Blockchain networks offer an option of decentralization, transparency, security, and trustless communication to facilitate new Internet-native economies. But many leading blockchains haven’t been able to accommodate their growing number of users. High adoption rates of Layer-1 (L1) chains have typically been followed by increasing transaction fees.
Ethereum (ETH), or an L1 chain, is one of the most used blockchains presently, and the network has been struggling to scale because ridiculously high gas fees and slow confirmation times are putting people off.
As a result, Layer-2 (L2) solutions that are built on top of blockchains to reduce the on-chain burden have emerged for leading blockchains, such as Bitcoin (BTC) and Ethereum.
Read on to learn more about L2 scaling solutions and how to use Arbitrum to save on Ethereum transaction fees.
Why do blockchains need Layer-2 solutions?
Blockchains need L2 solutions because they allow for efficient and improved transaction processing. These solutions increase throughput while leveraging the security infrastructure, decentralization, and transparency of the main chain.
Layer-2 solutions are protocols built on top of an existing blockchain like Ethereum or Bitcoin. Their goal is to solve the transaction cost, processing speed, and scaling issues that leading chains face.
Over the past year, we’ve seen the rapid rise of decentralized finance (DeFi) applications, non-fungible tokens (NFTs), and decentralized autonomous organizations (DAOs). These innovations are onboarding people to the cryptoverse, requiring blockchains to process more and more transactions. However, chains like Bitcoin and Ethereum have rather limited throughput, with only 7 and 13 transactions per second (TPS), respectively.
Rather than upgrading the blockchain’s protocol directly to increase throughput, we now have solutions built on top of the main infrastructure, taking the processing load off the main blockchain infrastructure. Layer-2 solutions have mostly clustered around Ethereum and Bitcoin, which shouldn’t come as a surprise as they are the leading crypto networks in the market.
Bitcoin’s most prominent L2 solutions are the Lightning Network and Blockstream’s Liquid Network, both enabling low-cost, high-speed off-chain BTC transactions.
A number of much-needed off-chain scaling solutions have emerged for Ethereum, which has been suffering from gas fees as high as USD 100 for simple token transfers. Examples include Arbitrum, Optimism, and Starkware.
However, there’s no individual L2 solution that entirely solves everyone’s needs. Each differs on transaction fees, security, and functionality.
What is Arbitrum?
Arbitrum is one of the most popular Ethereum L2 scaling solutions.
Built by Offchain Labs, Arbitrum is designed to increase the speed and scalability of Ethereum smart contracts, with additional privacy features. It allows developers to run Ethereum applications and process transactions on it, without compromising the security of the Ethereum network.
Arbitrum is one of a number of L2 protocols addressing some of the pitfalls of current Ethereum-based smart contracts like poor efficiency and high transaction costs, which results in a poor user experience for dapp (decentralized application) users on Ethereum.
Arbitrum adopts a method called transaction rollups. It records batches of transactions on Ethereum and processes them on its L2 sidechain while using Ethereum to ensure correct records. This process removes the computational and storage burden from the Ethereum main chain.
The three components of Arbitrum include the compiler, validators, and the EthBridge. The compiler compiles several smart contracts into an executable file compatible with running on the Arbitrary Virtual Machine (AVM). Then, validators primarily monitor the state of the AVM and the off-chain processes. Finally, the EthBridge is a decentralized application deployed on the Ethereum main chain that connects Ethereum and Arbitrum.
The project has become a favorite among Ethereans because it provides an alternative platform that developers can use to build Ethereum-compatible smart contracts.
Arbitrum One – Arbitrum’s Ethereum mainnet beta – was rolled out on August 31, 2021, without a token launch or sale. Already, the software is being leveraged by numerous protocols like Chainlink (LINK), Balancer (BAL), and Uniswap (UNI) to increase throughput and lower fees for their users.
How to use Arbitrum to save on Ethereum gas fees
You can use Arbitrum to send and receive Ethereum on dapps that support the Arbitrum network.
To convert your ETH or Ethereum-based token on the main chain to the Arbitrum layer, you need to set up Arbitrum on a self-custody wallet like MetaMask. Here’s how:
- Visit Arbiscan, go to the footer, and click Add Arbitrum Network to add to your Metamask. You can also just add it manually if you have the technical know-how.
- To send your ETH to the Arbitrum layer, use the Arbitrum Bridge here.
- When you’re on the Arbitrum Bridge, the site will show you a prompt to connect your MetaMask wallet. If not, connect it manually by opening your MetaMask screen and giving it permission.
- Input the amount of ETH to bridge to Arbitrum.
- Click deposit and then proceed to confirm the transaction.
- Once the transaction is confirmed on the Ethereum blockchain, your funds have been sent over to the Arbitrum Bridge.
Arbitrum bridge doesn’t support all Ethereum-based tokens yet. However, there are already a number of applications and platforms that support Arbitrum to enable lower transaction fees for Ethereum users.
Who already supports Arbitrum?
To enjoy the benefits of the Arbitrum network, you have to use an application that supports the network. The good news is that several popular crypto applications are beginning to support Arbitrum.
Here’s a list of the popular applications:
- Coinbase Wallet
- Huobi Wallet
While Ethereum is being pushed by newer smart contract platforms with higher throughput and enhanced scaling capabilities, L2 solutions could become the savior that helps the leading smart contract platform to retain its market-leading position.
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