Ethereum-Solidity Quiz Q27: How are Layer 2 networks making transactions fees cheaper?

Source: Dev.to

How Layer 2 Networks Reduce Transaction Fees

Layer 2 networks lower fees by changing where and how densely computation occurs.

• Think of Ethereum (Layer 1) as a busy highway where every car pays a high toll.
• A Layer 2 acts like a giant bus: it gathers hundreds of passengers (transactions), travels the highway, and splits the single high toll among everyone on board.

Rollups

L2s use a technology called rollups, which “roll up” hundreds of transactions into a single batch.

• Execution (off‑chain) – The actual computation (e.g., a token swap) runs on the L2’s own servers. This is very cheap because it doesn’t require thousands of global nodes to reach consensus simultaneously.
• Settlement (on‑chain) – Instead of sending every detail to Ethereum, the L2 posts only a highly compressed summary of all those transactions.

How the Fee Is Calculated on L2

On a Layer 2, the fee consists of two parts:

1. L2 execution cost

   • Cost: Extremely low (fractions of a cent).
   • Why: L2s are built for high throughput and avoid the massive decentralization overhead of Ethereum.

2. Data availability cost on Ethereum (Layer 1)

   • Cost: Depends on the current Ethereum gas price.
   • Efficiency: Data for many transactions (e.g., 500) is compressed into a single “blob” or batch, so you pay for only 1/500th of the Ethereum block space.

Blobs (2024 Update)

• In 2024, Ethereum introduced Blobs (Binary Large Objects).
• Previously, L2s stored data in calldata, which was expensive.
• Blobs act like temporary “sidecars” attached to a block and are deleted after about 18 days.
• Because they are short‑lived, Ethereum charges a significantly lower fee for blobs, dropping L2 fees by 90 % or more and enabling transaction costs as low as $0.01.

Centralization Risk

Most L2s currently rely on a sequencer (a single server) to order transactions. If that server goes down, the network pauses, introducing a centralization risk.

Summary

From a systems perspective, L2s move the state‑transition logic off‑chain and use Layer 1 solely as a data‑availability layer. By treating the most expensive resource—Ethereum block space—as a shared cost through compression and blobs, they achieve a 10×–100× reduction in fees while preserving the security guarantees of the Ethereum mainnet.