Headline: What is Offchain Labs (Arbitrum) and what does it have to do with cryptocurrency?

Body:  When I first heard of Offchain  Labs, I have to admit, I was smitten with the name.   First, in cryptocurrency, this is akin to doing all of the complicated mathematics on “scrap paper” (This scrap paper is called Arbitrum) and only adding to the real chain, the final answer.   In this way, the main chain becomes more efficient in carrying information.  But, as I lived in Philadelphia for 5 years, I also learned that “off the chain” has a different meaning.  They might also say “out of pocket” and in both utterances, they refer to  an occurrence that is both unexpected and wondrous, in some way.  So, given its (at least) 2 meanings, I fell in love with the name.   So, who are they?   And, are they important to cryptocurrency?

Who are they?

Offchain Labs is a venture-backed entity that started with several leading characters from Princeton.  Felten, (a former White House advisor) along with a team of academics and PhD technologists, including Steven Goldfeder and Harry Kalodner, are responsible for leading the development of Arbitrum. Today, Offchain Labs announced it has raised a $3.7 million USD Seed Round led by Pantera Capital. The funding will be used to grow the team of developers to build Arbitrum.

Are they important to cryptocurrency?

Yes, they are very important.  First, they bought out Prysmatic Labs, which was itself, vital to the changing of Ethereum to the proof-of-stake network it is now.  After the acquisition, Offchain Labs stands a great chance at helping the new network to thrive and helps them in their efforts at scalability of the network.  The co-founder of Prysmatic Labs feels that they are most important as they can efficiently write the software needed to run the network.

Offchain Labs has the economic clout to pull off this acquisition due to the raising of more than $120 Million from investors.   Now, the combined headcount in the company exceeds 60.  The deal was announced in an October 13th blog post, but the financial terms remain undisclosed.  Despite this non-transparency, both entities appear happy about the deal.

Merging with Offchain Labs made perfect sense to us as an Ethereum team because we develop software extensively in Go, are fully incentive-aligned with the success of Ethereum, and are focused on shipping quality software for others to use,” Jordan said.

So, what is holding them back?

In a word, it is belief.  Many entities believe that they will only achieve the  privacy they seek on a private blockchain.  Offchain Labs intends to demonstrate that they can utilize the public Ethernet blockchain, yet maintain the security they yearn for.  Arbitrum is being built to help integrate these 2 intentions, by making it so that only the digital  signatures of both parties need to be validated by miners.

When a smart contract is launched and a set of validators have been designated, Arbitrum provides an AnyTrust guarantee, which greatly reduces the cost of smart contracts. As long as one of those validators is behaving honestly, then correct execution of a smart contract is guaranteed.   Said one company official:

“With Arbitrum, we have invented a protocol that sits on top of any blockchain, with the ability to execute code and transactions off-chain through either sidechains or state channels. With increased privacy and scalability, as well as much lower costs to run a contract, Arbitrum adds immense value to developers and enterprises.”

The Verdict

Offchain Labs is certainly an entity to watch.  Admittedly, this whole Layer1 v. Layer 2 thing is a bit technical for me.  (perhaps leading to its own entry?) But, if it does make the Ethereum blockchain even more efficient (cutting time and gas fees) it seems to be a very valid thing to work on.  Per the company’s own website (probably a bit biased of course) the traffic on their part of the Ethereum blockchain has increased 550%, and that seems to be a truly  important vote of confidence.  Further, many of their investors as well as founders, seem well-positioned to have positive effects upon the company.  We shall have to wait and see.





Editor’s Note: Please note that the information contained herein is meant only for general education: This should not be construed as Tax Advice.   Personal attributes could make a material difference in the advice given, so, before taking action, please consult your tax advisor or CPA.


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