By James Davis
Blockchain technology is divided into two: layer-1 and layer-2. Layer-1s can be described as underlying blockchains on which layer-2 networks are built. Layer-2s usually provide cheaper and faster transactions than layer-1s. In addition, they have the capability to perform activities that layer-1s cannot, for example, accepting crypto assets from multiple layer-1 networks.
But how can you tell if a blockchain is layer-1 or not? Here is how, if the blockchain does not depend on another network to function or it rewards validators/miners with its native token (e.g., ETH and SOL), then that’s a layer-1.
On the other hand, layer-2s rely on layer-1s to operate. The downside is that they are not as decentralized as layer-1 blockchains. Some of the layer-2 networks include Polygon, Optimism, Loopring, and Arbitrum. Many refer to them as Ethereum scaling solutions. Each layer-2 processes Ethereum transactions at a low cost and high speed before transferring them back to the Ethereum blockchain.
To enjoy fast and cheap transactions offered by layer-2s, you must first transfer your crypto to these networks. For example, if you wish to trade on Loopring’s zero-fee decentralized exchange, you will have to transfer your ETH or any other ERC-20 token to the protocol, and after placing trades, you can move the balance back to the Ethereum network. You’re probably asking yourself how you can do this. Well, we are going to teach you.
Step 1: Select a Layer-2 Network
First, you must choose the layer-2 network you wish to bridge your crypto. Simply put, bridging is the process of transferring funds from layer-1 to layer-2. But it is worth highlighting that not every bridge is multichain; some are only compatible with Ethereum. The Ethereum layer-2 bridges you can pick include Boba, dYdX, Optimism, and Arbitrum.
Step 2: Connect Your Wallet
You can only access layer-2 bridges by connecting your non-custodial Web3 wallet. MetaMask is the most used, but several other wallets are supported as well. Ensure you have enough ETH to cover the gas fee required to complete the transfer of crypto from the Ethereum blockchain to your selected layer-2 network.
Step 3: Bridge
To bridge your ERC-20 tokens to the target layer-2 network, head over to its gateway, where you can then make the transfer. Note that the gas fees for bridging are usually high, ranging between $10 and $12. The good thing is that after the transfer, you will be transacting cheaply and fast.
Step 4: Carry Out Your Business on the Layer-2
After your tokens arrive on the chosen layer-2, you can use them on any DeFi (decentralized finance) platform that has integrated the network. For example, if you transferred your crypto to Optimism, you can trade on the decentralized exchange Uniswap. Expect cheap trading fees than when exchanging tokens on the Ethereum mainnet.
Step 5: Transfer Your Crypto Back to the Mainnet
This step is optional. You can decide to continue transacting on the layer-2 network and quit entirely interacting with the Ethereum mainnet. However, moving the funds back to the Ethereum blockchain is possible. But the timeframe for bridging tokens back to the Ethereum blockchain varies from one network to another. For example, withdrawals from layer-2s that use optimistic rollups may take up to a week to complete. This gives room for Ethereum validators to resolve any disputes that may result from transactions that seem fraudulent. Arbitrum and Optimism are some of the layer-2s that have adopted optimistic rollups.
As mentioned earlier, bridging is costly; Optimism, for instance, charges an average network fee of $55 in ETH to transfer your tokens to the Ethereum mainnet. However, Hop Protocol facilitates instant fund withdrawals from Optimism at a fee of about $25 in DAI.
Besides optimistic rollups, other layer-2 networks like Loopring use zero-knowledge rollups. This technology does not have any dispute-resolution mechanism. Therefore, moving your funds back to Ethereum mainnet takes around twenty minutes.