Ethereum in 2023: Why Experts Predict a Big Year for ETH

Excitement is brewing in the crypto world as we step into 2023, especially for Ethereum enthusiasts. Why is there such optimism? Well, according to prominent Ethereum educator and advisor, Anthony Sassano, 2023 is shaping up to be a monumental year for Ethereum ($ETH). Let’s dive into why Sassano and others are so bullish about the future of ETH.

What Makes 2023 a Potential Game-Changer for Ethereum?

In a tweet that resonated across the crypto community, Sassano pointed to two pivotal upgrades slated for Ethereum in 2023. These aren’t just minor tweaks; they’re significant advancements that could redefine the Ethereum landscape. Let’s break down these key developments:

• Beacon Chain Withdrawals: Contrary to some initial fears, Sassano believes this upgrade will actually increase the amount of ETH staked. This is a crucial point, as staking is vital for Ethereum’s Proof-of-Stake (PoS) mechanism.
• EIP 4844/Proto-Danksharding: This upgrade is designed to drastically reduce rollup fees – potentially by a factor of 10 to 100 times! For everyday users of Ethereum, this could mean significantly cheaper transactions and interactions within the ecosystem.

Sassano himself summed it up succinctly: “This is going to be a big year; buckle up.” But what exactly are these upgrades, and why are they so important?

Decoding EIP 4844: Proto-Danksharding and the Future of Rollups

Let’s delve deeper into EIP 4844, also known as Proto-Danksharding. This might sound like complex tech jargon, but the underlying concept is quite impactful, especially for the scalability of Ethereum. Essentially, EIP 4844 introduces a new way to handle data on the Ethereum network, specifically for rollups.

What are Rollups and Why Do They Matter?

Before we understand Proto-Danksharding, it’s important to understand rollups. Think of rollups as layer-2 scaling solutions for Ethereum. They process transactions off the main Ethereum chain (layer-1) and then ‘roll them up’ into a single transaction on the main chain. This drastically reduces congestion and fees on the primary Ethereum network.

The Ethereum Foundation emphasizes the critical role of rollups, stating, “Rollups are in the short and medium term, and possibly in the long term, the only trustless scaling solution for Ethereum.” With layer-1 transaction fees often becoming prohibitively high, rollups offer a lifeline for users seeking affordable and efficient ways to interact with decentralized applications (dApps) and the broader Ethereum ecosystem.

There are different types of rollups, including:

• Optimistic Rollups: These assume transactions are valid and only challenge them if fraud is suspected.
• ZK-Rollups (Zero-Knowledge Rollups): These use advanced cryptography to prove the validity of transactions before they are added to the main chain. ZK-rollups often offer even greater fee reductions due to better data compression and the ability to avoid including signatures in every transaction.

However, even with rollups providing significant fee reductions (ranging from 3-8x lower for general rollups to 40-100x lower for ZK-rollups compared to layer-1), costs can still be a barrier for many users. This is where Proto-Danksharding comes into play.

Proto-Danksharding: A Stepping Stone to Scalability

EIP 4844 is designed as a “stop-gap solution” on the path to full data sharding. Data sharding is the long-term goal for Ethereum scaling, aiming to significantly increase the network’s capacity by dividing the database into smaller, more manageable pieces (shards). However, full sharding is a complex undertaking and will take more time to implement.

Proto-Danksharding introduces a new transaction type that accepts “blobs” of data. These blobs are temporarily stored by beacon nodes and are specifically designed for rollups. Here’s a simplified breakdown:

1. New Transaction Type: EIP 4844 introduces a transaction type that can carry these data blobs.
2. Data Blobs: These blobs are essentially chunks of data that rollups can use to post transaction information to Ethereum more efficiently.
3. Beacon Node Storage: Instead of being permanently stored on the main Ethereum chain, these blobs are stored on the Beacon Chain (which is the core of Ethereum’s PoS consensus) for a short period.
4. Reduced Costs: By using blobs and this new transaction type, rollups can post data to Ethereum at a much lower cost, leading to significantly reduced fees for end-users.

The Ethereum Foundation explains that while full data sharding aims for 16 MB of dedicated data space per block for rollups, Proto-Danksharding targets a more modest 0.25 MB per block initially, with a limit of 0.5 MB. Even this interim step is expected to bring about a substantial improvement in rollup costs.

Why the 10x-100x Fee Reduction Range?

You might have noticed Sassano’s estimate of a 10x-100x reduction in rollup fees is quite broad. When questioned about this range, he clarified that predicting the exact cost reduction is challenging at this stage. The actual reduction will depend on how each rollup implements and utilizes these data blobs. Different rollups might employ blobs in varying ways, leading to different levels of fee optimization. As Sassano pointed out, “not all rollups are created equal.”

Beacon Chain Withdrawals: Addressing Concerns and Boosting Staking

The second major upgrade Sassano highlighted is Beacon Chain withdrawals. Since the launch of the Beacon Chain (the foundation for Ethereum’s transition to PoS), ETH has been staked but locked up. The ability to withdraw staked ETH is a highly anticipated feature. However, there were some initial concerns that withdrawals might lead to a mass exodus of staked ETH, potentially destabilizing the network.

Sassano, however, believes the opposite will happen. Why? Because the ability to withdraw staked ETH actually reduces risk associated with staking. Knowing that you can access your staked ETH when needed makes staking a more attractive and flexible option. This increased flexibility and reduced perceived risk are expected to encourage more ETH to be staked, further securing the Ethereum network.

Looking Back at 2022: A Foundation for Future Growth

Interestingly, even before Sassano’s optimistic outlook for 2023, other crypto influencers recognized Ethereum’s strong performance in 2022. Cryptocurrency educator and influencer “DeFi Dad” noted that 2022 was a great year for Ethereum. This might seem surprising given the broader market conditions in 2022, but Ethereum achieved a monumental milestone: The Merge.

The Merge: A Paradigm Shift for Ethereum

The Merge, completed in September 2022, marked Ethereum’s transition from a Proof-of-Work (PoW) consensus mechanism to Proof-of-Stake (PoS). This was a massive undertaking, years in the making, and it has had profound implications for Ethereum’s economics and environmental impact.

Sassano himself highlighted the impact of The Merge on ETH issuance in October 2022. He pointed out that in the 41 days following The Merge, net ETH issuance was only around 1,300 ETH. In contrast, if Ethereum had remained on PoW, miners would have potentially dumped up to 488,000 ETH onto the market during that same period. This dramatic reduction in ETH issuance is a significant factor in Ethereum’s evolving tokenomics and its potential as a deflationary asset.

To put it in perspective:

This data underscores the transformative impact of The Merge on Ethereum’s supply dynamics. The shift to PoS has not only made Ethereum more energy-efficient but has also fundamentally altered its token issuance model.

EthHub: Your Go-To Resource for Ethereum Insights

Anthony Sassano is not just a Twitter influencer; he is a co-founder of EthHub, a vital resource for anyone seeking in-depth information about Ethereum. EthHub provides open-source documentation, podcasts, newsletters, and a wealth of knowledge about the Ethereum ecosystem. If you want to stay updated on Ethereum’s developments and understand the nuances of its technology, EthHub is an invaluable resource.

Conclusion: Ethereum’s Future Looks Bright

As we embark on 2023, the anticipation surrounding Ethereum is palpable. With Beacon Chain withdrawals and EIP 4844/Proto-Danksharding on the horizon, Ethereum is poised for significant advancements in scalability, usability, and staking dynamics. Experts like Anthony Sassano are optimistic, and for good reason. The groundwork laid in 2022 with The Merge, combined with these upcoming upgrades, suggests that 2023 could indeed be a transformative year for Ethereum and the broader crypto landscape. So, as Sassano advises, it might be time to “buckle up” and prepare for an exciting journey ahead in the world of ETH.