ETHEREUM GREECE
NTUA ECE — Arbitrum Academic Bridge
SESSION 1
Blockchain Evolution
& Arbitrum
From Bitcoin's UTXO Model to Layer 2 Systems
Bitcoin
Ethereum
Layer 2
SESSION OVERVIEW
What We'll Cover Today
01
Bitcoin: The First Blockchain
Understanding the foundational blockchain architecture and the UTXO model that started it all
UTXO
Consensus
02
Ethereum: Programmable State
The evolution from limited scripting to general-purpose smart contracts and account-based model
Smart Contracts
Gas
03
The Scaling Problem
Why Ethereum L1 cannot scale and the blockchain trilemma trade-offs we must navigate
Trilemma
TPS
04
Rollups & Layer 2 Solutions
How rollups achieve scalability while inheriting Layer 1 security guarantees
Optimistic
ZK
05
Arbitrum Architecture
A first dive into Arbitrum's implementation of optimistic rollups, sequencer mechanics, fraud proofs, and economic incentives
Sequencer
Fraud Proofs
DeFi
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PART 01
Bitcoin:
The First Blockchain
Understanding the foundational blockchain architecture and the UTXO model that solved the double-spending problem
Genesis Block
January 3, 2009
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BITCOIN FUNDAMENTALS
What Problem Did Bitcoin Solve?
The Double-Spending Problem
In digital systems, money is just data. Without a central authority, how do you prevent someone from spending the same digital coin twice?
BEFORE BITCOIN
Trusted third parties (banks) required
Single point of failure
Censorship & control
2008
Bitcoin Whitepaper Published
by Satoshi Nakamoto
Bitcoin's Solution
1
Peer-to-Peer Digital Cash
Direct transactions between users without intermediaries
2
Global Consensus
Distributed agreement on transaction history via Proof of Work
3
Immutable Ledger
Once recorded, transactions cannot be reversed or altered
Key Innovation
Decentralized Consensus
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UTXO ARCHITECTURE
Bitcoin UTXO Model Explained
Transaction Flow Visualization
UTXO INPUT
0.8 BTC
OUTPUT 1
0.3 BTC
OUTPUT 2 (Change)
0.5 BTC
MULTI-INPUT TRANSACTION
0.2 BTC
0.3 BTC
0.5 BTC
0.8 BTC
0.2 BTC
Total Input = 1.0 BTC → Total Output = 1.0 BTC (minus fees)
How UTXO Works
1
Coins as Outputs
Each transaction creates new unspent outputs
2
Spend = Consume
To spend, you must reference previous outputs
3
Change Returned
Unspent amount comes back as new UTXO
4
Parallel Verification
Each UTXO can be verified independently
ANALOGY
Think of UTXOs like cash bills. You can't tear a $10 bill in half—you must spend the whole bill and receive change.
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UTXO PROPERTIES
UTXO Characteristics & Limitations
Key Strengths
Stateless Verification
Each transaction is self-contained. Validators don't need to track account balances—just verify that inputs are unspent.
Parallel Processing
Different UTXOs can be processed simultaneously, enabling better throughput for simple transfers.
Privacy by Default
New addresses for each transaction make it harder to link payments to specific users.
Limitations
Limited Scripting
Bitcoin Script is intentionally simple—no loops, no complex logic. Great for security, limited for applications.
No Shared State
Each UTXO is isolated. Building complex applications requiring shared state (like DeFi) is extremely difficult.
Complex Wallet Logic
Wallets must track multiple UTXOs and optimize coin selection, making simple "balance" queries non-trivial.
The Innovation Gap
These limitations inspired Vitalik Buterin to create Ethereum in 2015
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PART 02
Ethereum:
Programmable State
The evolution from limited scripting to general-purpose smart contracts and the account-based model
Genesis Block
July 30, 2015
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ETHEREUM EVOLUTION
From Bitcoin to Ethereum
Bitcoin
Digital Gold
SCRIPTING
Stack-based, limited opcodes
No loops, no complex logic
USE CASE
Peer-to-peer payments
Store of value, transfers
STATE MODEL
UTXO - Unspent outputs
Isolated, stateless
Ethereum
World Computer
SMART CONTRACTS
Turing-complete EVM
Loops, conditionals, storage
USE CASE
General-purpose applications
DeFi, NFTs, DAOs, gaming
STATE MODEL
Account-based with storage
Shared, mutable state
"Ethereum is a decentralized platform that runs smart contracts: applications that run exactly as programmed without any possibility of downtime, censorship, fraud, or third-party interference."
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ACCOUNT ARCHITECTURE
Ethereum Account Model
Two Types of Accounts
EOA
Externally Owned
Controlled by private key
Can initiate transactions
Has ETH balance
No code/storage
Contract
Smart Contract
Contains executable code
Has persistent storage
Can hold ETH balance
Cannot initiate txns
ACCOUNT STATE STRUCTURE
Balance
ETH amount
Nonce
Transaction count
Storage
Contract data
Account vs UTXO
GLOBAL BALANCE
Each account has a single balance number, not a collection of UTXOs
SIMPLER MENTAL MODEL
Like a bank account—just check your balance, no coin selection needed
SHARED STATE
Contracts can read/write shared storage, enabling complex interactions
EXAMPLE ADDRESS
0x71C7656EC7ab88b098defB751B7401B5f6d8976F
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STATE TRANSITIONS
Ethereum as a State Machine
State Transition Function
STATE AT TIME t
Stateₜ
All account balances, nonces, contract storage
TRANSACTION
TX
Signed message with from, to, value, data, gas
STATE AT TIME t+1
Stateₜ₊₁
Updated balances, executed contract code
Deterministic Execution
Given the same state and transaction, every node produces the exact same result.
WHY IT MATTERS
Ensures consensus—no ambiguity about what happened
Gas-Metered Computation
Every operation costs gas. Users pay for computation, preventing infinite loops and spam.
GAS MECHANISM
SSTORE: 20,000 gas | SLOAD: 100 gas | ADD: 3 gas
Block Structure
Transactions are bundled into blocks, creating an ordered history of state transitions.
BLOCK COMPONENTS
Header + Transaction List + Uncle Blocks
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SCALABILITY BOTTLENECK
Gas & Block Limits: The Bottleneck
Why Limits Exist
Denial of Service Protection
Without gas limits, attackers could submit infinite loops to crash the network.
Resource Allocation
Users pay for what they use. Scarce block space goes to highest-value transactions.
Decentralization
Lower resource requirements mean more people can run nodes.
GAS PRICE MECHANISM
Total Fee = Gas Used × Gas Price
Users bid higher gas prices during congestion
Current Ethereum L1 Limits
~ 15 - 28
Transactions/sec
typical usage
30M
Gas/Block
Current target
~12s
Block Time
Average
~ 200 - 360
Simple Transfers
Per block
The Scaling Problem
At 30 TPS, Ethereum can only handle ~2.6M transactions/day. Visa processes ~150M/day.
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PART 03
The Scaling
Problem
Why Ethereum Layer 1 cannot scale and the fundamental trade-offs in blockchain design
Throughput
Cost
Decentralization
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THE BLOCKCHAIN TRILEMMA
Scaling Challenges on Layer 1
The Impossible Triangle
You can optimize for two, but the third suffers
L1 Constraints
Limited Throughput
Real-world: 15-28 TPS.
High Fees Under Load
During NFT drops or DeFi frenzies: $50-200+ per transaction.
Global Replication Cost
Every node re-executes every transaction. O(n) scaling.
REAL-WORLD IMPACT
During the 2021 NFT boom, base fees exceeded $200, pricing out regular users.
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CENTRALIZATION RISK
Why Not Just Increase Block Size?
The Trade-off Problem
Bigger Blocks = More TPS
Doubling block size could theoretically double throughput.
SIMPLE MATH
2× block size ≈ 2× transactions per block
But At What Cost?
Bigger blocks create a cascade of problems that threaten decentralization.
BITCOIN CASH LESSON
In 2017, Bitcoin forked over block size. BCH increased to 8MB but saw node count drop.
The Centralization Spiral
1
Increased Hardware Requirements
Bigger blocks need more storage, bandwidth, RAM. 1TB+ SSDs, 100Mbps+ internet.
2
Fewer People Can Run Nodes
Higher costs exclude hobbyists. Only data centers and wealthy entities participate.
3
Network Becomes Centralized
10-20 entities control consensus. Censorship risk increases. Blockchain loses its purpose.
"Decentralization is the entire point. Without it, we just have slow, expensive databases."
— Vitalik Buterin
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PART 04
Rollups &
Layer 2 Solutions
How rollups achieve scalability while inheriting Layer 1 security guarantees
Core Innovation
Execute Off-Chain, Settle On-Chain
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L2 ARCHITECTURE
Layer 2 Rollup Model
The Layer 2 Stack
USERS
Submit transactions
Wallets, dApps, protocols
L2 EXECUTION
Process transactions
Fast, cheap computation
L1 SETTLEMENT
Final security
Ethereum mainnet
Speed
2,000-10,000+
Transactions per second
Cost
$0.005-0.50
Per transaction
Security
Inherited
from L1
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CORE PRINCIPLES
Rollup Design Principles
Off-Chain Execution
Transactions are executed on the L2 chain, not on Ethereum mainnet. This is where the speed and cost savings come from.
HOW IT WORKS
L2 nodes run EVM-compatible execution
Users pay L2 gas (much cheaper)
State updates computed locally
BENEFIT
100-1000x throughput increase
On-Chain Data
All transaction data is posted to Ethereum L1. Anyone can reconstruct the L2 state and verify correctness.
DATA AVAILABILITY
Compressed transaction data on L1
State roots posted periodically
Anyone can sync from L1 data
BENEFIT
Censorship resistance & transparency
L1 Security
Rollups inherit Ethereum's security. Fraud proofs or validity proofs ensure honest execution without trusting L2 operators.
SECURITY MODEL
Fraud proofs (Optimistic)
Validity proofs (ZK)
Economic guarantees
BENEFIT
Same trust assumptions as L1
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FRAUD PROOF MECHANISM
Optimistic Rollups: How They Work
The Optimistic Model
Assume Validity
Transactions are assumed correct by default. No immediate proof required.
Challenge Window
~7-day period where anyone can submit a fraud proof if they detect invalid state transitions.
Fraud Proof Game
If fraud is proven, the invalid batch is reverted and the malicious party is slashed.
KEY INSIGHT
Only 1 honest validator needed to secure the entire system. Economic incentives ensure honesty.
Fraud Proof Process
1
State Commitment
Validator posts new state root to L1
2
Challenge Period
~7 days for anyone to dispute
3
Fraud Proof (if needed)
Interactive proving on L1
4
Finalization
After challenge window, state is final
Trade-off: Withdrawal Time
Users must wait ~7 days to withdraw to L1. Fast bridges charge fees to bypass this.
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PART 05
Arbitrum
Architecture
Deep dive into Arbitrum's implementation of optimistic rollups
Leading L2 Solution
$10B+ TVL | 500+ dApps
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ARBITRUM SYSTEM
Arbitrum Core Components
Sequencer
The Sequencer orders transactions and provides instant soft confirmations. It's the gateway to the Arbitrum network.
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RESPONSIBILITIES
Receives user transactions
Orders transactions (FIFO)
Executes & provides instant receipt
Batches transactions for L1
KEY FEATURE
Instant confirmation (~0.3s)
Batch Submission
The Sequencer periodically submits compressed batches of transactions to Ethereum L1 for data availability.
BATCHING PROCESS
Compress multiple transactions
Post calldata to Ethereum (now blob)
Pay L1 gas for data availability
Anyone can reconstruct state
COST SAVINGS
~10-50x cheaper than L1 execution
Fraud Proofs
Arbitrum uses interactive fraud proofs. Validators play a "dissection game" to find the first point of disagreement.
INTERACTIVE PROVING
Binary search for disagreement
Narrow to single instruction
Execute on L1 to verify
Loser gets slashed (stake lost)
EFFICIENCY
O(log n) proving vs O(n)
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TRANSACTION LIFECYCLE
Arbitrum Execution Flow
Complete Transaction Journey
USER
Signs transaction
~0s
SEQUENCER
Orders & executes
~0.3s
BATCH TO L1
Data availability
~5-15 min
FINALITY
After challenge window
~7 days
Soft Confirmation
Once the Sequencer includes your transaction, you get instant (~0.3s) soft confirmation. The transaction is effectively final for most purposes.
USE CASE
DeFi trades, NFT mints, gaming—anything where instant UX matters
Hard Finality
After the ~7-day challenge window, the transaction achieves hard finality. It cannot be reverted, even if the Sequencer acted maliciously.
USE CASE
Large transfers, cross-chain bridges, security-critical operations
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TRUST MODEL
Security Assumptions & Guarantees
Core Assumptions
At Least One Honest Validator
The system remains secure as long as there's at least one honest party monitoring and willing to challenge invalid states.
WHY IT WORKS
Economic incentives align—honest validators earn rewards for catching fraud
Data Availability on L1
All transaction data must be available on Ethereum L1. Anyone can reconstruct the L2 state from L1 data.
WHY IT WORKS
Ethereum's censorship resistance ensures data availability
Economic Incentives
Validator Staking
Validators must stake ETH to participate. If they commit fraud and lose the challenge, their stake is slashed.
Honesty Rewards
Validators who successfully challenge fraud receive a bounty from the slashed stake, incentivizing constant monitoring.
Malice Penalty
The cost of attacking exceeds potential gains. Rational actors are incentivized to remain honest.
SECURITY GUARANTEE
Arbitrum inherits Ethereum's security. If Ethereum is secure, Arbitrum is secure (with 1 honest validator assumption).
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REAL-WORLD IMPACT
Economic Implications & DeFi Composability
Lower Fees
Arbitrum reduces transaction costs by 10-50x compared to Ethereum L1, making DeFi accessible to retail users.
COST COMPARISON
Token Swap (L1)
$0.2 - 20
Token Swap (Arbitrum)
$0.02-0.05
Transfer (L1)
$0.1 - 20
Transfer (Arbitrum)
$0.005-0.03
IMPACT
Democratizes DeFi access
Composability
Low fees enable complex, multi-protocol interactions. Flash loans, yield farming, and sophisticated strategies become viable.
DEFI ECOSYSTEM
GMX: Decentralized perps
Camelot: Native DEX
Radiant: Cross-chain lending
500+ protocols deployed
IMPACT
Rich, interconnected DeFi
Scalable Apps
High throughput enables applications that would be impossible on L1: gaming, social, high-frequency trading, and more.
USE CASES ENABLED
On-chain gaming (TreasureDAO)
Social protocols (Lens)
High-frequency trading
DAO governance at scale
IMPACT
Mass adoption infrastructure
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Why Engineers Should Care
Blockchain infrastructure represents one of the most fascinating distributed systems challenges of our time—production-grade, globally deployed, and constantly evolving.
Real-World Distributed Systems
Study production-grade consensus, fault tolerance, and Byzantine agreement at global scale with real economic stakes.
Production-Grade Infrastructure
Learn from systems securing billions in value. Understand the trade-offs between performance, security, and decentralization.
Live Experimentation
Deploy code, test theories, and contribute to open-source protocols. The ecosystem welcomes builders and researchers.
NEXT SESSION
Arbitrum Architecture Deep Dive
The Sequencer , the proofs, the incentives
Questions?
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ETHEREUM GREECE
NTUA ECE — Arbitrum Academic Bridge