Ethereum’s mission is to aim for scalability, security, and decentralization. But as Ethereum’s user base swelled, so has the strain on its network, resulting in heightened gas fees and accentuating its scalability limitations.
Layer 2 solutions emerged as Ethereum’s remedy to the scalability issue. They facilitate transaction processing off the primary chain while upholding its fundamental doctrines. However, while gas prices on L2 are lower than on the main chain, they still present a hindrance to Ethereum’s widespread adoption.
Imagine stumbling upon an NFT collection that catches your eye, only to realize that the transaction costs nearly as much as the NFT itself! It’s not that unfamiliar, right? Unfortunately, this scenario remains the same, even on many L2s. To combat these, on March 13, Ethereum rolled out the Dencun upgrade. This update introduced off-chain data blobs through Proto-Danksharding. So, what exactly are Ethereum blobs, and why are they significant? Let’s dive in!
Ethereum Blobs: The Dencun Effect
The Dencun upgrade officially went live in the early hours of March 13, 2024, following its activation on the Ethereum mainnet at epoch 269568. This upgrade introduced the eagerly awaited proto-danksharding functionality through EIP-4844. It seamlessly integrates off-chain “data-blobs,” significantly reducing the expenses associated with storing transaction data. This upgrade’s primary beneficiaries are the L2 networks.
According to data from a Dune dashboard, popular L2 solutions have witnessed substantial drops in their average transaction fees. Following the upgrade, median transaction fees plummeted to $0.05 on Optimism, $0.064 on Base, $0.5 on Arbitrum, and $0.16 on zkSync Era.
Currently, median transaction fees have decreased to $0.009 on Optimism, $0.0055 on Base, $0.064 on Arbitrum, and $0.08 on zkSync Era. Notably, Optimism and chains built on Optimism’s technology stack, such as Base, have experienced the most significant reductions in fees.
On a side note, the Dencun upgrade also introduced eight other EIPs aimed at improving various functions across the network. One such improvement is EIP-4788, which introduces an “enshrined oracle,” enhancing communication between Ethereum’s two core layers: the execution layer and the consensus layer. Another significant enhancement is EIP-1153, which focuses on “transient storage,” a crucial feature required for the launch of Uniswap version 4 later this year.
Why Are The Fees So Low?
The Dencun upgrade introduced Binary Large Objects (blobs), which can attach sizable data chunks to standard transactions. Unlike call data, blobs store data off-chain and become inaccessible after three weeks.
As we said before, this innovation benefits L2 rollups by allowing them to store data in blobs instead of costly call data and reducing transaction processing expenses. Rollups conduct transaction computations outside the Ethereum main chain, consolidating multiple transactions into one transaction before submitting them to the main chain.
It’s worth noting that rollups need to implement blobs manually. Currently, Base, Optimism, Arbitrum, Zora, and zkSync have already done so. According to data from the tracking website L2Beat, there are over 23 active rollups on Ethereum, with 26 upcoming projects in the pipeline.
Anyhow, there’s a widespread consensus that the blob mechanism will ultimately lead to a substantial 90% decrease in transaction costs on L2 solutions. According to Vitalik Buterin, 125 kb of call data costs around 0.06 ETH ($222). In contrast, as the decentralized prediction platform Polymarket suggests, a similar-sized blob is expected to cost only 0.001 ETH ($3.7).
Polymarket is predicting that blobs (~125 kB) will cost ~0.001 ETH.
Today, 125 kB calldata costs ~30 gwei per gas * 16 gas per byte * 125000 gas ~= 0.06 ETH
And if you think polymarket's guess that blobs will be 60x cheaper is over-optimistic, you can use the market to hedge! pic.twitter.com/vUwJInNhCP
— vitalik.eth (@VitalikButerin) March 3, 2024
That said, despite the potential benefits of blob-carrying transactions, the Dencun upgrade has yet to significantly boost investor interest in many native tokens of rollups, which are supposed to benefit the most. Here is a chart measuring the base fees in Gwei for the last 7 days:
Source: UltraSoundMoney
Meanwhile, although transaction fees on L2 solutions have dropped significantly, fees on the Ethereum mainnet remain high. While the upgrade aimed to reduce fees on L2s, it could also contribute to fee reduction on the Ethereum mainnet. With L2s having their dedicated lane for transactions, it naturally frees up more capacity on the Ethereum mainnet. After all, L2s account for a significant portion of transactions on Ethereum.
Ethereum’s ‘Blobband’ Era?
For over a decade following Tim Berners-Lee’s (who also dabbled in web3) initial conception of the World Wide Web, users navigated a sluggish, bandwidth-strained internet. Dial-up modems could barely manage 50 kilobytes per second, rendering platforms like YouTube, Spotify, Twitch, and TikTok unimaginable, much like today’s high-frequency trading struggles on many L1 DEXs.
Meanwhile, the advent of broadband in the early 2000s swiftly revolutionized consumer-grade internet, elevating speeds to 512 kb/sec and catapulting previously implausible concepts into billion-dollar dot-com giants. This transformation paved the way for once-impossible ideas to materialize into billion-dollar dot-com giants, reshaping our cultural landscape and embedding us in an era of perpetual online connectivity.
Fast forward two decades, traditional television has faded into obsolescence, supplanted by many streaming services. AR headsets, backed by lightning-fast wireless connections, seamlessly merge physical and digital realms, echoing Berners-Lee’s 1989 vision of the web.
Similar to the evolution of the World Wide Web, Ethereum is also undergoing significant evolution. The original sharding-focused vision aimed to scale execution directly on the mainnet. However, with rollups now efficiently scaling execution, priorities have shifted.
Much like broadband transformed the internet, blobs are now poised to revolutionize Ethereum by addressing a lingering issue: data availability. Despite rollup scaling execution, posting transaction data alongside fraud/validity proofs for settlement verification back to the L1 remains a costly effort for rollups.
So, while rollups have effectively scaled execution, Proto-Danksharding steps in to address the scalability of data availability with blobs. It’s no wonder many in the Ethereum community herald this as the ‘Blobband’ Era for Ethereum.
How Blobs Keep Ethereum’s Traffic Moving
In simpler terms, think of Blobs as high-speed buses for Ethereum’s data. They efficiently transport large volumes across the network, making room for a bustling city of transactions and smart contracts. By packing substantial data into Blobs, the main network—the city streets—is kept clear for everyday transactions and smart contract executions.
Like stashing away your winter gear in the attic during the summer, Blobs neatly store bulky data within Ethereum, out of sight but easily accessible when needed. Blobs handle these hefty data loads, keeping everything running smoothly and making space for growth without causing congestion. The outcome? Faster transactions, lower fees, and a scalable environment benefit everyone.
Blobs are essential for accommodating a wide range of applications and an expanding user base, paving the way for a dynamic and scalable future. Unlike Calldata, Blobs don’t compete for gas with Ethereum transactions and are removed from the blockchain after about 18 days. This significantly improves data availability and reduces costs for L2 rollups.
Deep Dive Into Blobs and Proto-Danksharding
Data blobs are a fresh approach to optimizing transaction data storage on L2 networks within Ethereum. Typically, rollups store their data using transaction Calldata, which has size limitations and remains stored indefinitely. This leads to a perpetual increase in the requirements for running a validator. The persistent accumulation of data on every Ethereum node often contributes to around 90% of the costs for L2 networks. These costs are typically passed on to applications, which in turn are borne by consumers.
Source: Dune
According to Dune Rollup Economics Dashboard data, L2 networks collectively spent over 11,000 ETH (~$30 million) writing data to Ethereum in February 2024 alone. But with the introduction of Dencun—a blend of the “Deneb” and “Cancun” portions of the update—Ethereum has ushered in a new approach to data storage.
Proto-Danksharding, introduced through EIP-4844, lays the groundwork for an innovative and significantly more efficient data management mechanism that addresses the shortcomings of current on-chain data storage practices.
Utilizing data blobs specifically engineered to handle large data volumes outside the primary Ethereum blockchain, rollups can now store data cost-effectively while being scalable. Moreover, blobs offer a more economical solution, as the data is retained for only about 18 days, significantly reducing storage costs.
Instead of individually verifying each transaction within a block, the network only needs to validate that the attached blob contains the correct data. These blob-carrying blocks primarily involve transactions related to L2 networks like Optimism, which utilize Ethereum for data storage while benefiting from its security guarantees. The transient nature of these blobs ensures they do not permanently occupy space on the Ethereum network.
Here are some key details about blobs:
- Each block can accommodate up to a total of 6 blobs.
- Each type-3 transaction can include either 1 or 6 blobs.
- Each blob can store up to 128kb of data. Even if 128kb isn’t fully utilized, the transaction sender still pays for 128kb of blob space.
Ethereum maintains a mempool that temporarily stores type-0 (Legacy), type-1 (EIP-2930), and type-2 (EIP-1559) transactions. Type-3 transactions also reside in the mempool, but the actual contents of the blobs are disseminated through a consensus client blob sidecar, which is inaccessible to the execution client. The type-3 transaction solely contains a reference to the blob (a hash) and not the blob itself.
What Does It Mean For Devs, Users, And Validators?
- For developers, this opens up possibilities to create more intricate and data-intensive smart contracts without being hindered by exorbitant gas costs.
- For users, it means reduced fees, enhancing accessibility and appeal of L2-based applications to a broader audience.
- For Ethereum Validator Node Operators, it allows for optimization of disk space usage, as blobs are pruned approximately two weeks after creation.
Blob Pricing Dynamics
With the introduction of EIP-4844, the implementation of two distinct fee marketplaces will emerge, one for Layer 1 execution and another for blobs, as the blob data doesn’t align with the current Ethereum fee structure.
EIP-4844 follows these pricing guidelines:
- If the number of blobs in the block exceeds the target (currently set at 3), the blob base fee increases.
- Conversely, if the number of blobs in the block falls below the target, the blob base fee decreases.
- Meanwhile, the blob base fee remains unchanged if the number of blobs matches the target.
In addition to this new pricing model, type-3 transactions will retain the max_fee_per_gas and max_priority_fee_per_gas fields, subjecting them to the existing EIP-1559 market. Moreover, apart from blob space, type-3 transactions are still required to pay for the EVM space they utilize.
While the additional fee market operates similarly to the existing fee market in alignment with EIP-1559, the separation ensures that Ethereum network congestion doesn’t impact blob fees, facilitating low fees even during peak congestion periods.
The decoupling of fee markets was a significant factor in Visa’s decision to choose Solana for stablecoin payments.
Source: Dune
However, it introduces a new layer of complexity for L2 operators, who must now choose between utilizing type-2 and type-3 fee mechanisms to execute their rollups on-chain. There will be instances where regular type-2 batch transactions are costlier than type-3 blob transactions and vice versa. Consequently, each L2 must monitor the two markets to determine the most advantageous option based on prevailing network conditions.
Conclusion
Combining the Cancun and Deneb upgrades, Dencun has emerged as Ethereum’s most significant upgrade since the Shapella update in April 2023. The latter enabled the unstaking of Ether from the Beacon Chain, marking a pivotal moment since Ethereum 2.0 launched on Dec. 1, 2020.
Undoubtedly, EIP-4844 represents a major stride in Ethereum’s quest to enhance scalability and reduce transaction costs. The resulting lower gas fees significantly enhance the user experience for Ethereum users. Also, it makes dApps more accessible and cost-effective.
As blobs gain traction, Ethereum should witness reduced network congestion, freeing up space for other transactions. However, this transition means that Ethereum will no longer maintain an eternal, complete record of all data.
Nevertheless, one thing remains certain: introducing blobs signifies just the beginning of an exciting new era for Ethereum. With these groundbreaking improvements, the future of ETH appears brighter than ever!
Disclaimer
The information discussed by Altcoin Buzz is not financial advice. This is for educational, entertainment, and informational purposes only. Any information or strategies are thoughts and opinions relevant to the accepted levels of risk tolerance of the writer/reviewers and their risk tolerance may be different than yours. We are not responsible for any losses that you may incur as a result of any investments directly or indirectly related to the information provided. Bitcoin and other cryptocurrencies are high-risk investments so please do your due diligence. Copyright Altcoin Buzz Pte Ltd.
