EIP-4844 and the adoption of Web 3

A lot awaits us in this year 2024. On January 10th, the Bitcoin Spot ETF was approved, an event that largely revived interest in the sector that was lost almost 2 years ago.

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While the ETF is a significant milestone, as it provides a certain legitimacy to the cryptocurrency market in the eyes of the general public, the truth is that it doesn’t imply any technological change or improvement.

Having said that, this year is filled with infrastructure and user experience improvements that will undoubtedly enhance the adoption of Web 3 and decentralized finance; smart wallets, more mature DApps, more powerful oracles, etc.

But undoubtedly, the most important innovation this year with a significant impact on the user experience in Web 3, is the accessibility to high-quality blockspace. While Solana, Avalanche, and other blockchains are notable options, the reality is that the Ethereum ecosystem offers maximum security and decentralization within the sector, and it is where the majority of developers and users are located.

1- What scalability issues does Ethereum face?

The main limitation Ethereum encounters in terms of scalability is that the hardware requirements for its nodes are very low. This is fantastic for decentralization as it facilitates access to solo staking, and allows practically any user to verify the network firsthand by downloading an Ethereum node on their computer.

Therefore, if, for example, Ethereum were to increase the network’s power, fewer people would have access to the necessary hardware to run a node, making the network less decentralized. On the other hand, solutions like execution sharding present significant complications and, despite being successfully implemented, could overly complicate the network, potentially compromising Ethereum’s robustness.

2- How the Ethereum blockchain will scale

In order to remain a robust, secure, and decentralized blockchain, Ethereum has chosen to scale through layer 2 solutions, specifically rollups. Instead of increasing transaction execution capacity on layer 1 (i.e., the Ethereum blockchain itself), execution has been moved to other blockchains (such as Arbitrum and Optimism). These layer 2 blockchains use Ethereum for the final settlement of their transactions and for data availability, relying heavily on its security and decentralization.

While the final settlement is a very low cost for these rollups, maintaining data availability is relatively expensive, as it uses Ethereum’s blockspace, which is very limited. Additionally, since layer 1 and layer 2 use the same fee market, if activity on layer 1 increases dramatically, for example, due to minting a collection of NFTs, this will significantly raise fees on layer 2, which is certainly not an optimal system.

In order to reduce this cost, many layer 2 solutions, such as Immutable X and Manta Network, use a data availability solution other than Ethereum, such as Celestia. While this allows transactions on these networks to be much more economical, the security of a network like Celestia is not comparable to what Ethereum offers.

While it is true that by settling final transactions on Ethereum the funds of these rollups cannot be stolen, if the data availability solution were to fail, they could be frozen and inaccessible to their users. From my point of view, this system is interesting for blockchains whose purpose is gaming or other functions that do not involve storing significant amounts of value, but it is by no means optimal for building a decentralized financial system.

3- What is EIP-4844 "proto-danksharding"?

Fortunately for rollups, one of the most significant updates in the history of Ethereum is set to take place this year, and I dare say it is one of the most interesting innovations we’ve had in web 3: EIP-4844, or proto-danksharding.

Proto-danksharding is the network upgrade that will enable the full implementation of danksharding in the future, the ultimate scalability solution for Ethereum. This will practically eliminate the cost of uploading data availability from rollups to Ethereum.

In essence, danksharding allows Ethereum to scale only its data layer, as opposed to also scaling the execution layer, as intended with execution sharding. This will enable rollups to use Ethereum as Data Availability at a fraction of the current cost, allowing for nearly free transactions. That being said, danksharding is estimated to be available around 2026, so we still need to wait.

The good news is that proto-danksharding will not only facilitate the implementation of full danksharding in the future but will also have a direct impact on the costs incurred by rollups for storing data availability on Ethereum. In fact, it is estimated that this cost could be reduced by up to 10 times.

This is achieved by introducing a new element to the Ethereum blockchain: data blobs. Unlike calldata (the space where rollups currently upload data to Ethereum), blobs have much more space and are not stored on the blockchain indefinitely; instead, they expire in about 18 days.

Let’s look at the main advantages of this system:

More block space

With EIP-4844, “blob carrying transactions” will be implemented, an adjustment that will allow current transactions to carry an attached blob, enabling more space per block.

Network space is not overloaded

Of course, the main drawback of adding more space to the blockchain is that node space requirements increase more rapidly, reducing the number of nodes that can have a full node and therefore also a validator, thereby increasing network centralization. Thus, the beauty of blobs is that they will not be stored permanently on the Ethereum blockchain but only for a period of time (approximately 18 days), enough for rollups to challenge their state.

Multidimensional fee market

Mainnet validators do not interpret the data in the blob; they simply verify its availability and ability to be downloaded. Because of this, blobs do not compete with the gas consumption of standard Ethereum transactions, meaning they will not increase gas fees on Mainnet. In other words, there will be a fee market for blockspace, intended for layer 1 transactions, and another for “blobspace,” with rollups being the main consumers. This new fee market for blobspace will also operate with the structure of EIP-1559, leading to the burning of the base fee, a crucial element for the long-term economic sustainability of the network.

4- What impact will proto-danksharding have on the Ethereum ecosystem?

Massive reduction in fees on layer 2

In the short term, EIP-4844 will drastically reduce the costs of using Ethereum as the data availability layer for rollups, resulting in the ability to charge much more affordable gas fees to users. In fact, it is speculated that in the early months of EIP-4844’s existence, given the relatively low activity in layer 2 as of today, the space in the blobs may not be fully filled, and therefore the gas cost of using them could be practically zero.

In the future, as there is more activity volume in rollups, the space in the blobs will fill up, and gas prices will begin to increase similarly to normal blockspace. If there’s anything we’ve learned in recent years, it’s that no one can predict how long an update on Ethereum will take, but it is estimated that when blobspace begins to saturate, full danksharding will already be implemented.

Possible emergence of non-financial-purpose applications

One of the reasons why, as of today, there is not a wide variety of DApps, and practically all of them have a financial focus, is the cost of gas.

If someone pays $20 to execute a transaction, or even 20 cents, they are likely expecting a higher return. In other words, it’s very doubtful that someone would choose to pay 20 cents to post a photo on social media or share content on a hypothetical decentralized Twitter when there’s the “free” option of web2.

Indeed, by drastically reducing the costs of using Ethereum as the Data Availability Layer, rollups will be able to offer almost free transactions to their users and even monetize them through another system (subscription, in-game battle pass, etc.). A great example of this is Immutable ZkEvm, a layer 2 blockchain focused in gaming.

Therefore, it is highly likely that the update will pave the way for the emergence of applications in social media, gaming, entertainment, among others.

New Users in Web 3

Reducing or even eliminating one of the biggest frictions in Web 3, the cost of gas, along with a general improvement in UX that we are beginning to see in 2024 with projects like Infinex, a new DEX that uses a CEX interface, or solutions like Vottun APIs that allow Web 2 developers to create Web 3 applications, may result in the entry of new users into Web 3.

If we consider that we are currently in the early adopter phase, these UX improvements could bring us into the early majority.

Transition of Ethereum Users to Its Layer 2

Undoubtedly, this is a phenomenon that is already happening. According to the L2Beat website, at the time of writing this article, rollups + validiums together are processing 5.58 times more transactions than the Ethereum mainnet. 

It is likely that with the fee reduction caused by proto-danksharding, even more users will transition from layer 1 to layer 2. Nevertheless, personally, I believe that the majority of users will come from other layer 1 blockchains, and Ethereum layer 1 users will move to layer 2 as these mature and achieve security and decentralization practically equal to the main network.

5- Vottun APIs, Rollup Scalability, and Mass Adoption

As we have seen throughout this article, the improvement of UX is the missing piece for Web 3, a version with clear enhancements over Web 2, to experience mass adoption.

On the user side, elements such as smart wallets, more intuitive interfaces, and reduced gas fees are being improved.

On the other hand, companies like Vottun aim to lower the barriers to entry to Web 3 on the developer side.

Through our APIs, developers with no experience in Web 3 can create cutting-edge DApps, which, in turn, attract more users and, consequently, more developers to the sector, creating a virtuous cycle.

Thanks to EIP-4844, the DApps created on layer 2 through these APIs will be technologically more advanced. A reduction in gas costs enables the development of more complex smart contracts that consume more gas, and, most importantly, these DApps become more cost-effective for their users.

If you want more information about our APIs, do not hesitate to access https://web3.vottun.io to register and, of course, the documentation you will find at https://docs.vottun.io.