Next Big Ethereum Upgrade Could Reduce Layer 2 Gas Fees

A recent Ethereum Improvement Proposal (EIP) put forth by network co-founder Vitalik Buterin aims to address transaction costs, one of the network’s greatest drawbacks.

Last month, Buterin put forward EIP-4488 which aims to decrease the transaction ‘calldata.’ This could provide some short-term respite from those galloping gas fees.

The primary purpose of the proposal is to reduce gas fees on Ethereum’s expanding ecosystem of layer 2 scaling solutions.

Ethereum developers have reacted positively to EIP-4488 taking to Twitter to explain what is under the hood. Technically, EIP-4488 reduces the calldata cost from 16 to 3 gas per byte, while adding a cap on calldata per block to mitigate security risks.

As one researcher put it, “rollup cost overhead decreases, thus lowering L2 fees.”

Lowering L2 fees

The researcher elaborated that 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 max capacity,” adding:

So long-term we definitely need sharding for the capacity increase, but short-term we get to enjoy lower rollup fees.

He added that data availability is the most fundamental scaling problem, and this EIP is a “relief for L2 protocols that are fighting it.”

On Dec 2, Buterin said, “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 a function of the data they post back to the Ethereum mainnet.

To do this, rollups add calldata to their transactions, which is currently priced at 16 gas per byte. If we reduce the calldata cost, then we reduce the cost of rollup transactions.

Buterin has previously touted layer 2 solutions as the short-term fix to Ethereum’s scaling issues.

Another proposal, EIP-4490, has been put forward to reduce gas costs prior to “the merge.” According to the official documentation, the current time frame for docking Ethereum with the Beacon Chain will happen in the first half of 2022.

Ecosystem outlook

Layer 2 network adoption has exploded in recent months as gas fees march ever higher. At the time of press, the average cost of a transaction on layer 1 Ethereum is around $37 according to BitInfoCharts.

The current total value locked (TVL) across all L2 networks is $6.62 billion according to L2beat. Over the past three months, TVL has surged by around 700%. Arbitrum is currently the leading L2 protocol with a market share of 40% and a TVL of $2.65 billion.