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This month's Shapella is huge for Ethereum, but the work of scaling the network has only just begun.
Today, we take a look at where Ethereum is headed after Shapella.
1. EIP-1559 completed
2. The merger is completed
3. Shapella completed
While it’s a bear market right now, that hasn’t stopped the Ethereum developer community from delivering results.
What's next on Ethereum's roadmap for the remainder of 2023? Work on the EIP-4844 Cancun hard fork, distributed validator technology, and proposer-builder separation gives us an in-depth look at what’s next for Ethereum.
EIP-4844 Cancun Hard Fork
EIP-4844 is the next important hard fork of Ethereum, which aims to solve the scalability problem of Ethereum. We’ve heard the comparison countless times that Visa can process thousands of transactions per second, while Ethereum can only process double-digit transactions per second at most. The source of usability issues that the Ethereum network currently needs to address is scalability.
Today, scalability issues are alleviated with rollup chains (Arbitrum, Optimism). The basic idea behind rollup scaling Ethereum is to push the computational burden of processing transactions to the second layer (L2). Once complete, they post transaction data back to the underlying Layer 1 (L1) beacon chain for consensus and storage.
Unfortunately, rollups are only a temporary solution, it is still too expensive and slow. This is not rollup's fault - it's mostly due to the design architecture of the underlying Layer 1 chain. The fastest rollups still need to submit a lot of data to establish consensus on the Layer 1 chain that lacks free storage space. Furthermore, it places a heavy burden on nodes to download this data - an estimated 95% of rollup transaction fees are spent on publishing data costs.
EIP-4844 came into being, EIP-4844 named after Ethereum researcher Dankrad Feist, also known as proto-danksharding proposal, aims to increase the speed and reduce the cost of using rollup. In the words of Dankrad, it is the accelerator of rollup.
EIP-4844 splits the blockchain network into different databases, which increases the space for millions of transactions on Ethereum (a whole new layer of data availability). This split is called "sharding". In simple terms, sharding is akin to adding lanes to the congested highways of the current Ethereum network. Hence why EIP-4844 entered the stage of the Ethereum roadmap once dubbed "Surge".
When proto-danksharding is completed, the Ethereum block can store 1-2 megabytes of data (the current capacity is 50-100 KB), which is estimated to reduce the cost of using rollup by 20 times.
With the increased space for danksharding, there is more room for "blob-carrying transactions", a new type of transaction that remains in beacon chain nodes for a limited period of weeks or months. During that time, node validators employed a clever technique called "data availability sampling," which randomly samples a portion of data blocks for validation without actually downloading all of the data.
Why is EIP-4844 important? Ethereum rollups are not currently suitable for use cases such as gaming or social media that require higher transaction loads. But developers couldn’t wait, so they found ways to scale by making decentralization compromises, as we’ve seen in most crypto games and sidechain bridge designs. EIP-4844 is the unlocking of fully on-chain use cases, potentially ushering in a wave of builder innovation.
When will proto-danksharding be completed? Currently, we know that EIP-4844 is scheduled for sometime between Q3-Q4 2023. But as with most large ethereum network upgrades, it is expected that it may experience delays.
Distributed Validator Technology
Another key technological innovation that Ethereum needs to watch in the near term is the rise of Distributed Validator Technology (DVT), an area of research that the Ethereum Foundation has been exploring since 2019.
Today, the threshold for operating an Ethereum node is relatively high, requiring operators to invest 32 ETH separately. Node operators can choose to reduce the burden by staking via Coinbase or Lido, but these alternatives are not decentralized.
DVT attempts to simplify node verification without sacrificing decentralization. It does so by enabling a kind of independent "squad staking". Instead of individually staking 32 ETH, a group of friends can collectively stake different amounts of ETH and run a node. This is achieved through multi-party computation (MPC), which lets a group of people share a single private key like a multi-signature and run "distributed validators" together.
DVT spreads out the cost of staking alone by lowering the financial barrier for individuals or small DAOs to participate as Ethereum validators. This could significantly reduce the concentration of the ETH staking market currently accumulating on Lido and centralized exchanges.
Source: Dune Analytic
DVT also makes node verification an overall stronger process. In the event of a hardware failure, distributed validators running the same node can replace each other. Just like multisig, sharing private keys via DVT makes it harder for attackers to break.
DVT is not yet publicly available, but companies like Obol have just begun testing deployments on mainnet, and it could be ready by Q3 2023.
proposer-builder separation
The word “decentralized” is used a lot in cryptocurrencies, but most blockchains are notoriously not.
A major centralization vector at the Ethereum protocol layer lies in the way blocks are constructed. When we submit transactions on the wallet, they go into a large pool of pending transactions in the mempool. Block validators (miners in PoW, stakers in PoS) take a bird's-eye view of this mempool, spot a profit opportunity, and start selling priority rights to build blocks to arbitrage bots.
These types of value extraction techniques are known as Maximum Extractable Value (MEV) attacks. They are largely hidden from everyday users, but remain an existential threat to ethereum's decentralized ethos, with block miners withdrawing an estimated $676 million before the merger.
The Proposer-Builder Separation (PBS) is the Ethereum development community's answer to this question. As the name suggests, PBS aims to establish a division of labor between the two key tasks of block building: proposing blocks and building blocks. By doing so, block validators are deprived of the ability to distinguish individual transactions, since the content of a block is not determined by the same entity that ultimately built it on-chain.
PBS won't be ready until 2023, and likely won't be for another two years. Prior to this, third-party solutions like Flashbots' MEV-Boost have emerged while mitigating this issue by creating an open free market in block building.
Summarize
Ethereum has currently completed the conversion from Pow to Pos. With The Merge and Shapella upgrades complete, the Ethereum community can continue to address other issues: lack of scalability, capital inefficiency, and centralization of block validators. And EIP-4844, distributed validator technology, and proposer-builder separation are some important solutions that we need to pay close attention to.
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