Ethereum Dencun: Important Update Enhances Network Stability

March 21, 2024 - Around 12 mins mins to read

The Ethereum network, famous for its groundbreaking contributions to smart contracts and decentralized applications, is on the brink of a significant transformation with its upcoming upgrade, Ethereum Cancun-Deneb or Ethereum Decun. Let’s find out details about this latest upgrade with Coincu.

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What is the Ethereum Dencun upgrade?

Ethereum Dencun is an upcoming Ethereum upgrade that aims to improve the scalability of the blockchain through proto-danksharding.

The Ethereum community eagerly awaits the Ethereum Dencun upgrade, also known as the Ethereum Cancun-Deneb upgrade, heralded as a pivotal event within the Ethereum 2.0 development roadmap. Named after the brightest star in the Cygnus constellation, the Dencun upgrade represents a significant step towards enhancing the scalability, security, and efficiency of the Ethereum network.

Set to usher in a new era dubbed “The Surge,” this upgrade marks a strategic shift in Ethereum‘s focus towards scalability. Vitalik Buterin, Ethereum’s co-founder, has expressed ambitions to achieve transaction speeds surpassing 100,000 transactions per second and beyond during this phase.

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Central to the Dencun upgrade are nine Ethereum Improvement Proposals (EIPs), among them EIP-4844, also known as Proto-Danksharding. This proposal introduces a novel concept of temporary storage space termed “data blobs,” designed to support Ethereum Layer 2 (L2) networks.

The implementation of data blobs is anticipated to significantly bolster the data availability capacity of the Ethereum mainnet. Layer 2 rollups will leverage this additional storage to streamline the submission of data to the mainnet, thereby reducing gas fees for end users.

When is Ethereum Dencun Happening?

Ethereum enthusiasts eagerly anticipate the launch of Ethereum Dencun, set to occur on Wednesday, March 13, 2024. The deployment of this significant update will take place on Ethereum at “Beacon Slot 8626176,” with the time for code deployment at 9:55 am ET/1:55 pm GMT.

Stay tuned for further updates and insights as Ethereum Dencun goes live, ushering in a new chapter for the Ethereum blockchain and its community.

Key Features and Improvements of The Ethereum Decun Upgrade

The Ethereum Dencun upgrade, featuring the much-anticipated EIP-4844 (Proto-Danksharding), marks a significant milestone in Ethereum’s journey towards scalability and efficiency. This key component of the upgrade tackles the issue of “blobs,” which play a crucial role in enhancing data availability and storage efficiency on the network.

Alongside EIP-4844, several other important Ethereum Improvement Proposals (EIPs) are set to be incorporated into this upgrade, each contributing to the network’s advancement:

EIP-1153 introduces temporary storage opcodes, enabling smart contracts to utilize temporary storage during execution. This innovation is expected to lower gas costs and bolster network scalability, addressing critical concerns in Ethereum’s development.
EIP-4788 enhances Ethereum’s consensus layer by introducing Beacon Block Root commits. This feature allows direct access to updated consensus layer information, thereby improving the overall performance and reliability of the network.
EIP-5656 introduces the MCOPY opcode, facilitating more efficient copying of data from memory during smart contract execution. This optimization aims to streamline contract execution processes, enhancing the overall efficiency of Ethereum’s operations.
EIP-6780 aims to restrict the functionality of SELFDESTRUCT in smart contracts, thereby enhancing network security and stability. By implementing this proposal, Ethereum takes a proactive approach towards mitigating potential vulnerabilities and fortifying its ecosystem against threats.
Additionally, proposals like EIP-7044, EIP-7045, EIP-7514, and EIP-7516 address various aspects of the Ethereum protocol, from enhancing message reliability to optimizing validator activation and certificate inclusion processes.

EIP-4844: The Heart of the Upgrade

Over the years, the Ethereum network has undergone numerous upgrades to enhance its capacity, such as the Gray Glacier upgrade and the Shanghai Upgrade. The introduction of Proto-danksharding signifies a continued effort by developers to provide effective solutions for improving network efficiency and user experience.

Sharding, a method of dividing a database into smaller segments, has long been recognized as a potential solution to improve performance. While sharding is a complex long-term solution, Proto-danksharding offers a more immediate and practical approach to address transaction scalability issues.

Proto-danksharding, serving as a prototype for the future implementation of danksharding, is designed to significantly reduce transaction fees and increase throughput on the Ethereum network. It introduces a new transaction type capable of accepting data blobs, which will be attached to transaction blocks, paving the way for enhanced scalability and performance.

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Danksharding, a key component of the Ethereum 2.0 upgrade, focuses on optimizing data availability and management within the Ethereum system. It introduces innovative concepts such as the merged market fee and aims to streamline transaction processing and data storage.

The deployment of Proto-danksharding marks a crucial step forward in Ethereum’s evolution, laying the groundwork for future upgrades and optimizations. The Cancun-Deneb upgrade will prioritize optimizing the execution layer (layer 1), setting the stage for the full implementation of data sharding in line with Ethereum’s long-term development strategy.

What Problem Does The Ethereum Dencun Upgrade Solve?

The Ethereum Dencun upgrade aims to tackle a crucial issue within Ethereum’s layer 2 scalability solutions. As Ethereum transitions towards a modular model, separating transaction execution from settlement, layer 2 emerges as a pivotal development in enhancing Ethereum’s scalability.

Despite the advantages brought by Layer 2, it still grapples with cost challenges, particularly concerning data fees. A substantial portion, around 80%, of layer 2 transaction costs stem from posting transaction data, known as call data, to the main Ethereum network. In December 2023 alone, layer 2 networks expended over 15,000 ETH (equivalent to $34,000,000) on posting transaction data to Ethereum, highlighting the significant expense incurred.

Furthermore, existing data solutions such as Celestia threaten to undermine the value proposition of Ethereum Layer 2 by potentially slashing data costs by up to 99%. Recognizing this pressing issue, the Ethereum team has devised the Dencun upgrade to address the escalating data costs plaguing Layer 2 networks.

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The Ethereum Dencun upgrade introduces allocated storage space on the Ethereum network specifically tailored for Layer 2 scalability solutions. By doing so, it aims to alleviate data costs, thereby enhancing profit margins for layer 2 operators. While the exact reduction in transaction costs for end users remains uncertain, analysts speculate that it could surpass a 20-fold decrease.

Should the Dencun upgrade be successfully implemented, it holds the potential to narrow the gap between layer 2 solutions like Optimism and Arbitrum compared to competitors such as Solana. Additionally, it could potentially triple the operating profit rates of Layer 2 networks, bolstering their viability and competitiveness in the blockchain landscape.

What impact does the Dencun upgrade have on Ethereum?

The recent Dencun upgrade to the Ethereum network has stirred significant activity across various markets, leading to both optimism and caution among investors. Let’s delve into the impact of this upgrade on different facets of the Ethereum ecosystem.

Futures Market

Ethereum’s price has experienced notable growth, stabilizing around the $3,500 mark, with recent peaks surpassing $4,000. However, this surge has been accompanied by a considerable volume of liquidation near the upper price ranges.

Notably, the long-to-short ratio remains skewed towards long positions. This discrepancy raises concerns as excessively leveraged long positions can lead to significant fees for traders, especially with the sustained high funding rates. Such conditions incentivize exchanges to capitalize on these fees, potentially fueling further upward pressure on prices to liquidate short positions.

Spot Market

Since February, Ethereum’s upward trajectory has been propelled largely by substantial buying activities from institutional players, commonly referred to as “Whales.” This trend isn’t confined to a single exchange like Binance but extends to platforms such as Coinbase and Bitfinex.

Conversely, smaller players in the spot market exhibit less enthusiasm for buying Ethereum. The cyclical nature of market movements suggests that price corrections often follow periods of distribution. This distribution necessitates significant buying pressure from smaller entities, followed by FOMO-inducing rallies to sustain momentum.

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Option Market

Echoing sentiments from the futures market, the options market reflects bullish expectations among many retail traders in the short term. However, exchanges strategically adjust Ethereum’s price around the max pain level, applying pressure to prompt closures among retailers.

While some whales share these short-term expectations, their longer maturity periods and substantial market influence mitigate the impact of exchange-induced price pressures, often resulting in losses for the majority of retail traders.

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Other Benefits of the Ethereum Decun Upgrade

Here’s a comprehensive breakdown of the additional advantages the upgrade brings:

A key highlight of the Dencun upgrade is the boost in Ethereum’s network throughput, primarily facilitated by proto-danksharding. This innovative approach introduces temporary storage space, empowering Layer 2 rollups to achieve higher transaction volumes per second. The implementation of proto-danksharding marks a significant step towards addressing Ethereum’s scalability challenges.

Proto-danksharding heralds a significant reduction in gas fees on Layer 2 rollups. For instance, token swaps on optimistic rollups like Optimism and Arbitrum One currently cost less than $0.90, a stark contrast to the over $16 fee on the Ethereum mainnet.

Similarly, zero-knowledge (ZK) rollups such as Polygon zkEVM incur gas fees of about $1.6. With proto-danksharding, gas fees on both optimistic and ZK rollups are expected to decrease further, enabling them to compete with traditional payment giants like Visa and Mastercard.

The Dencun upgrade incorporates EIP-6780, a pivotal measure aimed at strengthening security. By disempowering the SELFDESTRUCT code, the upgrade restricts the termination of smart contracts, thereby bolstering the protection of user data and funds.

EIP-4788, an integral component of the Dencun upgrade, facilitates seamless and secure interactions between diverse blockchain networks. This enhancement is expected to streamline cross-chain bridges and stake pools, fostering interoperability across the decentralized landscape.

Proposed changes outlined in EIP-1153 are set to optimize data storage within the Ethereum blockchain. Through the introduction of new opcodes not stored in Ethereum’s global state, block space usage will be optimized, leading to more efficient gas fee utilization.

While the ultimate goal of Ethereum is to achieve full danksharding, capable of handling “100,000 transactions per second and beyond,” this milestone remains a few years away.

Multiple network upgrades, including proposer-builder separation, must precede full danksharding. In the interim, proto-danksharding serves as a crucial stepping stone during the Dencun upgrade. Notably, the transition from one data blob per block in proto-danksharding to 64 in full danksharding promises substantial scalability enhancements.

Benefits of Ethereum Dencun Upgrade for Users and Developers

With the aim of making Ethereum 100-1000x more scalable and slashing gas fees to less than $0.001, this upgrade carries significant implications for users and developers.

Foremost among the anticipated benefits is a substantial increase in Ethereum’s transaction throughput. Expected to surge from approximately 15 transactions per second (TPS) to an impressive 1,000 TPS, users can look forward to significantly faster transaction speeds.

The result is a more responsive and agile network capable of handling a higher volume of transactions with greater efficiency.

The Ethreum Dencun update is poised to fortify Ethereum’s dApp ecosystem, providing developers with a more robust and adaptable platform for innovation.

With improved scalability, the network will be better equipped to support a diverse array of smart contracts and dApps. Developers can expect to operate within an environment supportive of building complex and feature-rich dApps, thereby expanding the realm of possibilities for Ethereum’s decentralized ecosystem.

The enhancements introduced by the Dencun upgrade pave the way for novel use cases and innovative applications within the Ethereum ecosystem. Notably, the expansion of storage data through ‘blobs,’ with a fixed data bandwidth of 1 MB per slot, offers developers increased flexibility and capacity for experimentation.

Another significant outcome of the Ethereum Dencun upgrade is the revitalization of ETH liquid staking. By enabling users to participate in staking activities while maintaining liquidity, the upgrade enhances the attractiveness and versatility of Ethereum as a blockchain platform.

Potential Risks Loom Over Ethereum Dencun Upgrade

While hailed as a significant leap forward for the platform, experts warn of several key challenges that could impact the upgrade’s smooth implementation.

Among the foremost concerns are technical complexities and the specter of bugs lurking within the upgrade. Such issues could potentially expose vulnerabilities or even destabilize the network. This risk underscores the importance of meticulous testing and vigilance among developers to mitigate any unforeseen glitches.

The shift to a new system also raises concerns regarding compatibility and interoperability with existing smart contracts and decentralized applications (dApps).

The intricacies of integrating the upgrade seamlessly with the current ecosystem could result in temporary disruptions or, worse, pose security risks during the transitional phase. Developers and users alike are urged to stay abreast of developments and ready themselves to navigate these challenges effectively.

Users should brace themselves for potential fluctuations in gas fees during the transition period. As the network adjusts to the new mechanisms introduced by the upgrade, variations in transaction costs are expected.

The extent of these fluctuations will largely hinge on developers’ and users’ adoption rates of the upgrade’s new features. Staying informed and adaptable will be imperative for optimizing interactions with Ethereum and its Layer-2 networks amidst these changes.

Conclusion

The Ethereum Dencun upgrade marks a significant milestone in the evolution of the Ethereum network, introducing crucial enhancements that promise to reshape its functionality and monetary policy.

One of the key implications of the Dencun upgrade is its potential impact on Ethereum’s monetary policy. By imposing caps on new validator entries, the upgrade effectively slows down the expansion of the validator set and consequently curtails the rate of new ETH issuance.

Overall, the Dencun upgrade underscores Ethereum’s ongoing commitment to optimizing its supply dynamics and advancing its roll-up-centric roadmap. Notably, recent upgrades have demonstrated a trend towards decelerating the growth of ETH supply, with some even resulting in a slight reduction post-Merge.

FAQs about Ethereum Dencun Upgrade

What is proto-danksharding in the Ethereum Dencun upgrade?

Proto-danksharding is a key component of the Ethereum Dencun Upgrade, as introduced by EIP-4844. This innovative feature introduces the concept of “blob-carrying transactions,” designed to alleviate costs associated with Layer 2 rollups while simultaneously enhancing data throughput.

How does Ethereum Dencun affect Layer 2s?

In addition to reducing gas fees, the Ethereum Dencun upgrade also aims to enhance the efficiency of the Ethereum network as a whole. Proto-danksharding facilitates faster transaction processing by streamlining the execution of transactions within Layer 2 rollups.

DISCLAIMER: The information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.

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