How to Use Ethereum’s Layer 2 Solutions to Reduce Gas Fees

As Ethereum has become the backbone of decentralized finance (DeFi), non-fungible tokens (NFTs), and smart contracts, its growing popularity has led to a significant increase in gas fees—the fees users pay to execute transactions on the Ethereum network. These fees, measured in gwei, can fluctuate dramatically during periods of high demand, making it costly to interact with Ethereum-based dApps and protocols. Layer 2 solutions offer an effective way to reduce these gas fees by allowing users to conduct transactions off the Ethereum mainnet while still benefiting from Ethereum’s security and decentralization. This guide explains how Layer 2 solutions work, why they are important, and how to use them to lower gas fees.

What Are Layer 2 Solutions?

Layer 2 solutions are secondary frameworks or protocols built on top of the Ethereum blockchain (Layer 1) that help scale the network by moving transactions off-chain. These solutions still rely on Ethereum’s Layer 1 for security and settlement but perform most of the transaction processing off-chain, which reduces the load on Ethereum’s main network and, in turn, lowers gas fees.

Layer 2 solutions come in several forms, including rollups, sidechains, and state channels, each designed to improve transaction throughput, reduce costs, and maintain Ethereum’s decentralization.

Why Are Gas Fees So High on Ethereum?

Ethereum uses Proof of Work (PoW) to secure its network, requiring miners to validate transactions and add them to the blockchain. Gas fees are essentially incentives paid to miners for their work. As Ethereum becomes more popular, the demand for block space increases, causing gas fees to rise. When many users try to interact with dApps, DeFi protocols, or NFTs at the same time, the competition for block space intensifies, leading to a spike in gas fees.

While Ethereum 2.0 aims to solve scalability issues by transitioning to Proof of Stake (PoS) and introducing sharding, Layer 2 solutions provide an immediate way to alleviate high gas fees and increase transaction speeds.

How Layer 2 Solutions Help Reduce Gas Fees

By moving the bulk of transactions off the Ethereum mainnet, Layer 2 solutions allow users to interact with the Ethereum ecosystem more efficiently and at a fraction of the cost. Here’s how some of the most popular Layer 2 solutions work and how they can help you reduce gas fees:

1. Rollups

Rollups are one of the most popular and promising Layer 2 solutions. They work by bundling or "rolling up" multiple transactions into a single batch, which is then submitted to the Ethereum mainnet as one transaction. By doing this, rollups significantly reduce the number of transactions processed directly on Ethereum, lowering the gas fees for users.

There are two types of rollups:

• Optimistic Rollups: Assume that transactions are valid by default and only check for fraud if a dispute is raised. This design reduces computational requirements and lowers costs. Popular projects using optimistic rollups include Optimism and Arbitrum.
• ZK-Rollups (Zero-Knowledge Rollups): Use cryptographic proofs to validate transactions off-chain and then submit them to Ethereum. ZK-rollups are more complex but offer faster finality and lower fees. zkSync and Loopring are popular ZK-rollup-based platforms.

How to Use Rollups:

• Choose a platform that uses rollups, such as Optimism, Arbitrum, or zkSync.
• Connect your Ethereum wallet (such as MetaMask) to the platform.
• Deposit your funds from Layer 1 (Ethereum mainnet) to the Layer 2 solution.
• Once your funds are on the Layer 2 platform, you can make transactions with reduced gas fees.

2. Sidechains

Sidechains are independent blockchains that run in parallel to Ethereum but are compatible with the Ethereum network. They use their own consensus mechanism, often Proof of Stake, to process transactions more efficiently and at a lower cost. While sidechains are not Layer 2 solutions in the strictest sense, they provide a scalable alternative for users looking to avoid high gas fees on Ethereum.

Popular sidechains include Polygon (Matic) and xDai.

How to Use Sidechains:

• Choose a sidechain, such as Polygon or xDai.
• Bridge your funds from Ethereum’s Layer 1 to the sidechain using a bridge service (e.g., Polygon Bridge or xDai Bridge).
• Once on the sidechain, you can interact with dApps, trade tokens, or use DeFi protocols at a lower cost.
• You can later move your assets back to Ethereum’s mainnet if needed.

3. State Channels

State channels enable users to conduct multiple off-chain transactions without having to pay gas fees for each one. State channels work by locking up a certain amount of funds on Ethereum’s mainnet and then allowing users to transact off-chain. At the end of the session, the final state of the transactions is submitted to the Ethereum blockchain.

State channels are particularly useful for use cases involving high-frequency, low-value transactions, such as gaming or micro-payments.

How to Use State Channels:

• Users must lock up funds in a smart contract on Ethereum’s mainnet to open a state channel.
• Once the state channel is open, users can perform multiple transactions off-chain without incurring gas fees.
• When the transaction session is complete, the final state is settled on the Ethereum mainnet, with a small gas fee applied.

State channels are not as widely used as rollups or sidechains but are promising for specific use cases where frequent transactions are needed.

4. Plasma

Plasma is another Layer 2 scaling solution that creates "child chains" off the main Ethereum blockchain to process transactions. Plasma chains offload transaction data from Ethereum and only submit periodic summaries to the mainnet, which helps to reduce congestion and lower gas fees.

However, Plasma is less common compared to rollups and sidechains, as it has faced challenges related to exit mechanisms and slower withdrawal times.

How to Use Plasma:

• Plasma chains require users to deposit funds into a Plasma contract on Ethereum’s mainnet.
• Once the funds are locked, users can transact on the Plasma chain with lower gas fees.
• Like other Layer 2 solutions, the final state of transactions is submitted to Ethereum for settlement.

How to Get Started with Ethereum Layer 2 Solutions

Here’s a step-by-step guide to start using Layer 2 solutions and reduce gas fees:

1. Set Up an Ethereum Wallet

If you haven’t already, set up an Ethereum-compatible wallet like MetaMask, Trust Wallet, or Ledger Live. This wallet will allow you to interact with Layer 2 platforms.

2. Choose a Layer 2 Solution

Select a Layer 2 solution based on your needs:

• For general transactions and DeFi, Optimism or Arbitrum (Optimistic Rollups) might be a good fit.
• If you’re looking for high-speed transactions with even lower costs, zkSync (ZK-Rollups) is a great option.
• For gaming or micro-transactions, consider state channels.

3. Bridge Your Assets

Use a bridge to move your assets from Ethereum’s mainnet to the Layer 2 solution you’ve chosen. This step requires an initial transaction fee on Ethereum’s Layer 1, but once your assets are on Layer 2, future transactions will be much cheaper.

• For Optimism or Arbitrum, you can use their respective bridges.
• For Polygon, use the Polygon Bridge to transfer assets to the Polygon sidechain.

4. Start Transacting on Layer 2

Once your funds are bridged to Layer 2, you can start using dApps, trading tokens, or engaging in DeFi activities with significantly lower gas fees. Always ensure that the platform you’re using supports the specific Layer 2 solution you’ve chosen.

5. Withdrawing Funds

When you’re done using the Layer 2 solution, you can withdraw your assets back to Ethereum’s Layer 1 using the same bridge. Be mindful that there may be a delay and an additional transaction fee when moving funds back to Layer 1.

Conclusion

Layer 2 solutions are crucial to the future of Ethereum, enabling faster and cheaper transactions while maintaining the security and decentralization of the Ethereum network. By using technologies like rollups, sidechains, state channels, and Plasma, you can significantly reduce the gas fees associated with Ethereum transactions and interact with the blockchain more efficiently.

As Ethereum continues to scale with the introduction of Ethereum 2.0 and new Layer 2 technologies, using these solutions will become increasingly important for developers, users, and investors looking to maximize their use of the Ethereum ecosystem while minimizing costs.