Currently, the cryptocurrency industry is made up of first and second layer technologies. First-tier ones are the base layer of a blockchain network (like Solana, Ethereum, and Bitcoin). The second layer is faster and cheaper than the base layer of the blockchain. Sometimes they can do things that second-tier blockchains cannot, like accept assets from other first-tier blockchains. It is possible to determine whether a technology is first-tier or not if there is the platform’s native currency (such as SOL, ETH) in the transaction validation (either via mining or staking) and if the network depends on another blockchain to function. If it’s a standalone blockchain, it’s tier one. Second-tier blockchains remain dependent on a first-tier (or base-tier) network and provide data to the latter. They are generally less decentralized than tier 1 blockchains — it’s the price you pay to save time and money on a tier 2 network. Examples of second-tier technology include Arbitrum, Polygon, and Optimism. Each processes Ethereum transactions on a separate, high-speed, low-cost blockchain network before sending the information back to Ethereum. Token “bridges” (or “bridges”) — such as Multichain, WBTC, Ren, and Wormhole — allow the movement of assets between blockchains. In this article, Decrypt focuses on the scalability of accelerating activity related to a single blockchain rather than “multichain” bridges (which connect multiple blockchains), which allow the movement of assets across multiple blockchain networks. To take advantage of the speed and low price of a second-tier technology, you need to send funds to these alternative networks, do your business, and then, if you wish, convert all the cryptocurrencies back to the underlying blockchain layer. For example, you can send 10 ETH to Loopring, trade on your decentralized exchange (or DEX for short) with zero gas fee, and then withdraw the rest to the Ethereum blockchain. Fortunately, the method is pretty much the same across bridges. Check out the step by step below.
Step 1: Choose a second layer network
The first thing to do is choose a second-tier network to “bridging” — the process of moving funds from a first-tier network to a second-tier network (not all bridges are multichain, as some only work with Ethereum) — from your tokens. There are different solutions and some are linked to specific first layer networks — Ethereum is the most popular as it is relatively expensive and slow. Major Ethereum second layer bridges include Arbitrum, Boba, Loopring, Optimism and dYdX. There are also multichain token bridges, which focus on interoperability. In them, it is possible to move tokens between blockchains without having to worry about whether a native asset is compatible with the blockchain to which the token is being moved. These bridges are not the focus of this article.
Step 2: Prepare your wallets
Second-tier bridges are accessed through non-custodial Web 3 wallets. MetaMask is the most popular choice, but most wallets should work. Allocate, in the wallet, the assets you plan to send through the bridge, plus an amount in the native token of the 1st layer network to pay for the transaction – in the case of Ethereum, you must have ether (ETH).
Step 3: Do the bridging
Then go to the second tier solution access door. In this example, Optimism is chosen, but the method is very similar in other bridges. After accessing the home page, there will be a screen that looks like the following: Screen of “pre-bridging” from the Ethereum mainnet to the Optimistic Ethereum second-tier solution (Image: Optimism) In this screen, it will be possible to convert any standard first-tier ERC-20 token (or the ether itself) to the second-tier network. In this example, 0.01 ETH is entered and the following information appears: Deposit approval screen with the amount entered and the dollar value of the token being moved to Optimistic (Image: Optimism) To move assets, you must pay a gas fee (the price paid to transact on the Ethereum network). MetaMask charged about $12.50. Screen with all the information of the final transaction with the amount of the fee paid (Image: Optimism) Despite being a high cost, in the sequence, the transactions will be cheaper (because it is a second layer solution). It took about 20 minutes for the funds to arrive at Optimism. When the transaction has been processed, the following message appears: “Deposit completed!” (Image: Optimism)
Step 4: Perform negotiations on the second layer network
The tokens must now be on the second layer network. It means that you can use them in any Decentralized Finance (or DeFi) protocol that has integration with the second-tier solution or transact them to other second-tier wallets. Continuing with the Optimism example, it is now possible to trade on Uniswap via Optimism’s second layer bridge — rather than the very expensive Ethereum mainnet. Access Optimism after the payment has been confirmed by clicking “Optimism” in the network selection tab and give MetaMask permission to change the network from Ethereum to Optimism. Everything will be cheaper and faster in the second layer. Uniswap charged $15 to convert 0.01 ETH per DAI on the Ethereum mainnet — not a very expensive amount, except for the $32 paid for the conversion. But when accessing Optimism to trade 0.0099 ETH, Optimism charged less than $1 in transaction fees, which took just 1.5 seconds. Arbitrum works in much the same way. Other bridges may operate a little differently, but the differences will be smaller. It is sometimes possible to pay transaction fees with cryptocurrency native to the second-tier network. In other cases, it will not be necessary to pay. ETH to DAI conversion confirmation screen (Image: Optimism)
Step 5: Return the funds to the Ethereum network
The fifth step is optional. If you want, you can trade in the second layer indefinitely and never interact with the base layer blockchain again. However, if you want to reverse bridging, you can convert funds back to the mainnet versions. Bridges take different times to “undo” the move. Withdrawals that rely on a technology called “optimistic rollups”, for example, take a full week to return to Ethereum. This allows blockchain validators to settle disputes that may arise from transactions that appear to be fraudulent. Optimism and Arbitrum depend on optimistic rollups. Regarding the delay of these finalizations, in October 2020, Vitalik Buterin, creator of Ethereum, conducted a curious poll on Twitter: A quick knowledge poll: Why are Plasma withdrawals and optimistic rollups delayed by a week? What are “looting in progress” waiting for? – Higher priority withdrawals; – Evidence against disputes/fraud; – Bidding in sequencer auctions; – Quotient polynomials.
Quick knowledge poll test: why do withdrawals from plasma and optimistic rollups require a 1 week delay? What are the withdrawals-in-progress waiting for?— vitalik.eth (@VitalikButerin) October 3, 2020
You also have to pay a transaction fee to redeem the tokens from the second tier network. Optimism experienced a one-week delay and charged around $65 in ether to redeem the small amount in ether. It is possible to withdraw funds instantly from Optimism if the trade is redirected via Hop Protocol or Celer. The Hop conversion charged $25 in DAI. Another technology called zero-knowledge rollups (or “ZK-rollups”), which power second-tier bridges like Loopring, does not have a dispute resolution mechanism, so withdrawals take a few minutes to process. *Translated by Daniela Pereira do Nascimento with permission from Decrypt.co.