In the fourth quarter of 2022, Ethereum (ETH) remains the largest platform for decentralized applications (dApps), including decentralized finance applications (DeFis). Therefore, every upgrade of its code base will affect the crypto journeys of millions of crypto users.
Ethereum Improvement Proposals, or EIPs, are a class of proposals aimed at improving the technical design of Ethereum (ETH) to make it more attack-resistant and resource-efficient, and to introduce previously unseen functionalities.
In this overview, we will cover the concept of an EIP and explore some upcoming EIPs that will be critical to the progress and adoption of Ethereum (ETH).
Ethereum Enhancement Suggestions (EIPs): Brief Introduction
In order to be ready for every challenge of the turbulent Web3 segment, Ethereum (ETH) has to adapt its code base. Because of this, anyone can suggest a change to its mechanism and improve the way Ethereum (ETH) handles crypto transactions:
— Ethereum Improvement Proposals or EIPs are proposals published by Ethereum (ETH) enthusiasts to improve or enrich technical design.
— Any developer can publish an EIP, while any Ethereum.org user can review it and provide feedback.
— When publishing an EIP, its author should disclose its rationale, motivation, technical details and brief non-technical review (abstract).
— All EIPs should go through a multi-stage discussion process with top Ethereum (ETH) contributors.
— Once approved, key EIPs will be integrated into the Ethereum codebase (mostly via hard forks).
— Discussions about EIPs could last for several months.
Ideologically, the EIP verification process is a symbol of democracy, transparency, inclusivity and decentralization of the Ethereum (ETH) community.
What is Ethereum (ETH)?
Ethereum (ETH) is the very first blockchain to implement smart contracts, or a “hosting platform” for decentralized applications. Ethereum (ETH) was launched on mainnet in July 2015; Vitalik Buterin, Gavin Wood and Joseph Lubin are among the key figureheads.
Ethereum (ETH) remains the most popular blockchain for decentralized applications: its distributed computing power supercharges decentralized finance protocols (DeFis), marketplaces for non-fungible tokens (NFTs), on-chain gaming, and so on.
What is the Ethereum Improvement Proposal (EIP)?
An Ethereum Improvement Proposal, or EIP, is a public proposal by an Ethereum (ETH) enthusiast outlining the concept of a potentially useful upgrade to the Ethereum (ETH) network design:
An EIP is a design document that provides information for the Ethereum community or describes a new feature for Ethereum or its processes or environment. The EIP should contain a concise technical specification of the function and a rationale for the function.
In general, there are three types of Ethereum Improvement Proposals (EIPs): Standard Track EIPs, Meta EIPs, and Informational EIPs:
— Standard Track EIPs are intended to describe major changes that affect all implementations of Ethereum (ETH) and therefore significantly improve the functioning of the Ethereum (ETH) network.
— Meta EIPs describe the processes surrounding Ethereum; this type of EIP can include procedures, guidelines, changes in the decision-making process, etc.
— Informational EIPs describe design problems; They do not constitute recommendations and can therefore be ignored by the community.
Standard Track EIP is a core type of EIP; To streamline the process of standard EIP verification, Ethereum developers have introduced four types of standard EIPs:
— core: Improvements that require a consensus fork or affect the process of mining/staking.
— Networking: switches to Whisper, Swarm or the devp2p library.
— interface: Changes to client API/RPC specifications and language standards.
— REC (Ethereum requests for contracts): Changes introducing application-level standards and new standards for smart contracts (i.e. tokens).
What is a Bitcoin Improvement Proposal (BIP)?
Ethereum (ETH) inherited the concept of enhancement proposals from Bitcoin (BTC), the first cryptocurrency. Bitcoin (BTC), in turn, takes it from the “Request for Comments” (RFC) mechanism of internet improvement proposals by the Internet Engineering Task Force (IETF).
The first BIP was introduced by Amir Taaki in 2011. BIP-32 and BIP-39 are the most sensitive BIPs for regular Bitcoin (BTC) users as they affect key storage schemes.
How do EIPs affect Ethereum (ETH) price?
When implemented, each EIP should go through a series of discussion phases in order to properly and seamlessly implement it:
— idea: The very first description of a proposal does not have to be revealed as an EIP with a number.
— draft: the first tracked phase of the EIP.
— Verification: The author of the EIP declares that the project is complete and invites all enthusiasts to peer review it.
— Last call: the final stage of the discussion; the Ethereum (ETH) enthusiasts set a deadline.
— final: The EIP is complete and can only be corrected if there are serious errors.
— stagnant: an EIP from any stage that has not been corrected for six consecutive months.
— Withdrawn: The author has decided to withdraw the EIP and end the discussion.
— Life: a special status for constantly updated EIPs (mainly information).
Image from Ethereum.org
The implementation of large EIPs is typically in the spotlight of the Ethereum (ETH) community. However, they very rarely directly affect Ethereum (ETH) prices. For example, the two main Ethereum (ETH) hard forks — the implementation of dynamic fees (EIP-1559) and the migration to a Proof-of-Stake (PoS) consensus (EIP-3675) — failed to catalyze price growth.
Crucial EIPs from 2015-2021: From Tokens to Proof of Stake
Although thousands of EIPs have been released, some of them have transformed Ethereum (ETH) and made it what we use today.
EIP-20: Tokens on Ethereum
EIP-20, introduced by Fabian Vogelsteller and Vitalik Buterin in 2015, streamlined and standardized the process of token creation on Ethereum (ETH). All fungible tokens on Ethereum (all Ethereum-based cryptocurrencies from UNI and SUSHI to SHIB and FLOKI) are created according to the ERC-20 standard presented by respective EIPs.
EIP-721: Non-fungible tokens or NFTs
In January 2018, a group of Ethereum (ETH) developers proposed a token standard with unique (“distinguishable”) characteristics that differ from each other. These tokens were intended to represent “physical property,” “virtual collectibles,” and “tokenized responsibilities.”
The activation of this EIP enabled the NFT euphoria of 2021 and introduced crypto to a new generation of investors.
EIP-1559: Fee Burning
EIP-1559 has rethought the way Ethereum (ETH) charges its users. EIP-1559 activation introduced a dynamic charging model that tracks actual network usage status.
Also, with EIP-1559, Ethereum (ETH) fees are partially burned, making Ether deflationary in the long run.
EIP-3675: Migrate to Proof of Stake
EIP-3675 or the merge upgrade enabled Ethereum (ETH) to replace its Proof-of-Work (PoW) consensus, which had been criticized for its huge energy consumption, with a more advanced Proof-of-Stake (PoS) consensus substitute.
After years of discussion, Ethereum Merge has been activated on mainnet: staking has completely replaced mining to ensure the integrity of the Ethereum (ETH) consensus.
Most anticipated EIPs for the near future
As the merge upgrade has been successfully activated, Ethereum (ETH) contributors are actively discussing new potential “big things” that could accelerate the network’s adoption and enhance its functionality.
EIP-4337: Account abstraction
Proposed in September 2021, EIP-4337 aims to allow Ethereum (ETH) wallet holders to assign additional features to their accounts. However, Ethereans can turn any wallet into a full-fledged smart contract.
The EIP-4337 implementation will therefore eliminate the need for consensus layer changes (hard forks) to enable additional functionality.
EIP-4626: Tokenized Vaults
EIP-4626 was designed to implement a new type of token on top of Ethereum, a “tokenized vault” standard. This will make all DeFi vaults on Ethereum (ETH) look the same to improve security and streamline the developer experience.
You’ve heard of ERC-20, ERC-721, and ERC-1155
You will soon be familiar with ERC-4626
The Tokenized Vault Standard (ERC-4626) is final. And Great Vault standardization begins now
tl; dr 👇
— Longing (@iearnfinance) April 5, 2022
Alchemix, Balancer, Rari Capital, Fei Protocol, and a number of other leading DeFi and infrastructure projects are already actively investigating the potential of EIP-4626 for their yield farming tools.
EIP-4844: Proto-thanksharding
This is arguably the most important of the EIPs introduced in 2022: EIP-4844 proposes “Blob-Carrying Transactions”, an entirely new type of transaction. These transactions will be larger than ordinary ones: the Ethereum Virtual Machine will only be able to evaluate the commitment of such transactions.
At @EthereumDenver we hacked together a complete data blob transaction prototype! (aka mini Danksharding)
Data blobs are the first milestone towards full Ethereum sharding, enabling rollups like @optimismPBC to increase capacity by 100x.
Here is a tweet thread about the prototype 🧵
— proto.eth (@protolambda) February 20, 2022
This, in turn, prepares Ethereum (ETH) for the next phase of its roadmap, i.e., sharding, when the blockchain will be split across multiple sub-blockchains, or shards. The implementation of sharding will make Ethereum (ETH) 100 times more scalable than it is today.
Final Thoughts
Ethereum Improvement Proposals or EIPs are projects to improve or add to the Ethereum (ETH) protocol proposed by its contributors and enthusiasts. After a multi-stage peer review process, EIPs are either implemented or abandoned.
Following the enablement of Ethereum (ETH) Merge on mainnet, key EIPs focus on better developer experience, token standardization, an advanced instrument stack for Ethereum (ETH) and preparing its ecosystem for sharding.
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