What is a layer 2? In plain words

https://youtu.be/nltbCKS4N2s

At a busy hour, sending 10 USDC, a digital dollar, on Ethereum can cost many times more in fees than sending the same 10 on Base. Same kind of token, same amount, same tap in a wallet app.

Nothing is wrong with either payment. Base is a layer 2, and the gap comes from how it delivers its mail.

Why Ethereum gets expensive

A quick reminder of the words. A chain is a public record of balances and payments. A transaction is any action on it, like a payment. Gas is the small fee each transaction pays, a bit like postage.

Ethereum is busy. Its record is written in blocks, and each block has limited room. When more people want in than there is space for, they pay more to get a place, and fees go up. It is one post office with a lot of people in the queue.

Many letters, one sack

A layer 2 is a chain built on top of a main chain, and here that chain is Ethereum. Arbitrum, Base and Optimism are three of them. Each one has its own blocks and takes in its own transactions, and it does not send them to Ethereum one at a time.

Picture each transaction as a letter. Posting letters one by one costs a stamp each, so a layer 2 gathers thousands of them into a single sack. The sack travels to Ethereum under one stamp, and every letter inside pays a small slice of it.

Here is the sum with made-up numbers. Real costs change all the time, so read these for the shape only.

• A letter posted alone on Ethereum costs 2 dollars.
• A sack is heavier, so its stamp costs more: say 100 dollars.
• If 5,000 letters share that sack, each pays 2 cents.
• The layer 2 also charges a small amount for its own work, which is added on top.

That sharing is why Base usually costs less. Usually, and not every time: if Ethereum gets busier, or fewer letters share a sack, each slice grows. Cheaper is also not zero. There is still gas to pay.

What stays the same

A layer 2 changes the cost of posting. On Arbitrum, Base and Optimism, three things stay as they were.

Gas is still paid in ETH. All three use ETH for gas. Arbitrum and Optimism each have a token of their own too, but that token does not pay for gas there. You still need a little ETH on the chain you are using.

Ethereum still plays a part. These three rely on Ethereum to check their record. That is what "on top of" means here. The sacks end up there.

Tokens still live on one chain. USDC on Base is not USDC on Ethereum. To use it on the other chain, you have to move it first.

What people get wrong

"A layer 2 is a token." It is a chain, a place where tokens live and transactions happen.

"Any low-cost chain is a layer 2." BNB Chain and Polygon are separate chains that run on their own. Gas there is paid in their own coins, BNB and POL.

"ETH on Base can pay for Ethereum." Each chain's ETH is spent on that chain. Before you send, check which chain you are on, and check the fee your wallet shows.

In short

• A layer 2 is a chain built on top of a main chain. Arbitrum, Base and Optimism are built on Ethereum.
• It packs many transactions into one batch, so each pays a small share of the cost.
• That is why Base usually costs less than Ethereum.
• Arbitrum, Base and Optimism rely on Ethereum to check their record, and all three use ETH for gas.

More one-minute DeFi explainers: cleave.fi/blog