas fees to $0.16.

Will Ethereum Merge make Layer 2 solutions irrelevant?

The Ethereum Merge, while a significant step in Ethereum’s development, will not render Layer 2 solutions irrelevant. In fact, they will continue to play a crucial role in both the short and long term. This is because the Merge primarily transitions Ethereum from a PoW to a PoS consensus mechanism, focusing on improving the network’s energy efficiency and overall security. However, it does not directly address two major ongoing challenges: high gas fees and network congestion.

Layer 2 solutions, including Polygon, Arbitrum, and Optimism, are designed specifically to tackle these issues. Furthermore, the Ethereum Foundation itself has emphasized the importance of L2 solutions. They recognize that L2s are essential for scaling the network effectively, particularly as Ethereum continues to grow in popularity and usage.

The development of Layer 2 technologies is expected to progress in parallel with Ethereum, enhancing the network’s capabilities and offering diverse options for users and developers.

Which Layer 2 solution should you choose for your project?

When choosing Layer 2 for your project, the golden rule is to start with the analysis of your business requirements. You need to identify your key goals and priorities, at the same time as defining the functionality that matters most to your project.

For example, if you prioritize scalability, then Polygon would appear to be a reasonable choice as it is faster compared to Optimism and Arbitrum. If you are developing a complex solution with a comprehensive toolset, Polygon is again right for you. Having been established back in 2017, the protocol has been well studied and benefits from a large ecosystem.

Besides this, you need to understand that Polygon has become a stand-alone protocol that can function without the main network. Optimism and Arbitrum, on the other hand, are rollups that rely on the main network.

As both Arbitrum and Optimism leverage Ethereum’s consensus algorithm, these Layer 2 solutions can help you to ensure increased security for your project.

Closing thoughts

By comparing Arbitrum vs Optimism vs Polygon, we can say that they all bring scalability to Ethereum and offer an alternative to its exorbitant transaction costs. Even so, each of them tackles Ethereum’s challenges in its own way.

When choosing Layer 2, you should do research on the characteristics that matter most to your business. It would be wise to consider such factors as the size of the platform’s ecosystem, how many transactions it can handle per second, and how much time it will take to withdraw tokens. Then, you will need to align these characteristics with your project goals.

If you struggle to make the right decision or have a complex project in mind, you can partner with blockchain consultants, someone like…ummm…oh yes, our team! Seventeen years of experience, 450+ projects, and certified blockchain consultants and developers on board have left us equipped to deliver successful solutions to our clients.