What Ethereum Improvement Proposals are worth paying attention to in 2023?

Author: Heimi, Baize Research Institute

The Ethereum developer community continues to push the boundaries of innovation to improve the user experience of decentralized applications (dApps).

EIPs and ERCs are proposals and formal standards, respectively, aimed at enhancing the functionality of the Ethereum network.

They also represent one of Ethereum's main features: the ability to create and manage custom tokens using various standards.

Standards like the fungible token ERC-20, as well as non-fungible tokens ERC-721 and ERC-1155, have played a crucial role in the development and success of the Ethereum ecosystem, enabling developers to create many unique and innovative dApps.

Ethereum also has several other standards that help it become a thriving ecosystem, including ERC-777 (a secure upgrade to ERC-20) and ERC-3643 (the security token standard).

But this is certainly not the end of the innovation journey for Ethereum.

In 2023, the latest and most exciting standard introduced is ERC-4337, also known as the "smart wallet" standard or account abstraction. It aims to simplify the user experience and is expected to be a game changer for blockchain adoption by the next billion users.

Additionally, three other proposals have also stirred waves in the first half of 2023.

ERC-4337: Ushering in the Era of Keyless Accounts

ERC-4337 aims to upgrade the externally owned accounts (EOA) used by users to "smart accounts," allowing accounts to operate as smart contracts. This means that every crypto wallet can have customizable authorization logic to meet the needs of individual users or applications.

As a result, ERC-4337 is often referred to as the "smart wallet" standard or "account abstraction."

Crypto wallets are the entry point for anyone wanting to interact on the blockchain and are one of the main friction points hindering mass adoption. Why?

The answer to this question encompasses all the advantages of ERC-4337:

-- Simplified Access: ERC-4337 provides the possibility of using accounts without storing private keys. Private keys can be stored in the standard secure module of a smartphone.

-- Account Recovery: If you lose your phone or private key, you can recover access to your account by contacting previously designated users (multi-signature) using the social recovery feature. If you don't have trustworthy friends, you can also pay a third-party company that offers this service to help you recover your account when needed.

-- Automated Transactions: ERC-4337 allows for automated transactions, including monthly spending limits, AI trading, and adjusting staking positions. These features make it easier for users to conduct transactions.

-- Gasless Transactions: ERC-4337 supports gasless transactions, allowing dApps such as DeFi, blockchain games, and DAOs to sponsor gas fees for users, making transactions easier. This feature also allows users to pay gas fees with the dApp's tokens, significantly reducing the cost of using the dApp.

-- Bundled Transactions: Every transaction requires a signature. With account abstraction, transactions can be bundled, sending multiple transactions as one to save time and even gas fees. Similar to a shopping cart, this allows for a single transaction to complete packaging even when facing 10 markets.

-- Pre-approved Transactions: Suppose you are minting multiple NFTs or playing a game. With smart accounts, you can pre-approve transactions based on a custom wallet code and session key set in advance.

ERC-4337 has many other use cases, all aimed at making the user experience of dApps as simple as that of Web2 applications. This is why ERC-4337 is often referred to by the Ethereum community as a "game changer for blockchain adoption by the next billion users."

Although its adoption is still in the early stages, the developer community is vigorously developing new products to unleash the amazing potential of smart accounts.

ERC-6551: Making NFTs True On-Chain Identities

The idea behind ERC-6551 is to link NFTs (ERC-721) with smart accounts, creating token-bound accounts (TBA) — yes, it is built on the ERC-4337 standard.

ERC-6551 aims to ensure that each NFT has a corresponding TBA, enabling NFTs to interact with applications, record transaction histories, and own on-chain assets (notably, it does not require changes to the existing ERC-721).

For example, Xiao Ming receives an NFT from a project, and then the project decides to airdrop tokens to NFT holders and also releases a series of POAPs for holders to claim.

Scenario A — Without TBA

When Xiao Ming decides to sell his NFT, the tokens and POAPs associated with the NFT will not transfer to the buyer.

Scenario B — With TBA

All token claims and POAP claims associated with the NFT will be recorded on the NFT itself. When selling the NFT, the buyer will also see these records, and all related tokens and POAPs will transfer to the buyer. If these are missing, the value of the NFT may significantly decrease.

The motivation behind ERC-6551 is to enhance the capabilities of NFTs, making them a form of on-chain identity.

Possible use cases for TBA include:

-- Characters in role-playing games that accumulate assets over time based on their actions (e.g., mining)

-- A car in the metaverse, composed of NFTs as "components"

-- A punch card membership that grants access to institutions and records past interactions

-- Social media profiles that allow users to own their content and data

ERC-5507: Refundable Token Sales to Reduce Fraud

ERC-5507, sometimes referred to as ERC-721R, is an evolution of the NFT ERC-721 standard.

Its goal is to add a refund feature for fungible and non-fungible tokens (ERC-20, ERC-721, and ERC-1155): users have the right to refund the tokens they purchased before a preset time elapses.

The motivation behind ERC-5507 is to help prevent rug pulls and scams by strengthening accountability in the crypto industry and providing greater protection for buyers. By the way, it also ensures that tokens following this standard comply with EU regulations — online purchases have a 14-day refund period.

Some highlights and benefits of ERC-5507 include:

-- Establishing interoperability with various NFT-related applications, such as portfolio browsers and marketplaces.

-- NFT marketplaces can place a badge indicating that the NFT is still refundable and provide a website link for refunding NFTs.

-- Decentralized exchanges (DEX) can offer a refund option for tokens.

-- Improved wallet confirmation dialog boxes.

However, there are also challenges and drawbacks to using ERC-5507: increased gas costs, potential abuse of refund policies, and implementation difficulties… These are currently being discussed within the Ethereum community, so it is uncertain whether this EIP will pass (it is currently under review).

Notably, the emergence of EIP-5507 and ERC-5507 reflects the crypto industry's desire to address compliance and investor protection issues.

EIP-4844: Preparing for Ethereum Sharding

EIP-4844 is a significant Ethereum improvement proposal and a precursor to Ethereum's DankSharding, aimed at enabling temporary storage and retrieval of off-chain data through Ethereum nodes to meet the data and storage needs of blockchain applications.

This proposal introduces blob-carrying transactions (the transaction format required for sharding), which allow blobs to store more data without incurring additional costs. A blob is a data type specifically designed for L2 data transfer, and blobs are not permanent, as the network will delete them after a few weeks.

If successfully activated, EIP-4844 is expected to reduce transaction costs for L2 rollup solutions (including Optimism and Arbitrum) by 10 to 100 times.

In addition to introducing blob-carrying transactions, EIP-4844 will prepare for sharding by implementing execution layer logic, validation rules, multi-dimensional fee markets, and other system changes required for future sharding.

EIP-4844 is expected to be implemented in the second half of 2023, but there may be delays.

Conclusion

The aforementioned EIPs and ERCs enable new use cases and make it easier for users to interact with dApps — especially true for ERC-4337.

2023 may be a year for developers, as the entire crypto industry looks forward to these EIPs and ERCs and hopes to see results in 2024 — could this potentially spark the next bull market?

In any case, it is worth keeping a close eye on.