Layer 2 solutions & Gas fees

Layer 2 as a Solution 

Layer 2 solutions can reduce gas fees by taking some transactions and smart contract executions off the main Ethereum blockchain and processing them in a separate, optimized environment. This allows for more efficient and cost-effective processing of transactions, as the layer 2 solutions can take advantage of optimization techniques such as batching, sharding, and off-chain computation. In general, layer 2 solutions aim to reduce the amount of data that needs to be processed and stored on the main Ethereum blockchain, and instead handle the majority of the computational work in a more efficient and cost-effective manner. By doing so, layer 2 solutions can reduce the gas fees required to process transactions, as the cost of computation is lower on layer 2 solutions than on the main Ethereum blockchain.

Read more about Layer 2 solutions here.

What exactly are gas fees?

This is always a controversial topic. Gas fees are a unit of payment in the Ethereum network used to pay for the computational effort required to execute smart contracts or transactions on the network. The gas fee is denominated in Ether (ETH) and is designed to ensure that the network is used efficiently and that sufficient computing resources are dedicated to processing transactions. The amount of gas required for a given transaction or contract execution is determined by the complexity of the computation and the network congestion. Miners prioritize the processing of transactions with higher gas fees, as they are more profitable for the miner. In this way, the gas fee acts as a market-driven mechanism to allocate resources and prioritize the processing of transactions on the Ethereum network.

What is the Ethereum network?

The Ethereum network is a decentralized, open-source, blockchain-based platform that enables the creation and execution of smart contracts and decentralized applications (dApps). It was created in 2014 by Vitalik Buterin and a team of developers with the goal of providing a more versatile and adaptable platform for decentralized applications compared to the first-generation blockchain, Bitcoin. Ethereum provides a virtual machine that can run code in a decentralized and trustless manner, and its blockchain acts as a public ledger of all transactions on the network. This enables developers to build and deploy decentralized applications that can run without the need for a central authority. Additionally, the Ethereum network has its own cryptocurrency, Ether (ETH), which is used to pay for the computation required to execute smart contracts and transactions on the network.

Gas fee controversy

Gas fees in the Ethereum network have become a controversial topic in recent times, due to the increasing demand for processing transactions on the network and resulting in an increase of gas fees. When the network is congested, gas fees can become very high, making it difficult and expensive for users to execute transactions and use decentralized applications on the network. Some in the Ethereum community view high gas fees as a necessary evil, as they provide an incentive for miners to prioritize the processing of transactions and help ensure the security and stability of the network. Others view high gas fees as a barrier to entry for new users and a hindrance to the widespread adoption of decentralized applications. The debate over gas fees in the Ethereum network highlights the tension between the need for security and stability in a decentralized network and the desire for low-cost and accessible user experiences. As the demand for decentralized applications continues to grow, the Ethereum community is actively exploring ways to scale the network and reduce gas fees, through solutions such as Ethereum 2.0 and layer 2 solutions. Overall, gas fees are a contentious issue in the Ethereum community, as they are a key factor in the cost and accessibility of using the network, and there is no easy solution to balancing the competing demands of security, stability, and cost-effectiveness.

Where do gas fees go?

Gas fees on Ethereum are paid to the miner who processes and confirms transactions on the Ethereum network. The gas fee is a small amount of Ethereum (ETH) that is paid to the miner as a reward for their work and to incentivize them to include the transaction in a block. The amount of the gas fee is determined by the market demand for transaction processing and the current network congestion. The higher the demand, the higher the gas fee required to prioritize the processing of the transaction.

What can reduce gas fees?

There are several ways to reduce gas fees when using the Ethereum network:

• Optimize Contract Code: One way to reduce gas fees is to optimize the contract code to minimize the amount of computation required to execute it. This can be done by reducing the number of operations required, using more efficient algorithms, and minimizing the use of on-chain storage.
• Wait for Lower Congestion: Gas fees tend to be higher during periods of high network congestion. Waiting for a time when the network is less congested can result in lower gas fees.
• Use Batching: Batching multiple transactions into a single transaction can reduce the overall gas cost, as the overhead of creating and processing the transaction is reduced.
• Use Layer 2 Solutions: Layer 2 solutions, such as Ethereum's own proposed scaling solution called Ethereum 2.0, or other scaling solutions, offer the potential to reduce gas fees by taking transactions off-chain and processing them in a more efficient manner.
• Use a Gas Price Oracle: A gas price oracle provides real-time data on the current gas prices in the Ethereum network, allowing you to make informed decisions about the appropriate gas price to set for a transaction.

It's important to note that gas fees can also be influenced by the overall demand for processing transactions on the Ethereum network and the overall market conditions. While these steps can help reduce gas fees, they may not always be effective in avoiding high gas fees during times of high demand.

Will Layer 2 reduce gas fees?

Layer 2 solutions have the potential to reduce gas fees in the Ethereum network. These solutions are designed to offload some of the computational workload from the main Ethereum network to a secondary layer, which can process transactions and smart contracts more quickly and at a lower cost. One of the main reasons why gas fees have been high on the Ethereum network is due to congestion on the main chain. As more transactions are processed, the network becomes slower and more expensive to use. 

Optimistic rollups (ORUs) can reduce gas fees in the Ethereum network by processing and settling transactions off-chain, which reduces the load on the main Ethereum network and minimizes the need for expensive gas fees. Optimistic rollups work by creating a new layer on top of the main Ethereum blockchain where transactions are processed off-chain. These transactions are then batched together and submitted to the main Ethereum network as a single transaction, which significantly reduces the gas fees associated with each individual transaction.

Read more about Optimistic Rollups here.

When a transaction is submitted to an optimistic rollup, it is processed and validated by a group of validators who ensure that the transaction adheres to the rules of the protocol. Once the transaction is validated, a summary of the transaction is published to the main Ethereum network, which allows anyone to verify that the transaction was processed correctly. If a dispute arises, the optimistic roll-up protocol allows for a dispute resolution process to take place on the main Ethereum network, but this is only necessary if a transaction is found to be invalid or fraudulent. Since most transactions are processed correctly, the dispute resolution process is rarely needed, which helps to keep gas fees low.

Overall, optimistic rollups can reduce gas fees by enabling more efficient and cost-effective transaction processing and settlement, which is important for making the Ethereum network more accessible and affordable for all users.

About Goshen - Layer 2

Goshen is a fast and low-cost Ethereum-equivalent Optimistic rollup L2 blockchain for Ethereum scaling. Goshen (L2) provides low-cost compared to Ethereum (L1) by moving transaction execution from L1 to L2 and only using L1 for data availability and settlement. In contrast, when you use L1 directly for transactions such as DEX swap, the transactions are executed directly on L1 which is expensive!

Read more from the MultiLayers blog here.