Ethereum Improvement Proposals: What’s Hot In 2023?

In the world of Ethereum, the developers’ community is constantly pushing the boundaries of innovation to improve the user experience for decentralized applications (dApps). In this article, we will explore some of the latest developments in Ethereum Improvement Proposals (EIP) and Ethereum Request for Comments (ERC) standards that are making waves in this first half of 2023.

EIPs and ERCs are formal proposals and standards, respectively, created to improve the Ethereum network’s functionalities. That’s actually one of Ethereum’s key features: the ability to create and manage custom tokens using various standards. The most famous include ERC-20, which enables fungible tokens, and ERC-721 and ERC-1155, which enable non-fungible tokens. These standards have played a crucial role in the growth and success of Ethereum’s ecosystem, as they enable developers to create unique and innovative dApps. Ethereum has several other standards that have helped it become a thriving ecosystem, including ERC-223, ERC-777 (some kind of upgrades of ERC-20), ERC-1400 or ERC-3643 (security token standards) — but this is definitely not an exhaustive list! The latest exciting one is ERC-4337, also known as the “smart wallet” standard or account abstraction (AA). As we’ll see, it aims to simplify the user experience and as such is expected to be a massive game-changer towards the democratization of blockchain. We will also cover 3 other proposals considered of interest by the community.

Account Abstraction

The ERC-4337 standard is an improvement of Ethereum blockchain adopted recently, in March 2023. It aims at improving UX of dApps and blockchain interactions in general by providing a framework for programmable wallets. The idea is to add an abstraction layer around the wallet object to treat user accounts as smart contracts, i.e. pieces of code (see this article for some more explanations about smart contracts: https://arrozedu.medium.com/smart-contracts-neither-smart-nor-contracts-3be62225e91e). ERC-4337 is actually often denominated as “smart wallet” standard, or also “account abstraction” (AA).

Reminder: crypto-wallets are the point of entry for anyone wanting to interact with blockchains, and are one of the main sources of friction preventing massive adoption. Why? Answering that question basically means listing all the advantages of AA, so let’s get started:

• Simplified access: ERC-4337 offers the possibility of using an account without storing a private key (seed phrase or recovery phrase).
• Account recovery: in case of loss of the private key, it would be possible to retrieve access to the account via social recovery (Twitter, Instagram, LinkedIn…). The private key could technically be replaced by social network login, à la “Sign in with Google”.
• Group access: this would allow different users to access a common account. That would typically be useful to simplify digital assets management for a company or an organization.
• Batched transactions: grouping transactions in a contract would improve performance and cost for some use-case requiring a lot of interaction with the blockchain.
• 2FA: ERC-4337 framework covers the approving of transactions with two levels of verification, not only from the account itself but also for instance with a facial recognition or some extra password.
• Limitation of expenses, subscriptions: the programmability of the account opens the door to a lot of new mechanisms regarding a user’s actions, such as defining expense limits or recurring payments.
• Gasless & sponsored transactions: This would not only lower the cost for the user but also help smoothen the onboarding process — before ERC-4337, you imperatively needed to have Ethereum tokens on your wallet to initiate an interaction with Ethereum blockchain. It is also possible now to pay gas in non-native token, which again goes in the direction of easier-to-understand mechanics for dApps users.

That’s quite a list, but the conclusion here is smart wallets allow web3 applications to be as easy-to-use as web 2.0 ones. So think of your favourite fintech, gaming, ticketing, social media apps (non-exhaustive list!), all decentralized but without the hassle of this decentralization… This is why ERC-4337 is often touted as THE huge milestone towards onboarding of the next billion users into the blockchain ecosystem.

And although its adoption by developers is still at an early stage, the community is heavily working on building new products to unleash the amazing potential of Account Abstraction.

More info: https://eips.ethereum.org/EIPS/eip-4337.

Non-Fungible Token Bound Accounts

The idea behind ERC-6551 is to associate an NFT (ERC-721) and a smart wallet — yes you got it, it is built on top of the Account Abstraction standard! These accounts are called Token Bound Accounts (TBA).

Here are some of their characteristics:

• TBA allow ERC-721 tokens to own assets and interact with applications (worth noting, it would not require changes to existing ERC-721 smart contracts or infrastructure).
• TBA are owned by a single ERC-721 token, allowing the token to interact with the blockchain, record transaction history, and own on-chain assets.
• Control of each TBA is delegated to the owner of the ERC-721 token, allowing the owner to initiate on-chain actions on behalf of their token.
• TBA can also sign messages and transactions.

The motivation for ERC-6551 is to enhance the capabilities and identity of non-fungible tokens, which are increasingly becoming a form of on-chain identity. Some use cases for TBA could be:

• A character in a role-playing game that accumulates assets and abilities over time based on actions they have taken
• A car in the metaverse composed of many fungible and non-fungible components
• An automated investment portfolio composed of multiple fungible assets
• A punch pass membership card granting access to an establishment and recording a history of past interactions (typically, POAPs)
• A social media profile that owns its own content and data

More info: https://eips.ethereum.org/EIPS/eip-6551.

Source: https://twitter.com/spicypaprika_/status/1651580224859930625?s=20

Refundable tokens

The proposal is technically ERC-5507, but sometimes called ERC-721R as it is an evolution of the ERC-721 standard for NFT. Its target is to add refund functionality for fungible and non-fungible tokens (ERC-20, ERC-721, and ERC-1155): until a predetermined time passes, users can receive a refund for tokens they have purchased. The motivation here is to help prevent rugpulls and scams by enhancing the accountability of the crypto-space, and would provide greater protection for buyers. Incidentally, it would allow the tokens following that standard to be compliant with EU regulations which require a 14-day refund period for goods purchased online. Some focus and benefits of the standard interface for refundable tokens are:

• Interoperability with various NFT-related applications, such as portfolio browsers, and marketplaces.
• NFT marketplaces could place a badge indicating that the NFT is still refundable on listings, and offer to refund NFTs instead of listing them on the marketplace.
• Decentralized Exchanges could offer to refund tokens if doing so would give a higher yield.
• Better wallet confirmation dialogs.

There are challenges and drawbacks of using EIP-5507: increased gas costs, misuse of the refund policy, possible more generic implementations… These are currently under discussion within the Ethereum community, and it is therefore unsure this EIP will make its way to mainnet. However, it is positive to note that such proposals reflect the will of the sector to tackle compliance and user protection issues.

More info: https://eips.ethereum.org/EIPS/eip-5507.

Proto-danksharding

EIP-4844 is a (very) technical improvement proposal that has yet to be implemented on Ethereum mainnet, but without getting into the details, it’s worth noting that it will mostly benefit layer2 chains by dividing their gas fees by at least 1 order of magnitude (10–100x cheaper). If you’re curious you can check out the EIP-4844 KZG ceremony, which is the fundamental event for this improvement and still ongoing at the time of writing. It is the first step toward full sharding on Ethereum, which will drastically decrease gas fees on Ethereum blockchain, but is realistically not expected before 2024.

More info: https://eips.ethereum.org/EIPS/eip-4844.

Closing thoughts

Ethereum developers don’t rest! By creating standards and proposals enhancing Ethereum’s functionalities, they also make possible new use-cases, and make it easier for users to interact with dApps — especially for newcomers in the case of ERC-4337. 2023 will probably be a year dedicated to builders, and the whole blockchain industry expects and hopes to pick up the fruits of their work later in 2024 — which will kick off the next bull run perhaps? In any case, with these latest developments in EIPs and ERCs, we can definitely expect to see even more exciting developments for the industry, regardless of the timeline. So let’s keep an eye on them!