Sam is a reporter at CoinDesk focused on decentralized technology, DeFi and DAOs. He owns ETH, BTC and MATIC.

Sage D. Young is a tech protocol reporter at CoinDesk. He owns BTC, ETH, LINK, AAVE, PEOPLE, DOGE, OS, and HTR as well as a few NFTs.

We’ve talked in past editions of this newsletter about how Ethereum’s roadmap initially planned to ship “sharding” alongside its switch to a proof-of-stake (PoS) consensus mechanism. While PoS would have decreased the network’s energy costs, sharding would have been welcomed by users annoyed by Ethereum’s slow transactions and high fees.

The plan was called “Ethereum 2.0,” but it, along with the Eth2 moniker, have been retired in favor of a new, “rollup-centric roadmap.“

This article originally appeared in Valid Points, CoinDesk’s weekly newsletter breaking down Ethereum’s evolution and its impact on crypto markets. Subscribe to get it in your inbox every Wednesday.

This week, strap in for a slightly more technical summary of one of the more exciting developments currently slated to follow The Merge: Danksharding. As it's currently formulated, Danksharding would take a massive step towards making Ethereum layer 2 networks like Optimism, Arbitrum and zkSync into first class citizens. Layer 2 networks are companion systems designed to help a cryptocurrency system handle a larger volume of data.

Why rollups?

Sharding was proposed over five years ago as a way to help the network scale by splitting activity across several different chains. Like adding lanes to a highway, splitting the Ethereum network into “shards” was proposed as a way to increase the amount of activity Ethereum could process, thereby decreasing fees and improving transaction speeds.

Although Ethereum’s developers generally agree that sharding is an important next step for the network, there are lots of competing ideas on how it should work. As a result, the would-be major update to Ethereum has proven difficult to implement.

While sharding has been stuck in development hell, a handful of third parties have seized the Eth-scaling mantle.

Some of these solutions are basically just glorified sidechains – independent blockchains that can send and receive Ethereum network transactions. As an example — users can “bridge” Token A to a sidechain, swap it for Token B (quickly and cheaply), and then “bridge” Token B back to Ethereum. A series of transactions that costs thousands of dollars on Ethereum can be done for pennies on Polygon, Ronin or Gnosis. Since the transactions are taking place on the sidechain, they help keep some network traffic off of Ethereum (higher traffic on Ethereum means higher fees for everyone).

Of course, this convenience often comes at a cost. While easy to spin up and use, sidechains tend to make compromises to centralization and security in the name of convenience.

Compared to sidechains, layer 2 rollups are considered by many developers to be the more secure way for Ethereum to scale. Rollups, like sidechains, take the stress off of Ethereum by executing transactions on a separate blockchain. Transactions are “settled” on the rollup chain, bundled up, and then “posted” to Ethereum. Unlike sidechains, rollups borrow their security from the Ethereum mainnet – they use fancy cryptography and other methods (like a multi-day dispute period) to allow Ethereum mainnet nodes to confirm that transactions are legitimate.

(Compare this to a sidechain – which just passes data back down to Ethereum network with little more than a pinky-promise that the data is true. If a sidechain gets exploited, in other words, Ethereum is none the wiser.)

As sharding has proven difficult to implement, rollups like Arbitrum and Optimism have picked up the scaling slack. These and other rollups are already enabling users to make certain kinds of transactions on Ethereum quickly and inexpensively, without sacrificing security.

Mind you, the Ethereum mainnet remains as slow and expensive as ever. With these layer 2 networks set to handle the brunt of Ethereum’s activity moving forward, sharding has become less of a priority for Ethereum’s developers, who have shifted toward a new “rollup-centric” roadmap.

Danksharding and EIP 4844

The idea of sharding hasn’t been put to bed yet. Enter Danksharding, proto-danksharding and EIP 4844.

Danksharding is the current design proposal for sharding on Ethereum. Named for Dankrad Feist, the Ethereum researcher who initially proposed it, Danksharding is sharding for a rollup-centric age.

What follows is a high-level summary of a topic that’s sure to earn more attention once the Merge finally comes to pass. Rather than explain these topics in depth (which can get super technical), the hope here is to place them into a broader context.

Way back in 2016, before sharding was deprioritized, shards were theorized as a way to increase the total number of transactions Ethereum could process. Danksharding takes this same principle of splitting network activity into shards, but instead of using the shards to increase transaction throughput, it uses them to increase space for “blobs” of data.

Danksharding works using “data availability sampling,” a technique that allows nodes on Ethereum to verify large amounts of data just by sampling a few pieces of it. In essence, it allows Ethereum to process larger quantities of data than it could previously. (A great breakdown of how this all works is in the incredibly informative – and thorough – "Hitchhikers Guide to Ethereum," recently published by Delphi Digital).

As Medium poster Polynya summarized back in January, “Danksharding turns Ethereum into a unified settlement and data availability layer.” Transacting directly on Ethereum will still be possible, but Danksharding will pave the way toward a future when vastly cheaper (and quicker) layer 2 networks can thrive. These networks – which bundle up transactions before posting them back to Ethereum – will benefit the most from an increase to the amount of data that can be posted to the chain.

Danksharding, like the rest of sharding, is complicated. There are still plenty of kinks to work out and design decisions to be made before it will be ready to hit Ethereum’s mainnet. In the meantime, proto-danksharding is being proposed as a key first step towards Danksharding.

Proto-dansharding will come with Ethereum improvement proposal 4844 (EIP-4844), whose authors include Dankrad Feist and Ethereum co-founder Vitalik Buterin. The proposal involves adding a new transaction type to Ethereum: the “blob-carrying transaction.”

As Feist and Buterin explained in a recent Bankless podcast interview, Ethereum blocks can currently carry 50-100 kb of data, but under proto-danksharding they’ll be able to carry closer to 1 mb. While this is less than the 16 mb that is projected under full Danksharding (all of that fancy data availability sampling isn’t ready yet), a 10x increase in data availability should significantly decrease the cost of using rollups.

Danksharding is still a long ways out, but proto-danksharding is already being prototyped.

Pulse check

The following is an overview of network activity on the Ethereum Beacon Chain over the past week. For more information about the metrics featured in this section, check out our 101 explainer on Eth 2.0 metrics.

CoinDesk - Unknown

(Beaconcha.in, Etherscan)


CoinDesk - Unknown

(Beaconcha.in, BeaconScan)

Disclaimer: All profits made from CoinDesk’s Eth 2.0 staking venture will be donated to a charity of the company’s choosing once transfers are enabled on the network.

Validated takes

Decentralized exchanges (DEXs) eclipsed centralized exchanges (CEXs) in on-chain transaction volume from April 2021 to April 2022.

  • WHY IT MATTERS: DEXs serve as a self-custodial, programmatic way for cryptocurrency investors to trade without an intermediary. From April 2021 to April 2022, $224 billion was sent to DEXs through smart contracts on-chain compared to the $175 billion sent to CEXs. The volume of on-chain transactions on DEXs demonstrates how DEXs are a viable alternative to DEXs. The top five DEXs, Uniswap, SushiSwap, Curve, dYdX, and the 0x Protocol, support nearly 85% of all aggregated DEX transaction volume. Read more here.

The Bored Ape Yacht Club (BAYC) Discord server was hacked, and the attacker stole over 200 ETH worth of non-fungible tokens (NFTs).

  • WHY IT MATTERS: BAYC’s community manager had his Discord account compromised, which the attacker then used to post phishing links in both the official BAYC and its related metaverse project. This is the third time a bad actor has been able to impersonate a Yuga Labs-run account to steal users’ funds. Gordon Goner, a BAYC founder said in a tweet,” Discord isn’t working for Web 3 communities. We need a better platform that puts security first.” Read more here.

Chainlink has expanded to Solana.

  • WHY IT MATTERS: Developers who build decentralized finance applications on the Solana mainnet can now incorporate seven of Chainlink’s price feeds into their products. Chainlink’s expansion on Solana makes it the first non-Ethereum Virtual Machine chain supported by the oracle network. Head of product marketing at Chainlink Labs Chirag Dhull told CoinDesk the “high throughput architecture” of Solana will help the price feeds obtain data at “high speeds and low costs.” Read more here.

The Graph will be sunsetting its centralized Hosted Service early next year.

  • WHY IT MATTERS: App developers will be encouraged to migrate over to the pay-per-query Graph network, which relies on a distributed community of Ethereum-based “indexers” to handle data rather than the Hosted Network’s single operator. Eva Beylin, director of the Graph Foundation told CoinDesk, “This vision of open data – owning your own data – is now possible because now you’re relying on a network and not one company or one operator.” Read more here.

The Federal Trade Commission (FTC) says that consumers have lost over $1 billion in crypto-linked fraud from January 2021 through March 2022.

  • WHY IT MATTERS: The U.S. regulator cited 46,000 people have reported being defrauded with the median amount lost being $2,600. The top three cryptocurrencies consumers said they used to pay scammers were bitcoin (BTC), tether (USDT) and ether (ETH). “Cryptocurrency is quickly becoming the payment of choice for many scammers,” said the FTC, noting about one in every four dollars lost to fraud involves crypto. Read more here.

Factoid of the week

CoinDesk - Unknown

Valid Points Factoid - June 8, 2022

Open commas

Valid Points incorporates information and data about CoinDesk’s own Ethereum validator in weekly analysis. All profits made from this staking venture will be donated to a charity of our choosing once transfers are enabled on the network. For a full overview of the project, check out our announcement post.

You can verify the activity of the CoinDesk Eth 2.0 validator in real time through our public validator key, which is:

0xad7fef3b2350d220de3ae360c70d7f488926b6117e5f785a8995487c46d323ddad0f574fdcc50eeefec34ed9d2039ecb.

Search for it on any Eth 2.0 block explorer site.

DISCLOSURE

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CoinDesk - Unknown

Sam is a reporter at CoinDesk focused on decentralized technology, DeFi and DAOs. He owns ETH, BTC and MATIC.

CoinDesk - Unknown

Sage D. Young is a tech protocol reporter at CoinDesk. He owns BTC, ETH, LINK, AAVE, PEOPLE, DOGE, OS, and HTR as well as a few NFTs.

CoinDesk - Unknown

Sam is a reporter at CoinDesk focused on decentralized technology, DeFi and DAOs. He owns ETH, BTC and MATIC.

CoinDesk - Unknown

Sage D. Young is a tech protocol reporter at CoinDesk. He owns BTC, ETH, LINK, AAVE, PEOPLE, DOGE, OS, and HTR as well as a few NFTs.