Proto-danksharding: What It Is and How It Works

With the completion of the Merge and Shanghai upgrades, Ethereum has successfully transitioned from a proof-of-work to a proof-of-stake consensus protocol. The next big-ticket item on Ethereum’s development roadmap is Ethereum Improvement Proposal (EIP) 4844, called “proto-danksharding.” The code change is designed to improve the scalability of rollups built on top of Ethereum. Named after Ethereum core developers “Protolambda” and Dankrad Feist, EIP 4844 introduces a new transaction type, called blobs, increases the data and storage requirements of Ethereum blocks, and creates a new fee market for pricing blobs separately from regular transactions.

Rollups are protocols that rely on Layer-1 blockchains like Ethereum for data availability (DA) (the functionality of widely propagating and temporarily storing batches of transaction data). Generally, smart contract-based rollups that rely on Ethereum for DA also rely on Ethereum for transaction settlement (verification). These rollups specialize in reading data from a DA layer like Ethereum and executing valid transactions and smart contract code. Rollups built atop Ethereum rely on the inclusion of batched transaction data in Ethereum blocks for transaction finality. Sequencers are the actors that batch and compress user transactions in a cost-effective way for submission to a DA layer.

Normally, posting large amounts of data to Ethereum is costly in part because the network stores the data in perpetuity as part of transaction history in a field known as “CALLDATA.” Through EIP 4844, an additional 512kB or 768kB of data space per block would be created for rollups. Ethereum core developers are in the process of weighing exactly how much additional space should be created for blob transactions. Importantly, the data posted to this space would be stored for a period of roughly three weeks. Due to the ephemeral nature of the data verified through blob transactions and the separate fee market for pricing blobs in isolation from other types of transactions, the cost for rollups to post data to Ethereum in theory will be greatly reduced. Over time, developers intend to introduce data sampling techniques such that blob data does not need to be downloaded in its entirety for verification by Ethereum full nodes, further reducing rollup costs. Proto-danksharding is a precursor and “prototype” of full danksharding which will enable Ethereum nodes to download pieces of blob data to ascertain the availability of the full blob.

This report dives into the details of how EIP 4844 works, the limitations of proto-danksharding, the planned evolution of EIP 4844 into full danksharding, and includes several considerations regarding the code change’s immediate benefits to end-users and decentralized application (dapp) developers if implemented according to schedule in the fall of 2023. Given the focus of proto-danksharding on supporting a Layer-2 rollup ecosystem and scaling Ethereum through modularity, the implementation of the code change in the next Ethereum upgrade will be an important testing grounds for the modular blockchain thesis at scale as applied to one of the world’s largest public blockchains.

Background

EIP 4844 is considered a scalability upgrade for Ethereum. However, it is important to note that the code change does not materially increase or introduce improvements to the transaction capacity of Ethereum itself. Proto-danksharding reduces the cost of posting large amounts of data to Ethereum and thereby lowers the operational cost of rollups. EIP 4844 is considered a boost to Ethereum scalability because it makes Layer-2 networks built atop Ethereum more cost-effective, but the code change does not improve Ethereum’s scalability as a general purpose blockchain for transaction and smart contract code execution.

For the past four years, the transaction activity of Ethereum rollups like Arbitrum, Optimism, StarkNet, zkSync, and Polygon zkEVM has been growing. L2Beat.com estimates that the transactions per second (TPS) achieved on all Layer-2 networks combined is 3.8x the daily average TPS of Ethereum.

Compared to the costs of deploying code and transactions to Ethereum directly, rollups have saved end-users and dapp developers over 99% on gas fees, according to data by Blockworks Research via Dune Analytics.

As of June 13, 2023, the costs to send a transaction on the two most popular Ethereum rollups, Optimism and Arbitrum, trend at around $0.03 to $0.05 USD. However, at times, these costs have spiked above a dollar during bouts of high on-chain activity and network congestion.

The goal of EIP 4844 is to reduce rollup costs through the introduction of a new transaction type known as binary large objects, or blobs. The following is a step-by-step illustration of the lifecycle of a blob transaction as defined by EIP 4844:

EIP 4844 does not impact how regular transactions submitted to the Ethereum mempool get included in a block or the fee market that dictates how to price Ethereum block space, but EIP 4844 does increase the storage requirements of Ethereum blocks. The additional data space is designed for attaching blob transactions to blocks. Blobs are like side cars that can be attached to Ethereum blocks without impacting or crowding out existing blockspace for processing regular transactions. Blob blockspace will be auctioned according to its own fee market, modelled after the fee market design of EIP 1559. For more information about EIP 1559, read this Galaxy Research report. Initially, blob transactions will be virtually costless. Thereafter, the costs for blob transactions will increase by 12.5% for every block confirmed where more than half of the blob block space, a minimum of 256kB, is utilized. The costs of blobs decrease by 12.5% for every block where blob block space is underutilized, meaning less than 50% of blob block space is filled.

Blob transactions will not be stored indefinitely on Ethereum, but instead will be stored on the consensus layer (CL) of Ethereum, the Beacon Chain, and dropped from CL nodes after a period of three weeks. Proto-danksharding will enable a maximum of four blobs per block, each blob able to contain up to 128kB of additional data. The maximum limit of 512kB of blob space per block is subject to change based on ongoing testing for EIP 4844. Developers are actively discussing the possibility of increasing the limit from 4 blobs to 6. Each blob is an opportunity for a single rollup sequencer to confirm a single batch of transactions down to Ethereum. Roughly 7,094 blocks are produced daily on Ethereum, and after EIP 4484, assuming a 4 blob/block limit, a maximum of 28,376 blobs can be processed per day. (This is a theoretical maximum that in practice would likely never be reached due to blob fee dynamics. The cost to process the maximum amount of blobs per block consecutively would be prohibitively expensive for a sequencer.)

Over the past six months, the sequencer operating on Optimism, which is the second most popular Ethereum rollup by transaction activity, has submitted roughly 3,126 transaction batches per day to Ethereum.

Arbitrum confirms roughly double the transaction load of Optimism and, like Optimism, relies on sequencers posting data to Ethereum through CALLDATA for transaction finalization. Other examples of popular rollups on Ethereum include, but are not limited to, Polygon zkEVM, zkSync, and StarkNet. On Optimism, over 90% of fees are from Layer 1 CALLDATA costs.

The introduction of dedicated data storage space, however small at first, aims to reduce the costs of using Ethereum as a DA layer for all Ethereum-based rollups. Conservatively, rollup developers are estimating anywhere from 100% to 900% decrease in rollup fees from the activation of EIP 4844. However, these estimations are subject to change based on increased rollup adoption and activity in the months leading up to and following the activation of proto-danksharding.

The cost of blob transactions, while likely to be cheaper than regular transactions at the outset of EIP 4844 activation, has the potential to climb quickly if the number of rollups built atop Ethereum rises. Further, while each blob is meant to be an opportunity for a single sequencer to publish up to 128kB of data, it is possible for rollup sequencers to coordinate such that a single blob contains data from multiple rollups. Ethereum developers are aware of the possibility that a secondary market may emerge for pricing blobs due to their limited number per block and the fact that a single transaction batch may not fully utilize the full 128kB of data space available per blob transaction. While preventing off-chain secondary markets from emerging is a priority, rather than introduce greater levels of protocol complexity to prevent this possibility, for now developers are taking a “wait and see approach” to the introduction of blobs through EIP 4844 and intend to introduce further optimizations to EIP 4844 down the road.

Proto-danksharding lays the groundwork for introducing more advanced techniques for further reducing blob costs without increasing the computational load on nodes. Called full danksharding, the complete vision for blobs is to increase the maximum number of blobs per block from 4 to 64.

Full Danksharding

Four blobs increase Ethereum block size by an additional 512kB. Six blobs increase Ethereum block size by an additional 768kB. As noted, the additional block space is dedicated strictly for blob transactions and does not store data in perpetuity like regular block space. The full vision of EIP 4844 is to introduce up to 64 blobs to Ethereum and do so without substantially increasing computation load on nodes for block verification. To achieve full danksharding, Ethereum needs to implement two techniques: data availability sampling (DAS) and erasure encoding.

Data Availability Sampling (DAS)

The goal of DAS in the context of verifying Layer-2 rollup transactions is to ensure that all pieces of data bundled by the sequencer have been posted on-chain. Full nodes are randomly chosen to download a piece of data from a blob and generate data availability proofs. The more times full nodes sample data, the greater the probabilistic certainty that all data has been made available from the sequencer without withholding important data. The process of sampling data is less computationally intensive for nodes than downloading the entirety of blob data but in theory will give the same guarantees of data availability. Like proto-danksharding, sampling blob data under full danksharding will ensure that transactions from a sequencer have been verified and posted on-chain for any user or network stakeholder to evaluate. Users and stakeholders then have a period to view these transactions, confirm that they have been finalized on a DA layer like Ethereum, and build new batches of transactions atop the previous batch.

Through DAS, Ethereum developers are confident that they will be able to increase the number of blobs and amount of data posted to Ethereum without increasing the computational load on nodes. Additionally, developers also intend to further reduce computational load on nodes through the implementation of proposals such as history expiry in future upgrades. In the words of Ethereum researcher Dankrad Feist, Ethereum will over time become used like “a public notice board rather than an archive system,” relegating the responsibility of retaining a full copy of transaction history to network stakeholders that regularly use this data such as Layer-2 rollups and blockchain infrastructure companies like Infura, Alchemy, and Blockdaemon. The introduction of blobs though EIP 4844 is an early example of how all transactions may one day become stored on Ethereum.

Erasure Encoding

Enhancing the ability to sample data is the technique of erasure encoding. Should a malicious sequencer withhold a minority of block data, anywhere between 1% and 49% of blob data, transaction sampling may probabilistically lead to certain sample proofs being returned as correct, instead of false, at first. Erasure encoding ensures that if at least half of a blob is verified, the rest of the blob can be reconstructed. This technique only works if the data is represented as a polynomial, an expression of more than two algebraic terms. The most common form of erasure encoding relies on Reed-Solomon (RS) code, which is an advanced mathematics formula that can solve missing pieces of data based on sufficient known pieces of data. Intuitively, sampling alone may not be effective for guaranteeing the availability of large amounts of data, especially under the assumption that one single piece of data is withheld from a blob by a malicious sequencer. Erasure encoding introduces data redundancy to blobs such that a malicious sequencer would necessarily need to be withholding a noticeably large share of blob data to withhold any amount of data at all.

The coupling of DAS with erasure encoding underpins the technology behind full danksharding. These are the same techniques that power the technology behind certain DA layers such as Polygon Avail and Celestia. In many ways, the vision for supporting modular blockchain computation, which is being tested at a smaller scale through other blockchain projects, will be tested on Ethereum at scale in part through proto-danksharding and in earnest through full danksharding.

KZG Commitments

Before DAS and erasure encoding can be implemented on Ethereum, full danksharding requires the implementation of KZG commitment schemes. Kate Zaverucha Goldberg (KZG) commitments are a type of zero knowledge (ZK) proof system that enables evaluations of polynomials without revealing the entire polynomial. Large data objects such as blobs can be manipulated and proven in efficient ways by computers if they are first represented as polynomials. EIP 4844 importantly introduces KZG commitments as part of the verification and proof generation process for blobs. For Layer-2 rollups that rely on ZK proofs, KZG commitments can represent computation on transactions and the state of a rollup protocol. In the context of EIP 4844, KZG commitments can check the properties of blobs without needing to read the entirety of the blob transaction.

KZG Ceremony

The KZG commitment scheme for verifying blobs relies on a secret value generated one-time through a trusted setup. Several cryptographic protocols such as Zcash, Tornado Cash, and Filecoin have relied on trusted setups to securely generate a secret value for use in recurring on-chain computations. The trusted setup ceremony for EIP 4844 was kicked off in January 2023. It has received close to 100,000 contributions from the Ethereum community. As background, a trusted setup ceremony is a one-time procedure to generate a piece of data for use in a cryptographic protocol from the contributions of more than one party. The goal of combining entropy from multiple contributions in a trusted setup ceremony is to generate a secret value that is virtually impossible to re-generate or guess. It is essential that the final value created from a trusted setup ceremony cannot be re-produced.

The KZG ceremony remains open to contributions as of May 2023 and is likely to close a few months before EIP 4844 is activated on mainnet. Most ceremony contributions have come through a public website funded by the Ethereum Foundation that users connect to with their Ethereum address and automatically runs computation that creates randomness helpful to increasing the security of the secret value. In addition, there have been other contributions created through unique events, involving music, large groups of people, animals, and even marble machines.

Mr. Moloch’s Ephemeral Album II, a musical event to contribute entropy to the KZG Ceremony.

Source: Twitter (@trent_vanepps)

Benefits & Impacts

There are many parallels to the introduction of blobs on Ethereum and the introduction of segregated witness (segwit) on Bitcoin. Both code changes introduce modifications to the way data is stored on-chain, result in effective block size increases, and support the existence of Layer-2 protocols. However, one of the main differences between segwit and EIP 4844 is the expected long-term impact of these code changes. While segwit was designed to address an immediate vulnerability in protocol code and support the creation of the Lightning Network in the near-term, the motivation for EIP 4844 is to lay the groundwork for further scaling optimizations like DAS down the road and eventually excel as an optimized DA layer. Proto-danksharding enhances Ethereum’s ability to support Layer-2 rollups and service rollup sequencers, whilst encouraging end-users to transact on rollups instead of directly on Ethereum over the long-term.

Compared to the data that fills regular Ethereum blockspace, blob blockspace is differentiated by a few key properties. Firstly, due to their ephemeral nature blob transactions are expected to be cheaper in gas fees than regular transactions. Second, while dapps, developers, and end-users can easily retrieve data on regular transactions stored in Ethereum blocks through the Ethereum EL and execute smart contracts to interact with these transactions through the Ethereum Virtual Machine (EVM), the execution environment of Ethereum, blob data will be comparatively harder to retrieve and interact with. Blob data will be stored in the CL of Ethereum and, therefore, only accessible for a limited set of operations, namely transaction confirmations and finalization.

Looking ahead, one of the metrics to watch for impacts of EIP 4844 is the reduction in rollup fees. Using the CALLDATA field in Ethereum transactions to post batched transaction data to Ethereum costs 16 gas per byte. The cost of blobs, on the other hand, will be virtually free to start and climb incrementally from there. In addition to the cost of blobs, another metric to watch in terms of EIP 4844 impact will be data propagation loads on full nodes. Regular Ethereum transactions are less than 1kB in size, which means Ethereum nodes can easily propagate this data without needing high bandwidth. However, blob transactions can individually be up to 128 kB in size, meaning that blobs require more computational effort from nodes to propagate.

The following is a table summarizing a few metrics relevant to evaluating EIP 4844 impacts:

As in the case of the Taproot upgrade on Bitcoin, it is difficult to predict all the ways in which blob transactions and blob blockspace will be utilized apart from its intended use case of processing Layer-2 rollup transactions. It is also difficult to accurately predict by how much EIP 4844 will reduce the costs of Layer-2 rollups given that the adoption of Layer-2 rollups over the past few years has not been stable but rather subject to extreme volatility. For the past few years, Layer-2 rollups have been undergoing major upgrades and improvements of their own. Last August, Arbitrum Nitro completed its Nitro upgrade which reportedly increased transaction throughput by over 7x. Optimism completed its Bedrock upgrade on June 6, 2023, which was designed to lower fees by 10% for end-users and introduce several other improvements impacting the user experience.

Due to the ever-evolving capacity and functionality of rollups built atop Ethereum, it is difficult to accurately predict by what magnitude EIP 4844 will impact fees and activity on Layer-2 rollups. In summary, the expected benefits of EIP 4844 on Ethereum are:

Concerns & Considerations

The idea for EIP 4844 was conceived at Ethereum conference ETHDenver in February 2022. The first EIP 4844 test network was launched in August 2022. Since then, Ethereum client teams have iterated on the code and launched four additional test networks. As developers work towards launching their sixth dedicated testnet, there are outstanding concerns and open questions around EIP 4844 implementation. A few ongoing discussions around EIP 4844 implementation as of May 2023 include:

• De-SSZify EIP 4844 specifications: For months, developers have been discussing the most optimal way to serialize the new blob transaction types. Initially, developers had leaned toward introducing an early iteration of the SSZ format to the EL through blob transactions. Unlike the CL, the EL of Ethereum has traditionally relied on a serialization format known as RLP. Eventually, developers plan on upgrading all transaction types from RLP to SSZ but given that the path to upgrading from RLP to SSZ remains unclear and certainly not ready for implementation by Cancun, developers have decided to work towards the removal of SSZ from EIP 4844, at least from the EL side.

• KZG commitment crypto libraries: There is ongoing concern around the readiness of KZG commitment crypto libraries. The libraries provide implementations of KZG functions as defined by EIP 4844’s polynomial commitments specifications. However, there are major aspects of the library that are undergoing changes that make it difficult for Ethereum client teams to use and integrate these libraries into their codebase.

• Testing through the Geth (EL) client: Testing for EIP 4844 is based on a forked version of the Geth (EL) client. Developers are actively working towards migrating testing for EIP 4844 to the main Geth code repository.

• MEV-Boost testing: MEV builders and relays have yet to start experimenting with blob transactions in earnest. Developers are working on ways to incorporate testing for MEV-Boost related software sooner rather than later during the EIP 4844 development process.

• Blob fee market design: The fee market for blobs is based on the design of EIP 1559. EIP 1559 increases gas costs for transactions by 12.5% in either direction based on block space capacity. However, the implementation of EIP 1559 on Ethereum has introduced high volatility to block size. To avoid the same outcome for usage of blob block space, developers are considering alternative parameters to blob gas fees.

• Decoupling blob from block gossip: Blobs are significantly heavier pieces of data to propagate between Ethereum nodes. Therefore, developers are working on strategies to decouple blob propagation from block propagation so that transaction processing speeds are not bogged down from blob activity.

• Blob transaction mempool during a chain reorg: Regular transactions are reinserted into blocks in the event of a chain reorganization. Due to the decoupling of blob from block gossip, there is no straightforward way to guarantee that all blobs in the mempool will be reconstructed post-reorg. Developers are considering ways to handle blob transactions in the event of a temporary chain split.

• Handling blob transaction churn: Unlike transactions which can easily be canceled by a user after being submitted to the mempool, blob transactions, which are considerably more difficult and resource-intensive to propagate, should not be as easy to cancel and replace once broadcast. Developers may introduce penalties for invalidating blob transactions after submission to the mempool.

Based on the scope of the next Ethereum upgrade, dubbed Cancun on the EL and Deneb on the CL, the activation of EIP 4844 on mainnet Ethereum is tentatively expected sometime during the fall or winter of 2023. Any upgrade on Ethereum requires an extensive amount of testing and coordination. Since the Merge, the protocol of Ethereum has expanded and grown significantly more complex. The following is an illustration of the parts of the Ethereum’s protocol and related software to the Ethereum protocol that must be updated in preparation for the Cancun upgrade.

Alongside EIP 4844, the following four EIPs will be activated in Cancun:

• EIP 6780, SELFDESTRUCT only in the same transaction: This EIP changes the functionality of the SELFDESTRUCT opcode such that the SELFDESTRUCT opcode can be deprecated with minimal impact on existing smart contracts.

• EIP 1153, Transient storage opcodes: This EIP introduces transient storage opcodes that behave identially to storage opcodes except that the data is discarded after every transaction, enabling cleaner smart contract design and gas savings for end-users.

• EIP 4788, Beacon block root in the EVM: Expose beacon chain block roots in EL block headers to allow proofs of CL state in the EVM. This would improve trust assumptions of staking pool, restaking constructions, smart contract bridges, MEV protocols, and more.

• EIP 5656, Memory copying instruction: Introduction of a new EVM instruction for copying memory areas to provide efficient means of building data structures and deploying computationally heavy operations on Ethereum.

Similar to the process for scoping out the Shanghai upgrade, Ethereum core developers are prioritizing the activation of EIP 4844 as the main code change going into Cancun. Therefore, due to the complexity of EIP 4844 and the large amount of time, as well as work, needed to thoroughly test the code change, developers have decided to reject all other EIPs proposed for Cancun outside of the four mentioned above. The idea is to keep Cancun as lean as possible and only include other EIPs if they are minimal in terms of complexity or have a high urgency. The urgency of EIP 4844 ahead of other EIPs that have been de-prioritized since as early as the Merge upgrade is a topic of controversy that highlights the need for improvements to Ethereum beyond scalability.

The Need for EIP 4844

EIP 4844 is an upgrade that will reduce the costs for end-users sending transactions and deploying smart contracts on rollups. Though there have been bouts of high transaction activity on rollups that have caused transaction fees to increase above $1, fees on rollups, as well as Ethereum generally, have been relatively subdued since January 2022. As of June 14, 2023, the costs to transfer ETH on most Layer-2 rollups tend to be below $0.20.

Without high fees or transaction congestion on Ethereum, there is little financial incentive for economic activity to move to rollups. Based on Ethereum’s 8-year history of on-chain activity, it is only a matter of time before fees begin to rise and once again highlight the need for scalability solutions on Ethereum. However, in the short-term, without a catalyst event or narrative driving on-chain activity, EIP 4844 is not likely to reduce fees on Ethereum further than they are already.

Even if a catalyst does appear that drives economic activity and growth to Ethereum and Ethereum-based dapps this year around the time of EIP 4844 activation, it is unclear that transaction activity bloating Ethereum would move to rollups in a meaningful volume to take advantage of cost-savings. Though cheaper to use than Ethereum, even today by a meaningful amount, rollups are nascent in their development and do not yet offer users comparable levels of security, usability, or decentralization to Ethereum. And most rollups on Ethereum today likely never will reach comparable levels to the L1 as innovations in rollup technology advance and new rollup designs make the current ones obsolete.

Ethereum stands alone as the world’s most secure and decentralized general-purpose blockchain, supporting thousands of dapps that through standards like ERC-20 and ERC-721 are also interoperable and composable. Though rollup developers are designing proof systems for supporting trust-minimized bridges and funding efforts to increase client diversity for removing reliance on multi-signature wallets, these efforts will take years to develop and deploy. At this stage of development, rollups are competing with alternative Layer 1 blockchains that similarly do not have as high guarantees around network uptime, finality, or interoperability as Ethereum for users and transaction activity. Rollups today are not an attractive alternative to Ethereum.

Over time, rollups are expected to become increasingly more attractive but until they can boast higher levels of decentralization, usability, and security, it is unlikely that a code change like EIP 4844 alone will drive adoption or activity to rollups. For most end-users of Ethereum, EIP 4844 will have little to no effect on their user experience. For the minority of end-users that already use rollups or migrate to using them because of proto-danksharding, the effect will be cheaper fees without meaningful improvements to rollup security or interoperability.

It can be argued that the migration of sequencers from using CALLDATA to blob data will free up regular blockspace for end-users of Ethereum. On average only 2% of available block space has been used by Layer-2 rollups over the past 3 years. Therefore, the impact of rollups migrating from using CALLDATA to blob data on available block space is minimal. Secondly, increased usage of rollups by end-users of Ethereum may result in a proportional increase in bridging activity, which subsequently, may offset minimal reductions in the use of block space by sequencers.

The Urgency of EIP 4844

Over the past 12 months, the crypto industry has been rocked by a slew of protocol failures, hacks, high-profile bankruptcies, and criminal lawsuits. More broadly, macroeconomics conditions post-pandemic with rising inflation and increasing interest rates in several countries around the world, most importantly the U.S., has also contributed to a general decline in economy activity both in crypto and in traditional financial markets. Further, increasing regulatory scrutiny of the crypto industry from government agencies like the U.S. Securities Exchange Commission (SEC) has acutely targeted blockchain-based applications and services, the most valuable and popular of which are built atop Ethereum. The following are a few examples of regulatory headlines related to crypto since the beginning of 2023:

• In February, cryptocurrency exchange Kraken was sued by the SEC for selling unregistered securities through their staking services, which caused them to shut down staking services in the U.S.

• In March, Members of the European Parliament (MEP) voted in favor of an anti-money laundering bill to require decentralized autonomous organizations, decentralized finance protocols and non-fungible token marketplaces to comply with the same due diligence checks on users as traditional banks and financial institutions.

• In the same month, the New York Attorney General (NYAG) filed a lawsuit against crypto exchange KuCoin and in the same suit classified ETH as a security.

• In April, the U.S. Treasury published a report along the same lines affirming the need for decentralized finance protocols to comply with U.S. anti-money laundering and sanctions laws.

• In June, the U.S. SEC sued the world's largest cryptocurrency exchange, Binance, for violating federal securities laws.

• In the same month, the U.S. Commodity Futures Trading Commission (CFTC) won a lawsuit against decentralized autonomous organization (DAO) Ooki DAO for offering unregistered commodities.

Amid a crypto bear market and heightened concern of global recession, lawmakers and regulators around the world continue to evaluate and assess the extent to which policies and rules can and should influence access to and activity on Ethereum. For Ethereum to achieve its vision of becoming the world computer, it is important for Ethereum core developers to work towards mitigating trends of centralization and reinforcing qualities of censorship-resistance not only on the protocol-level but also on the app-level.

Over the past year, an increasing amount of focus has been directed by the Ethereum Foundation and other high-profile Ethereum stakeholders to the phenomenon of maximal extractable value (MEV) precisely due to MEV’s centralizing impacts. To mitigate the negative externalities of MEV, Ethereum core developers in partnership with Flashbots built MEV-Boost, an additional piece of software for validators on Ethereum to run to earn MEV post-Merge without becoming centralized by the forces of MEV. However, MEV-Boost is a stop gap measure to address MEV only in the short-term and has centralizing effects of its own which can be mitigated by implementing an in-protocol version of MEV-Boost, called in-protocol proposer builder separate (PBS). For more information about MEV-Boost, read this Galaxy Research report.

To some degree, the inclusion of EIP 4844 as the main code change going into Cancun reflects a prioritization for scalability through rollups ahead of other long-term initiatives and objectives in the mind of Ethereum core developers. The de-prioritization of other EIPs with a similar complexity as proto-danksharding to future upgrades after Cancun is another area of consideration around EIP 4844 that speaks to the urgency felt by Ethereum core developers to advance Ethereum’s use as a DA layer in preparation for an imminent future where transaction execution happens primarily on rollups, instead of Ethereum.

However, the prioritization of proto-danksharding ahead of PBS and other EIPs designed to enhance the censorship-resistance of Ethereum considering recent trends in politics, regulation, and on-chain activity is not entirely based on need or urgency. It is also based on EIP readiness. One of the reasons why a large upgrade to the usability of the Ethereum Virtual Machine (EVM) known as EVM Object Format (EOF) was punted from the Merge, Shanghai, and most recently the Cancun upgrade, was due to a consensus among Ethereum core developers around the lack of readiness for the code changes. EIP 4788 which is an upgrade to improve trust-minimized access to the Beacon Chain from the EVM for supporting decentralized staking pools, among other dapps built atop Ethereum, was rigorously evaluated for readiness in Cancun and accepted into the upgrade on June 8, 2023.

The following is a list of EIPs proposed for inclusion in Cancun and their status as of June 2023:

EIP 4844 doubles downs on the idea of achieving long-term scalability through modularity, despite the nascency of rollup technology. Modular blockchain design may change in drastic ways over the next few years based on continued research and new technologies. EIP 4844 as discussed is a precursor to full danksharding which is needed for Ethereum to compete as a DA layer against highly optimized DA layers such as Celestia. Based on the impacts of EIP 4844 on Ethereum, the timing and ideas for what full danksharding looks like on Ethereum is likely to change.

Conclusion

EIP 4844 is not a game changing upgrade for Ethereum scalability as it will not reduce fees for end-users of Ethereum. Proto-danksharding reduces the costs of rollups and primarily benefits rollup users and operators. EIP 4844 sets Ethereum on a path to scale meaningfully through modularity and by offloading the activity of transaction execution to other protocols. The benefits of proto-danksharding will primarily be recognized by rollup sequencers that pay for block space on Ethereum. The secondary effect of proto-danksharding will be to end-users and dapp developers that end up migrating away from Ethereum to rollups for initiating transactions over time.

Since 2022, transaction activity on rollups has risen while fees have declined. Moreover, there have been several breakthrough innovations increasing the confidence of Ethereum core developers and other Ethereum stakeholders in rollups as the technology of the future for scalable blockchain design. However, it is unlikely that the full potential of rollups will be realized or ready for mass adoption in the near-term future and certainly not be the time EIP 4844 is expected to activate in Q3 or Q4 of 2023. Without meaningful migration of transaction activity to rollups post-EIP 4844, proto-danksharding will not impact or lower fees on Ethereum. End-users of Ethereum will still be subject to the same bouts of high fee volatility and network congestion unless they submit transactions through a rollup sequencer, which are generally centralized and operated by a single entity.

Rather than a silver bullet for solving scalability issues on Ethereum, proto-danksharding should be considered the first step of many towards transforming Ethereum into a modular blockchain that primarily supports transaction execution through Layer-2 rollups. EIP 4844 lays the foundation for full danksharding and the use of polynomial commitments for DAS down the road. For further reading on the Ethereum Layer-2 landscape, read this Galaxy Research report. In many ways, EIP 4844 is a vote of confidence in the modular blockchain thesis and will encourage further experimentation with rollups on Ethereum. Modularity as a solution for scaling blockchains radically reframes the primary functionality of Ethereum away from being a general purpose blockchain servicing end-users and dapp developers to becoming a DA layer servicing sequencers.