Analyzing EIP -4844 Effects on the
Rollups Ecosystems
Overview of transaction costs, number of transactions and daily active addresses
In the world of cryptocurrency, it could be argued that the most crucial forthcoming event is the execution of Ethereum’s EIP-4844. Known as “proto-danksharding,” its core goal is to improve the scalability of Ethereum. In this piece, we analyze the upcoming Ethereum upgrade and its potential effects on the cryptocurrency landscape in the immediate to distant future.
It is planned to be implemented during the Dencun upgrade, expected to take place in the later part of Q3 or early Q4 in 2023. By introducing EIP-4844, the expenses associated with utilizing Ethereum layer-2 solutions are anticipated to reduce significantly, estimated to be at least 10 times lower and potentially even up to 100 times.
The implementation of Proto-danksharding is anticipated to stimulate the adoption of Layer-2 (L2) solutions in Ethereum, encouraging more users to directly engage with the Ethereum network through roll-ups. The cost reduction for roll-ups comes as a direct consequence of the integration of “data blobs.” Data blobs serve as temporary storage for data on L2 transactions until they are verified by L1, replacing the existing “CALLDATA” mechanism where data remains stored on the mainnet indefinitely.
Given that over 90% of the expenses associated with L2 transactions are attributed to L1 data storage, the incorporation of data blobs in EIP-4844 is projected to decrease L2 fees by a minimum of 10 times. Although the implementation process is highly technical, the ultimate outcome for users will be straightforward: they will only need to pay a fraction of the cost for L2 transactions, making them more affordable and accessible to a wider range of people.
The introduction of proto-danksharding is expected to drive an increase in economic activity, both on L2 solutions and the Ethereum network as a whole. This comes as a result that transactions are likely to expand because of the low fees. Optimistic roll-ups alone currently generate a comparable number of transactions to the Ethereum mainnet. After the implementation of proto-danksharding, transactions in ZK-rollups and optimistic roll-ups are anticipated to experience a significant tenfold increase in size.
Although the reduction in fees on L2 solutions might result in less ETH being burned in the short term, the expansion of overall economic activity conducted on Ethereum is expected to contribute to greater value accumulation in the medium term.
The metric displayed above illustrates the count of active addresses that hold the ETH token within both the Ethereum ecosystem and the Optimism ecosystem. The observed trend indicates a substantial growth in the number of active addresses within the Optimism ecosystem as time progresses. While the number of active users in the Optimism ecosystem may not currently match that of Ethereum, it is anticipated to rise following the upcoming upgrade. Essentially, this will enhance the overall value of the Ethereum ecosystem, as the final validation process is carried out on the Ethereum blockchain.
Some argue that with this upgrade and the shift towards L2 chains, the amount of ETH burned through transactions might decrease, potentially leading to ETH becoming inflationary again. However, according to proponents of this catalyst, the increased adoption of the technology should counterbalance this effect. The reasoning is that the surge in activity will result in more transactions, which would offset the transitions to L2, maintaining the overall balance.
The introduction of Ethereum’s proto-danksharding is projected to grow interest in the currently subdued crypto market. While the exact implementation date remains uncertain, it is expected that markets will gradually shift their attention to this upgrade as official details emerge. Ultimately, this upgrade is anticipated to bring cryptocurrency closer to mainstream adoption, making it an important development to monitor.
