Understanding EIP: A Guide to Ethereum Improvement Proposals
The Ethereum network, launched in 2015, has reshaped the blockchain landscape. Initially known for facilitating initial coin offerings (ICOs), Ethereum has since evolved to support use cases like staking, liquid staking, non-fungible tokens (NFTs), and blockchain games.
The Ethereum Improvement Proposal (EIP) framework lies at the core of these innovations.
EIPs provide a structured approach for the Ethereum community to propose, debate, and implement changes to the Ethereum network. Thanks to EIPs, the Ethereum protocol can adapt to technological advancements and user needs.
This article dives into the Ethereum Improvement Proposals:
Here are some of the most important steps:
EIP-721 took place in what is known as The Merge.
This monumental upgrade transitioned Ethereum from an energy-intensive Proof-of-Work (PoW) to a Proof-of-Stake (PoS) consensus mechanism, slashing the network’s energy. Ethereum’s PoS system has since positioned it as the largest staking network by market capitalization.
Most major blockchains like Solana and Cosmos also follow a Proof-of-Stake consensus.
Proposed in 2015 by Ethereum co-founders Fabian Vogelsteller and Vitalik Buterin, EIP-20 details a token standard on the Ethereum network. This EIP paved the way for token offerings, decentralized finance (DeFi) applications, and decentralized autonomous organization (DAO) governance.
Today, many fungible tokens adopt the ERC-20 standard. Popular tokens include Chainlink (LINK), Shiba Inu (SHIB), and Aave (Aave).
Other major networks like Solana follow a similar process under a different name - Solana Improvement Documents (SIMDs).
Most of the improvement processes' significant differences lie in the pre-draft stage, where the idea exchanges happen. Some networks may facilitate discussion online in public on X (formerly Twitter) or on more community-centric channels like Discord and scheduled calls.
The upcoming Ethereum Pectra upgrade, scheduled for 2025, promises to enhance user and staking experiences. Key proposals in this upgrade include:
Like previous network upgrades, Ethereum Pectra combines several EIPs. Here are some of the more notable ones:
- The EIP process
- The benefits to the Ethereum ecosystem
- Well-known examples of EIPs
- EIPs versus other blockchain improvement processes
What are Ethereum Improvement Proposals (EIPs)
EIPs are formal documents outlining changes or additions to the Ethereum protocol. Introduced with the first Ethereum Improvement Proposal, EIP-1, they adhere to a standardized format and process. EIPs are developed and reviewed collaboratively on GitHub, fostering a transparent and decentralized decision-making process. Each EIP contains several key sections:- Preamble: Metadata, including the EIP title, EIP author(s), and a brief description.
- Rationale: A detailed explanation of the technical specifications and the reasoning behind the proposal, including its potential benefits and limitations.
- Security Considerations: An analysis of the proposal's security implications and risk mitigation strategies.
The EIP Lifecycle: From Idea to Implementation
The Ethereum Improvement Proposals follow this standardization process from a proposed idea to a final implemented EIP.
Here are some of the most important steps:
- Idea: An EIP in the pre-draft stage that is not tracked within the EIP repository. This stage is an exchange of ideas from various Ethereum network contributors.
- Draft: The first formal status for any Ethereum Improvement Proposal. An EIP editor merges the EIP into the EIP Github repository.
- Review: The EIP author marks an EIP ready for peer review. At this stage, community feedback is sought. Well-known Ethereum community developers and even co-founder Vitalik Buterin are known to participate.
- Last Call: The final review period for an EIP. An EIP editor will set a review date lasting 14 days.
- Final: Ethereum's periodic updates can include EIPs that reach this status.
Notable Ethereum Improvement Proposals
Over the years, EIPs have catalyzed some of the most significant advancements in the blockchain space:EIP-721: Upgrade to Proof-of-Stake (PoS) Transition
EIP-721 took place in what is known as The Merge.
This monumental upgrade transitioned Ethereum from an energy-intensive Proof-of-Work (PoW) to a Proof-of-Stake (PoS) consensus mechanism, slashing the network’s energy. Ethereum’s PoS system has since positioned it as the largest staking network by market capitalization.
Most major blockchains like Solana and Cosmos also follow a Proof-of-Stake consensus.
EIP-20: ERC-20 Token Standard
Proposed in 2015 by Ethereum co-founders Fabian Vogelsteller and Vitalik Buterin, EIP-20 details a token standard on the Ethereum network. This EIP paved the way for token offerings, decentralized finance (DeFi) applications, and decentralized autonomous organization (DAO) governance.
Today, many fungible tokens adopt the ERC-20 standard. Popular tokens include Chainlink (LINK), Shiba Inu (SHIB), and Aave (Aave).
EIP-721: NFT Standard
The Non-Fungible Token standard came to life in 2018 amidst the initial coin offerings enabled by ERC-20. According to the EIP authors, “NFTs can represent ownership over digital or physical assets.” At the time, the EIP authors envisioned a future where NFTs could represent physical property like artwork, virtual collectibles like trading cards, and financial assets like loans. NFTs eventually grew to accommodate these use cases and much more.EIPs Vs. Other Blockchain Improvement Proposals
The Ethereum Improvement Proposals are heavily influenced by the Bitcoin Improvement Proposals (BIPs), which in turn are derived from the Python Enhancement Proposals (PEPs). Both EIPs and BIPs follow a similar process from the draft to the final stage.
Other major networks like Solana follow a similar process under a different name - Solana Improvement Documents (SIMDs).
Most of the improvement processes' significant differences lie in the pre-draft stage, where the idea exchanges happen. Some networks may facilitate discussion online in public on X (formerly Twitter) or on more community-centric channels like Discord and scheduled calls.
What is the Next Big Upgrade for Ethereum?
The upcoming Ethereum Pectra upgrade, scheduled for 2025, promises to enhance user and staking experiences. Key proposals in this upgrade include:
Like previous network upgrades, Ethereum Pectra combines several EIPs. Here are some of the more notable ones:
EIP-7251: Increase the MAX_EFFECTIVE_BALANCE
Node operators must stake 32 ETH to become validators and earn staking rewards. If a node operator has more than 32 ETH, they must set up another validator. Similarly, any staking rewards go into a separate wallet and do not compound automatically. EIP-7251 removes the cap on a validator's staked ETH balance while maintaining the minimum 32 ETH deposit. This EIP simplifies the staking experience and allows for auto compounding of rewards.EIP-7702: Set EOA Account Code
Ethereum transactions can get expensive. You incur up to $20 ETH when performing on-chain crypto swaps or trading NFTs. These high transaction costs deter many users. With EIP-7702, accounts can sponsor transactions of its users. This upcoming EIP paves the way for gasless transactions, making the Ethereum user experience seamless. Aside from these two EIPs, several other EIPs are set to improve network security and performance.Why Staying Updated on EIPs Matter
Understanding EIPs can be a game-changer for investors, developers, and enthusiasts. New EIPs often signal shifts in market trends or unlock new investment opportunities.Unlock New Investment Opportunities
EIP-20 and EIP-721 marked a new generation of blockchain projects. Funds raised during the ICO era brought leading projects such as Ripple and Crypto.com to life. Similarly, the NFT standard made leading blockchain games such as Pixels and Axie Infinity. You could have participated in the ICOs of these new projects or NFTs, giving you immense upside. For example, CryptoPunks is one of the first NFT projects minted in 2017. Buyers only paid the gas fee or transaction cost. These grew in value from a free NFT to around 30 ETH ($100,000) in today’s value.Earn Passive Income Through Staking
Prior to EIP-721, investors could not earn passive income on their digital assets. This all changed with the advent of staking. You can lock up your cryptocurrency to contribute to the network and earn staking rewards. On Ethereum, you can earn 3% APY by staking your ETH. Investors who participate in these new narratives stand to profit and reap significant rewards.Ending Thoughts
Ethereum Improvement Proposals drive Ethereum’s mass adoption and innovation. EIPs ensure that Ethereum remains at the forefront of blockchain technology by providing a structured, community-driven approach to network upgrades. From establishing token standards to enabling groundbreaking transitions like The Merge, EIPs exemplify the collaborative spirit of Ethereum and the blockchain industry as a whole. As Ethereum continues to evolve, monitoring EIPs can offer invaluable insights and opportunities that you can capitalize on.The content of solostakers.com is for informational purposes only and should not be considered financial advice. It represents the personal views and opinions of the author(s) and is not endorsed by any financial institution or regulatory body. Cryptocurrency and staking investments carry inherent risks and readers should conduct their own research and consult with a financial professional before making any investment decisions. The owner and author(s) of solostakers.com will not be liable for any losses, damages, or consequences arising from the use of the information on this site. By accessing solostakers.com, you agree to bear full responsibility for your investment decisions.
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