Blockchain technology continues to evolve, pushing the boundaries of what’s possible in the realm of decentralized systems. In this blog post, we’ll explore 10 groundbreaking concepts that are shaping the future of blockchain ecosystems. From Account Abstraction to Parallelized EVMs, each idea plays a crucial role in enhancing scalability, security, and user experience.

1. Account Abstraction

Account Abstraction is a paradigm shift in blockchain design, aiming to separate the control of an account from its ownership. Traditionally, blockchain accounts are both owned and controlled by private keys. With Account Abstraction, the ownership and control can be distinct, allowing for more flexible account management and rapid improvement of security and user experience.

In the conventional realm of Externally Owned Accounts (EOAs), functionalities are constrained in a way that do not actively encourage or facilitate the onboarding of the next generation of users. The challenges associated with managing private keys create reluctance among certain users who are unwilling to shoulder the responsibility of securing their keys. Take, for instance, MetaMask, a widely utilized browser-based wallet functioning as an EOA. Its inability to execute smart contracts confines its utility to application interactions where users must give up control of their accounts. This limitation is in stark contrast to contract accounts, which can deploy smart contracts, thereby enriching wallet functionality and customization.

Account Abstraction simplifies the development of smart contract accounts designed for the explicit purpose of defining and overseeing user accounts. This innovative approach brings forth numerous advantages, including the establishment of adaptable security protocols, the execution of batch transactions, and the ability to recover accounts without the necessity of a seed phrase. Such a concept significantly enhances the customization of account functionalities, paving the way for innovative use cases and decentralized applications (dApps).

2. Blockspace as a Commodity

Blockspace, the foundational commodity in the realm of blockchain technology, is a unique and sought-after “product” that has transformed the dynamics of the digital landscape. Unlike traditional commodities, blockspace is not produced by individual businesses; instead, it emanates from decentralized networks like those governing Bitcoin and Ethereum.

The scarcity of blockspace creates a debate around its value, with consumers paying billions annually for its use. Gas price is a signal of demand for blockspace (which itself is an amalgamation of compute, storage, and bandwidth resources) and all L1s, L2s, sidechains, etc. are producers and sellers of it. Notably, a network effect around a seller’s blockspace drives higher pricing, creating a similar effect as the virality observed in social media applications. The market share of blockspace is subject to constant shifts, as showcased by the rapid growth of fees on Ethereum, but in relative terms also on platforms like Avalanche, Polygon, Arbitrum, and Optimism.

Today, applications on blockchains can operate with zero overhead once deployed, since users pay for the cost of operation, a departure from the traditional model where enterprises cover infrastructure expenses. Account abstraction, as mentioned above, may however reverse this, resulting in future arrangements where applications cover users’ gas costs, so reverting the blockspace costs back to startups and enterprises. The continuous evolution of blockspace as a commodity marks a pivotal development in the digital economy, with profound implications for the future of decentralized technologies.

3. Blobspace

Blobspace emerges as a transformative solution, facilitating the storage of large data sets off-chain, thereby alleviating the burden on the blockchain and enhancing the efficiency and affordability of applications. Its integration into the Ethereum EIP 4844 upgrade (Decun) reflects a pivotal shift in the L2 landscape. Unlike the traditional blockspace, Blobspace introduces a novel resource market on Ethereum, moving beyond the conventional block-selling model to a more dynamic structure involving the trading of “blobs.” These blobs, essentially temporary chunks of transaction data, represent a more flexible and efficient approach to processing information.

The genesis of Blobspace traces back to Danksharding, a conceptual design proposed by Ethereum researcher Dankrad Feist, redefining the notion of shards as distinct blockchains to shards as multiple data blobs within blocks. This innovative approach not only revolutionizes decentralized data storage but also establishes dedicated space for managing large, unstructured data off-chain. By optimizing on-chain transaction costs and bolstering network scalability, Blobspace opens the door to storing diverse data types, including complex application data on Ethereum’s layer 2 ecosystem.

4. L3s (Layer 3 Scaling Solutions)

Layer 3 Scaling Solutions constitute a comprehensive set of techniques designed to effectively tackle scalability challenges within blockchain networks. Unlike Layer 1 scaling, which involves updates to elements like block size, consensus mechanisms, or database partitioning, and Layer 2 scaling, which employs methods like bundling transactions, processing in parallel, or handling transactions off-chain, Layer 3 solutions (L3s) transcend these traditional approaches. By focusing on innovative methodologies such as state channels, sidechains, and sharding, L3s aim to significantly boost transaction throughput without compromising the critical aspects of decentralization and security.

Simultaneously, Layer 3 protocols are strategically constructed on top of Layer 2 infrastructure to serve as the hosting platform for application-specific decentralized applications. This integrated approach not only addresses scalability but also resolves various issues like interoperability, customization, and more. Nevertheless, the lack of standardized infrastructure for L3s still poses several issues. Notable examples of Layer 3 protocols include Orbs, Arbitrum Orbit, and zkSync Hyperchains.

5. MEV (Miner/Maximal Extractable Value)

MEV is a concept that acknowledges the economic incentives for miners to reorder, delay, or censor transactions to maximize their profits. This phenomenon often results in inefficiencies and increased transaction costs. To counteract the potential adverse effects of MEV on actual protocol users, blockchain projects are actively pursuing strategies such as implementing consensus algorithm enhancements and MEV recovery mechanism. These measures aim to democratise revenue sharing and enable fair distribution among participants. Additionally, efforts include optimizing transaction sequencing by advocating for the decentralization of sequencers, employing MEV extraction protocols, and capturing cross-chain MEV.

UniswapX’s cross-chain technology plays a crucial role in realizing cross-chain MEV capture. To counter potential negative impacts on real protocol users, measures such as fair distribution, privacy protection, and off-chain order matching are being adopted. Modularization and decentralization of MEV participants are integral components of the Ethereum roadmap, contributing to the creation of a more robust and secure MEV ecosystem. Democratizing MEV revenue involves exploring areas like anti-MEV DEXs, where profits are transferred to trading users, fostering a positive trading environment. A fair market competition environment, coupled with efficient benefit distribution mechanisms and decentralized architecture, is essential for fostering innovation and ensuring the healthy development of the on-chain trading ecosystem. The neutral nature of searchers and block-building technologies underscores the importance of responsible utilization for their impact on the broader trading environment.

6. Token Bound Accounts

The Ethereum Improvement Proposal ERC-6551 introduces the concept of Token Bound Accounts (TBAs), which essentially are smart contracts that have their own address and are managed with a specific NFT. Think of it as a mini wallet that is directly tied to the NFT, enhancing security while also offering a mechanism for precise control over access and permissions.

In essence, TBAs extend the capabilities of ERC-721 and ERC-1155 tokens (the typical, limited standards of NFTs) to have their own smart contract accounts. This enables NFTs to own and interact with digital assets (fungible or non-fungible) and engage more seamlessly with decentralized applications (dApps). For instance, artists can link their artwork NFTs to a TBA that contains all their other artworks, enabling them to manage multiple tokens within a single account. In the realm of DeFi, TBAs enable NFTs tp participate in yield farming or liquidity provision. Furthermore, in-game assets represented by NFTs gain the ability to own other assets or engage with additional in-game smart contracts and in the context of DAOs, where NFTs symbolize voting rights, TBAs empower direct participation in voting on proposals.

7. Validity Proofs

Validity Proofs play a crucial role in ensuring the integrity of data on the blockchain. They have arguably a fundamental advantage over fraud proofs, in that they ensure that nothing other than correct state transitions are accepted. Validity proofs are cryptographic proofs that allow network participants to verify the correctness of transactions or computations without needing to re-execute them. They enhance the efficiency of blockchain networks, at present focusing on L2s, by reducing redundancy and improving the overall auditability of on-chain data. The main disadvantage is that validity proofs are needed for each and every state transition, and not merely when such a transition is contested, and this impacts scalability.

zk-Rollups utilize validity proofs to prove valid state transitions to a parent chain — commonly used with proof systems such as SNARKs and STARKs. (However, please note that these proof systems (e.g. SNARK, STARK) can be used as either fraud proofs or validity proofs. Proof systems are how we prove and fraud or validity are what we prove.)

8. Restaking and Liquid Restaking

Restaking refers to the process of reinvesting staked assets to earn additional rewards. This concept plays a vital role in incentivizing long-term participation in blockchain networks. Liquid Restaking takes this a step further by allowing users to trade or utilize their staked assets without waiting for an unstaking period. This flexibility enhances liquidity and promotes a more dynamic ecosystem.

There is a rising prominence of the restaking meta within the blockchain space, particularly with the impending launch of EigenLayer. With over $1 billion already deposited into EigenLayer contracts, fierce competition has emerged among entities vying for a significant role in the EigenLayer ecosystem. This competition is expected to extend to Liquid Restaking Tokens (LRT), surpassing the previous Liquid Staking Token (LST) battles. LRTs promise to provide yields from native ETH staking, along with additional yields from restaking networks like EigenLayer. These tokens, tied to the security model of EigenLayer, facilitate fine-tuned access control and permissions within blockchain networks.

There could be an LRT boom in 2024, driven by the ongoing airdrop wave, as theoretically two airdrop opportunities can be exploited at the same time. Projects like Swell and Puffer are highlighted as noteworthy contenders, with unique features such as extra slashing protection and collaborations with industry experts, positioning them as key players in the evolving landscape of Liquid Restaking Tokens.

9. Data Availability Layers:

Data Availability (DA) Layers address the challenge of ensuring the availability of off-chain data in decentralized systems. These layers ensure that data associated with smart contracts or decentralized applications remains accessible and verifiable. Data Availability Layers contribute to the overall reliability and efficiency of blockchain networks by preventing data unavailability issues.

DA is likened to the bandwidth stratum, with the potential to transform the crypto landscape from being slow and expensive to becoming fast, cheap, and abundant — all without compromising decentralization. DA is identified as the primary bottleneck restricting blockchain networks from unleashing the full potential of their resource costs and throughput levels.

One exciting development in this space is the imminent launch of EigenDA, the first Actively Validated Service (AVS) from EigenLayer. As an additional source of yield, EigenDA is poised to contribute to the Liquid Restaking Tokens (LRT) mentioned earlier, enhancing the overall utility of the EigenLayer ecosystem.

EigenDA distinguishes itself from Celestia, another prominent contender in the DA arena, by adopting a unique network structure. Secured by staked ETH rather than an alternative Layer 1 solution, EigenDA aligns its DA properties more closely with Ethereum. This not only reduces certain security assumptions but also positions it as a viable choice for rollups requiring more DA than what the Ethereum Layer 1 can offer. While Celestia and EigenDA currently lead the charge in the Data Availability Layers space, other contenders are entering the market. Notably, NEAR has incorporated DA capabilities into its chain, leveraging insights from sharding research conducted over the past few years.

10. Parallelized EVMs (Ethereum Virtual Machines)

Parallelized EVMs offer a breakthrough in scalability by enabling the simultaneous execution of smart contracts, processing multiple transactions and hence significantly boosting throughput.

Solana, a pioneer in this space, has spearheaded the parallelization of its Solana Virtual Machine (SVM). The ability to process multiple transactions concurrently, if they do not affect the same state, distinguishes the SVM and showcases some superiority over the traditional Ethereum Virtual Machine (EVM). This unique feature has prompted a surge in parallel VM, with projects seeking to replicate Solana’s scalability advantages both on Ethereum Layer 2 solutions and new Layer 1 blockchains.

Eclipse is one such project leveraging Solana’s SVM to build a rollup settling on Ethereum, complemented by Celestia for Data Availability. Monad, on the other hand, is focused on parallelizing the EVM itself, transitioning from single-threaded to multi-threaded execution. Despite the considerable challenges, the potential rewards are immense — envision Solana’s speed, scale, and cost-efficiency coupled with Ethereum’s robust ecosystem.

The “Solana’s speed but Ethereum’s distribution” strategy has gained traction beyond Monad and Eclipse. Sei, in a recent pivot announcement, revealed its commitment to becoming a parallelized EVM chain, aligning with this winning strategy. Investors have taken notice, with SEI experiencing a surge in price as it became the go-to token for exposure to the parallelized EVM narrative.

As the parallelized EVM narrative gains momentum, Monad’s yet-to-be-launched EVM becomes a potential target for Ethereum Layer 2 alternatives. The open sourcing of Monad’s EVM could position it as a highly sought-after software in the Web3 landscape. Alternatively, Monad might explore a dual strategy, operating as an independent Layer 1 while concurrently establishing an Ethereum Layer 2 presence to maximize its competitive reach.

The rise of Parallelized EVMs marks a pivotal moment in blockchain scalability, ushering in a new era of efficiency and speed. With various projects entering the parallel VM competition, the blockchain ecosystem is poised for transformative developments in the quest for unparalleled scalability.

Image by İnci Özgür, DALL-E 3

To conclude, as blockchain technology continues to advance, these concepts showcase the industry’s commitment to addressing fundamental challenges. From enhancing scalability and security to introducing innovative staking mechanisms, the blockchain space is actively shaping a more robust and user-friendly future. By staying informed and embracing these cutting-edge concepts, participants in the blockchain ecosystem can contribute to the ongoing evolution of decentralized technologies.

Let’s keep our eyes and ears open!

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