• The next major Ethereum upgrade may result in lower Layer 2 gas fees

  • A recent Ethereum Improvement Proposal (EIP) proposed by network co-founder Vitalik Buterin aims to address one of the network’s major flaws: transaction costs.

    Buterin proposed EIP-4488 last month, which aims to reduce transaction ‘calldata.’ This could provide some short-term relief from those skyrocketing gas prices.

    The proposal’s primary goal is to reduce gas fees on Ethereum’s growing ecosystem of layer 2 scaling solutions.

    Ethereum developers have responded positively to EIP-4488, taking to Twitter to explain what is going on behind the scenes. Technically, EIP-4488 reduces the cost of calldata from 16 to 3 gas per byte, while also imposing a calldata per block limit to mitigate security risks.

    According to one researcher, “rollup cost overhead decreases, resulting in lower L2 fees.”

    L2 fee reduction

    According to the researcher, it does not directly increase layer 1 data capacity, but rather “balances cost of execution with cost of data in favor of rollups, while retaining a similar maximum capacity,” adding:

    So, while sharding is required in the long run to increase capacity, we can benefit from lower rollup fees in the short term.

    He went on to say that data availability is the most fundamental scaling issue, and that this EIP provides “relief for L2 protocols that are fighting it.”

    Buterin stated on December 2 that “the whole point is to make a quick-and-dirty solution because rollups need it fast.” He explained that the cost of a rollup transaction is determined by the data that is returned to the Ethereum mainnet.

    Rollups accomplish this by including calldata in their transactions, which is currently priced at 16 gas per byte. We can reduce the cost of rollup transactions by lowering the cost of calldata.

    Buterin has previously emphasized layer 2 solutions as a short-term solution to Ethereum’s scaling issues.

    Another proposal, EIP-4490, has been made to reduce gas costs before “the merge.” The current time frame for docking Ethereum with the Beacon Chain is in the first half of 2022, according to the official documentation.

    Prospects for the Ecosystem

    Layer 2 network adoption has skyrocketed in recent months as gas prices continue to rise. According to BitInfoCharts, the average cost of a transaction on layer 1 Ethereum at the time of publication is around $37.

    According to L2beat, the current total value locked (TVL) across all L2 networks is $6.62 billion. TVL has increased by around 700% in the last three months. Arbitrum is currently the market leader in L2 protocols, with a 40% market share and a TVL of $2.65 billion.

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