- Ethereum network has dramatically reduced transaction costs thanks to the EIP-4844 upgrade, making it more accessible and user-friendly.
- Layer 2 solutions are thriving, with a surge in transactions and active users following the implementation of EIP-4844.
- The increased block space created by EIP-4844 is expected to drive innovation and demand for Ethereum’s native token, ETH.
Ethereum has made a notable turnaround from being a fee frenzy to a fee-free future. A recent insight by an expert shed light on the transaction fees and network usage in the second quarter of 2024 (Q2). One of the key catalysts is the network’s latest upgrade, EIP-4844, a game-changer. Launched in March 2024, the Ethereum Improvement Proposal has significantly enhanced the scalability of Layer 2 (L2) networks built on the ETH mainnet. This resulted in a drastic reduction in transaction fees for users.
Think of EIP-4844’s impact on Ethereum to the effect of broadband internet. Similar to how broadband significantly improved internet speeds, EIP-4844 has increased the scalability of ETH’s L2 solutions. Most importantly, EIP introduced “blobs” which facilitate data availability on the blockchain. This expanded block block space led to lower fees.
The chart below illustrates the daily cost of revenue on L2s ranging from January 31, 2024, to June 30, 2024. The cost of revenue was high in January and February 2024, reaching a peak of around $2,500,000. It then sharply dropped in March 2024, reaching a low of around $500,000, and remained relatively low throughout April, May, and June 2024, with occasional spikes.
Ethereum’s EIP-4844: A Catalyst for Growth
Looking ahead, the extra block space created by EIP-4844 will incentivize developers to build new applications on the Ethereum Virtual Machine (EVM), potentially leading to an increase in demand for ETH in the long run.
The implementation of EIP-4844, per the expert, has led to several positive outcomes for Ethereum. These include increased L2 activity by 63% in Q2, active users grew by 81% in Q2, and improved user experience (UX) due to the lower fees on L2s. While the long-term outlook appears positive, EIP-4844 did cause Eth’s fees to decline in the short term. This might lead someone to believe that Eth’s Q2 financials were negative.
It’s important to consider that despite the decline in fees, ETH’s network effects and demand for its native token, ETH, are still growing. Overall, EIP-4844 appears to be a positive development for Ethereum, improving scalability and user experience while laying the groundwork for future growth.
