IOSG: EIP4844 will open up the low gas fee valley effect for L2

Author: Gokhan Er, IOSG Ventures

Since the Ethereum core developers outlined the roadmap for Ethereum around Rollups, it has become clear that Rollups will play a central role in Ethereum's future. However, before the long-promised data sharding (or Danksharding) can be realized, Ethereum needs to quickly reduce transaction fees; otherwise, it risks continuing to lose new users to other L1s.

Leading Rollup teams have come up with their own solutions to lower transaction fees and enhance the developer experience on their respective L2s. This includes the Optimism team and Arbitrum team, who are optimizing transaction compression techniques. Arbitrum has launched its next major upgrade, Arbitrum Nitro, which will compile Arbitrum Fraud Proof into WASM, significantly improving the developer experience on Arbitrum L2 and reducing latency.

However, if we look at the unit cost of L2 transactions, we see that the largest portion is "Call Data." Call data is crucial to the security mechanism of L2s. Essentially, in the event of malicious validator activity on L2s, the entire L2 chain can be reconstructed using the Call Data published on L1s. However, the cost of publishing call data on L1 is high, currently accounting for over 80% of L2 transaction fees.

So how can this problem be solved? Fundamentally, more space needs to be created for data on L1 to reduce L2 transaction fees. Data sharding (DankSharding) will help establish a vast data space on Ethereum L1; however, fully implementing Danksharding on Ethereum is expected to take quite a long time (approximately 18 months if everything goes smoothly). (For those unfamiliar with DankSharding, please refer to: Is the scaling killer Danksharding the future of Ethereum sharding?)

This is why Ethereum core developers and Rollup teams have begun to propose different suggestions to create an immediate data space on L1, making Rollup immediately price competitive in the L1 market. EIP-4844 is the result of these efforts and is expected to reduce Rollup fees by several orders of magnitude.

In our previous article, we explored Ethereum's new sharding design, DankSharding, which has some significant simplifications compared to previous designs. EIP-4844, also known as proto-danksharding, essentially implements most of the logic of the data sharding specification, preparing for Danksharding.

So how is this achieved?

Rather than providing more space for transactions on L1 blocks, Danksharding provides more space for the data itself (the blob of transaction data). This data blob needs to be accessible by the network. Rollups will utilize the space within these data blobs to store compressed transaction data. Transactions carrying blobs are normal transactions with an additional data block (called a blob). Compared to the more expensive call data, the scale of Blob data is vast, providing more data space for L2.

What are the advantages of EIP-4844?

• The biggest benefit of EIP-4844 is that it reduces L2 transaction fees by an order of magnitude, making it more competitive compared to other L1s. Pseudotheos believes it is possible to reduce the fees of Optimistic Rollups to below $0.01, lowering transaction fees to less than 100 times the current rate.

Source: Pseudotheos argues(https://twitter.com/pseudotheos/status/1504457560396468231/photo/1)

• Another advantage of EIP-4844 is that it provides a good foundation for the future application of Danksharding, facilitating the easy implementation of data sharding in the future. A specific example is that EIP-4844 can be compatible with future changes in the consensus layer, helping L2 developers avoid the hassle of needing upgrades.

• It also introduces a multi-dimensional fee market for Ethereum L1, distinguishing the usage and charging of different resource types, such as EVM applications, block data, witness data, and state size. All these resources have different capacity limits, meaning that if each resource has a different pricing mechanism, they will be allocated effectively. However, Ethereum L1 currently measures the cost of using all these resources with a single metric, the Gas fee, which is highly inefficient.

• Proto-danksharding introduces a multi-dimensional EIP-1559 fee market, which includes two resources, Gas fee and blobs, with independent floating gas prices and limits.

• In other words, there are two variables and four constants:

What are the disadvantages of EIP-4844?

• Since all validators and clients on Ethereum L1 need to download the full blob content, this increases the cost of running such nodes, potentially raising the threshold for operating such nodes. However, in conjunction with other proposals, such as EIP-4444, it may be possible to require nodes/clients to store these data blobs only for a limited time (1-3 months).

Source: https://www.eip4844.com

What are the next steps for EIP-4844?

Although the main structure of EIP-4844 has been clarified, there are still some aspects under discussion. It goes without saying that the Ethereum core team is currently focused on the upcoming merge, expected to occur sometime in the third quarter. Core developers have mentioned that EIP-4844 is expected to be implemented about six months after the merge, sometime in Q1-Q2 of 2023.

Danksharding + EIP-4844 clearly indicates that the future roadmap for Ethereum L1 is to become a data availability + security layer for Rollups. Danksharding is expected to be realized within the next 18-24 months, while EIP-4844 itself will be implemented within 6-9 months.