Exploring EIP-4844: A Dive into Multi-Dimensional Resource Pricing

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Ethereum Improvement Proposals (EIPs) play a crucial role in shaping the future of the Ethereum network. Among these proposals, EIP-4844 stands out, introducing innovative components that promise to reshape transaction markets and data gas fee mechanisms. In this article, we'll take a friendly and neutral look at the key aspects of EIP-4844, its significance, and the potential challenges it seeks to address.

I. What is EIP-4844

EIP-4844, an Ethereum Improvement Proposal, introduces a set of innovative components designed to enhance the functionality of the Ethereum protocol. At its core, this proposal addresses two pivotal aspects: the introduction of a new transaction format for "blob-carrying transactions" and the implementation of a groundbreaking data gas fee market tailored specifically for this type of transaction.

Overview of EIP-4844 Components

The first component of EIP-4844 introduces a novel transaction format for what are termed "blob-carrying transactions." These transactions are unique in that they can carry up to two blobs, each of 125kb, allowing for a more flexible and data-rich transaction experience on the Ethereum network.

The second component focuses on the introduction of a data gas fee market, a critical departure from the traditional gas pricing mechanisms. This market is particularly tailored to accommodate the unique characteristics of blob transactions, allowing for a dynamic pricing model based on the supply and demand for blob data resources. Notably, this marks the initial steps towards the implementation of multi-dimensional resource pricing within the Ethereum ecosystem.

Purpose and Significance

EIP-4844 serves as a response to the evolving needs of the Ethereum community, aiming to address inherent challenges and provide solutions for a more versatile and efficient transaction environment. The introduction of blob-carrying transactions allows for a separation of data resources from standard gas metering, providing users with increased flexibility in choosing transaction types.

The significance of this proposal becomes apparent when considering its dual-market approach. By retaining the EIP-1559 mechanism for standard transactions and introducing the 4844 mechanism for blob transactions, users gain the ability to make informed choices based on their specific transaction requirements. This dual-market system fosters interaction between the two, opening avenues for dynamic adjustments based on user preferences and market demands.

As Ethereum continues to evolve and face scalability challenges, EIP-4844 positions itself as a key player in optimizing transaction processing, paving the way for future developments within the Ethereum ecosystem. In the subsequent sections, we will delve deeper into the intricacies of the dual market, exploring its relationship with EIP-1559 and conducting an in-depth analysis of the data gas fee market and its parameters.

II. Transaction Markets and Mechanisms

EIP-4844 ushers in a transformative era by introducing a dual market for transactions within the Ethereum network. This revolutionary approach involves two distinct mechanisms: the well-established EIP-1559 for standard transactions and the newly introduced EIP-4844 mechanism tailored for blob transactions. Understanding the relationship between these mechanisms is crucial to grasping the dynamic landscape that users and developers now navigate.

Dual Market for Transactions

In this dual-market scenario, users are presented with a spectrum of transaction options. Standard transactions, governed by the EIP-1559 mechanism, adhere to a one-dimensional fee structure with established adaptive rules, sustainable targets, and block limit structures. On the other hand, blob transactions, incorporating the 1559 mechanism along with EIP-4844's unique features, operate within a two-dimensional fee framework.

The significance lies in the user's newfound flexibility. While standard transactions continue to utilize the proven EIP-1559 mechanism, blob transactions introduce an innovative approach by unbundling the blob data resource from traditional gas metering. This means that standard transactions adhere to the familiar fee structure, with calldata priced at 16 gas units per byte and 4 units per empty byte. In contrast, blob transactions utilize both the one-dimensional (1559) mechanism for EVM operations and the two-dimensional (1559 x 4844) mechanism for pricing blob data.

Relationship between EIP-4844 and EIP-1559

A crucial aspect of EIP-4844 is its foundation on the well-established EIP-1559 mechanism. The 1559 mechanism's adaptive rule, sustainable target, and block limit structure form the basis for the data gas fee market introduced by EIP-4844. This strategic integration ensures compatibility and synergy between the two mechanisms, creating a harmonious dual market.

However, it is important to note that the unbundling of the data resource is partial. Standard transactions continue to be priced conventionally, while blob transactions leverage the innovative approach of dual-market dynamics. Users are empowered to choose between these transaction types, leading to intriguing interactions and dependencies between the two markets.

As we journey through this dual-market landscape, we'll explore how users can make informed decisions based on their specific needs, the implications of this bifurcation, and the potential for further advancements in transaction processing. The interplay between the 1559 and 4844 mechanisms marks a significant step forward in shaping the Ethereum transaction ecosystem.

III. Data Gas Fee Market Analysis

EIP-4844's introduction of the data gas fee market marks a significant departure from traditional gas pricing models, ushering in a new era of dynamic and responsive pricing specifically tailored for blob transactions. In this section, we'll delve into the key parameters and mechanics that govern this innovative market, drawing insights from backtesting results and exploring the potential implications for the Ethereum network.

Key Parameters and Mechanics

The heart of the EIP-4844 data gas fee market lies in its unique parameters and mechanics. Blob-carrying transactions, capable of holding up to two blobs of 125kb each, introduce a new field known as `max_fee_per_data_gas`. This field enables users to specify their willingness to pay for data gas, creating a market dynamic based on the supply and demand for blob data resources.

To ensure the validity of blob transactions, they must adhere to the 1559 validity conditions, and additionally, the `max_fee_per_data_gas` must be greater than or equal to the prevailing data gas price. The initial setting for `TARGET_DATA_GAS_PER_BLOCK` is established at 250kb, accommodating two blobs, while `MAX_DATA_GAS_PER_BLOCK` is set at 500kb, providing a framework for the market to adjust based on demand.

The data gas price for a given slot is calculated using an elegant formula: `pdata_n = m exp(En-1/s)`, where `m` represents the `MIN_DATA_GASPRICE`, `s` corresponds to the `DATA_GASPRICE_UPDATE_FRACTION` allowing a maximum 12.5% update in consecutive blocks, and `En-1` represents the total excess data gas accumulated above the budgeted target data gas.

Backtesting Results and Insights

The real-world implications of EIP-4844's data gas fee market are explored through a comprehensive backtest using historical data from Arbitrum and Optimism. This analysis provides valuable insights into the dynamics of the market, shedding light on potential challenges and opportunities.

One key takeaway from the backtesting results is the distinct difference between Layer 2 (L2) demand structure and user demand. L2s, operating resource-intensive businesses on Ethereum, demonstrate inelastic demand, posting transactions via bots at a constant cadence. The projected demand for blob data from L2s is observed to be currently 10x lower than the sustainable target, with estimates suggesting it may take 1-2 years to reach that level.

The backtesting further reveals that until the sustainable target demand is reached, the data gas price remains close to the minimum. However, when the sustainable target demand is achieved, the data gas price experiences an exponential increase, potentially resulting in a 10-order-of-magnitude cost increase for L2s within a matter of hours.

source: intotheblock

IV. Challenges and Proposed Improvements

EIP-4844, while introducing innovative features to the Ethereum network, is not without its challenges. In this section, we'll explore the identified challenges, focusing on the "Cold-Start Problem," and discuss proposed improvements to address potential issues and enhance the overall effectiveness of the data gas fee market.

Cold-Start Problem

The introduction of blobs in EIP-4844 initiates a new market for data gas, a market that requires time to establish its dynamics and pricing mechanisms. This initial phase, often referred to as the "Cold-Start Problem," poses challenges due to the absence of robust market feedback. During this period, the fee mechanism is in stand-by, and users may experience uncertainties regarding the true cost of blob transactions.

The Cold-Start Problem manifests in several ways:

1. Extended Cold-Start Phase: The period for the fee mechanism to reach stability may be prolonged, potentially spanning 1-1.5 years. This extended phase could hinder efficient market feedback and adjustment.

2. Incentivizing Spam: A data gas price set at the minimum value for an extended period might incentivize spammy applications to exploit the low prices, creating challenges for the stability of the market.

3. Wrong Expectations: Extended periods with a low data gas price may lead users and applications on Layer 1 (L1) to make adjustments and start using blobs. However, as Layer 2 (L2) demand increases, surpassing target levels, users may be forced back to type 2 transactions, causing confusion and potential disruptions.

Proposed Solutions and Considerations

In light of the challenges posed by the Cold-Start Problem, the Ethereum community has put forth several proposed improvements aimed at mitigating potential issues and optimizing the functioning of the data gas fee market.

Idea 1: Set a Higher Minimum Price

One proposed solution involves setting a higher minimum price, specifically in the order of 30e9. This adjustment seeks to align the minimum price with realistic expectations, disincentivize spam, and provide a fair starting point for the market. While this may not necessarily shorten the cold-start phase, it could alleviate some of the challenges associated with prolonged periods of low data gas prices.

This proposal echoes an earlier suggestion in EIP PR-5862 by Dankrad, which recommended a minimum price of 10e9. Despite some pushback based on potential future ETH value increases, the benefits of establishing a higher minimum price during the cold-start phase are emphasized. The argument for this approach lies in the belief that the benefits outweigh the future need for a parameter update.

source: dcrapis from ethresear.ch

Idea 2: Set a Lower Block Target for Data Gas

Another proposed improvement involves adjusting the `TARGET_DATA_GAS_PER_BLOCK` to accommodate only one blob per block. While this adjustment may not solve all issues related to spam and wrong expectations during the cold-start phase, it could effectively cut the cold-start phase in half. This cautious choice is considered a practical approach that can be revisited and adjusted as the market matures.

Idea 3: Do Nothing

While this may seem counterintuitive, the proposal to do nothing is also considered. This approach maintains the existing challenges associated with the cold-start phase, allowing market forces to self-correct over time. However, the uncertainty surrounding the timing and nature of this self-correction, coupled with potential volatility in data gas prices for L2 businesses, makes this idea a less certain path forward.

Conclusion

As the Ethereum community deliberates on potential improvements, an open question remains: Should the community consider changing the `DATA_GASPRICE_UPDATE_FRACTION`? Currently set at a maximum multiplier of 12.5%, similar to EIP-1559, adjusting this parameter could provide a more stable pricing mechanism over time. While this change may not directly address the challenges of the cold-start phase, it introduces a forward-compatible and less controversial alteration to the fee market parameters.

In navigating the challenges and potential improvements outlined in this section, the Ethereum community faces the task of finding a delicate balance between fostering innovation, stability, and user expectations. The proposed ideas aim to guide the network towards a more efficient and user-friendly transaction environment, ensuring that the introduction of blob transactions contributes positively to Ethereum's ongoing evolution.

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