What is the Ethereum Dencun upgrade, and why is it important?


Ethereum Cancun-Deneb (Dencun) upgrade, explained

Dencun, an amalgamation of two separate upgrades — Deneb and Cancun — tackles both Ethereum’s consensus and execution layers in a single upgrade. 

Technically a hard fork in blockchain terminology, the upgrade rolled out at Ethereum epoch 269,568 at 1:55 pm UTC and finalized at 2:10 pm. The upgrade is set to significantly slash the transaction fees of layer-2 solutions and boost the scalability of Ethereum.

The objective of the Deneb upgrade is to augment the consensus layer, which deals with how network participants agree on the state of the blockchain. Cancun, on the other hand, improves the way transactions are managed and processed on the execution layer. The Dencun upgrade came nearly a year after the Shanghai upgrade in April 2023, which enabled Ether (ETH) holders to unstake ETH, which was locked into the network.

The Ethereum Cancun-Deneb (Dencun) upgrade timeline

Burgeoning gas fees on Ethereum have necessitated remedial measures on the part of Ethereum developers. While layer-2 solutions offered Ethereum a path to scalability by processing transactions off the main chain, gas prices on L2 solutions remained a hurdle for widespread adoption. 

Dencun unveils proto-danksharding, which will benefit L2 networks such as Polygon, Arbitrum and Optimism, among others. The key feature of Dencun, proto-danksharding focuses on making layer-2 transactions significantly cheaper, paving the way for massive scalability improvements on Ethereum. It is also important to note that shard chains are no longer part of the Ethereum roadmap.

Proto-danksharding, a stepping stone toward full danksharding, lets layer-2 solutions on Ethereum store bulky transaction data off-chain — like in a temporary storage locker — lowering fees for users on L2 solutions by keeping the main Ethereum network free for essential transactions.

What is EIP-4844 (proto-danksharding)

Proto-danksharding, which has introduced data blobs via Ethereum improvement proposal (EIP)-4844, is the most notable feature of the upgrade. 

Data blobs are a novel solution intended to improve the efficacy of L2 transaction data storage. Currently, L2 solutions use transaction calldata, which the upgrade will replace with blob data. Calldata stores limited transaction data on-chain, which needs to be retained by the nodes forever, significantly increasing the burden on validators.

Proto-danksharding is a novel technique that removes the limitations of the present on-chain data storage system, opening up a vastly more effective data management system. By utilizing data blobs specifically designed to manage large volumes of data outside the Ethereum blockchain, rollups benefit from more scalable data storage.

The new rollup transaction storage method is expected to reduce the data overhand on Ethereum nodes. It reduces network congestion and optimizes network size for better performance. Additionally, lower gas prices will increase the usability and efficacy of L2 applications. Moreover, as blobs are pruned after about two weeks, Ethereum validator nodes can optimize disc space usage.

Proto-danksharding vs. danksharding

EIP-4844 also introduces cryptographic tools like the KZG commitment scheme. These tools ensure the off-chain data stored in blobs can be efficiently verified as valid (without actually revealing the data itself), maintaining the network’s security.  

Significance of the Ethereum Dencun upgrade

Although Ether’s price dipped following the upgrade, Dencun is regarded as a significant advancement toward resolving Ethereum’s scalability issues. 

Dencun paves the way for a more affordable and accessible Ethereum ecosystem. There are various reasons behind why it is important, including:

Reduced fee on layer-2 solutions

Dencun introduced a technique for layer-2 scaling solutions based on Ethereum that reduces transaction fees. These layer-2 networks bundle transactions to cut expenses before transferring them to the main Ethereum blockchain. The primary functionality of Dencun, proto-danksharding, proposed via EIP-4844, lowers the costs of layer-2s by enabling them to keep specific transaction data off-chain.

Stepping stone to danksharding 

Dencun’s proto-danksharding introduces essential concepts necessary for full danksharding, the ultimate sharding solution for Ethereum, even though it does not implement sharding itself. As mentioned, it introduces “blob transactions” with off-chain storage to handle bulky data and reduce fees. Additionally, cryptographic schemes allow efficient verification of this off-chain data. 

Moreover, Dencun implements fee-reduction algorithms for layer-2 solutions, which are essential for later fee management within shards. Lastly, it lays the groundwork for a future where transaction data and processing are separated, a core principle of sharded systems.

Danksharding architecture

Potential for competitive edge and increased adoption

With significantly lower transaction fees, layer-2 solutions on Ethereum will become more attractive to users, which could lead to broader adoption of Ethereum for various applications, such as nonfungible tokens (NFTs) and decentralized finance (DeFi). Additionally, reduced fees on layer-2 solutions demonstrate how Ethereum constantly evolves and helps it remain competitive with other blockchains. 

Enhanced developer experience

Dencun simplifies consensus processes and transaction handling. As a result, developers may find it simpler to create and implement decentralized apps (DApps) on Ethereum. A more seamless development process may encourage increased innovative projects on the Ethereum network.

Improved security via EIP-4788 and EIP-6780

Although security improvements were not the Dencun upgrade’s primary emphasis, it includes several upgrades to improve Ethereum’s security posture. One aspect of Dencun involves EIP-4788, which serves as a communication link between Ethereum’s consensus layer, where validators safeguard the network, and the execution layer, where transactions are processed. It might be more challenging for attackers to take advantage of weaknesses in either layer in the presence of robust communication between these layers. 

EIP-6780, also part of Dencun, changes how smart contracts’ “SELFDESTRUCT” function operates. A smart contract can practically destroy itself because of this feature. By making it more difficult for attackers to abuse this feature for nefarious ends, the modification may increase the general security of Ethereum smart contracts.

How the Ethereum Dencun upgrade benefit users and developers

The Dencun upgrade marks a significant step forward for the Ethereum ecosystem, benefiting both users and developers. 

Proto-danksharding lowers costs for layer-2 scaling solutions based on Ethereum, offering users a more cost-effective experience, especially when using NFTs and DeFi services. 

Layer-2 solutions bundle transactions before sending them to the main Ethereum blockchain, and Dencun enables them to keep some transaction data off-chain to save costs.

Dencun streamlines transaction handling and consensus mechanisms for developers, which translates to a smoother development experience, making it easier and faster to build and deploy DApps on Ethereum. Enhanced developer experience further unlocks a wave of innovative projects, further enriching the Ethereum ecosystem.

In addition to its immediate advantages, Dencun sets the stage for further developments by introducing critical concepts needed for full Danksharding (as discussed above), which is the ideal way to address Ethereum’s scalability issues. 

Sharding essentially splits the Ethereum blockchain into smaller partitions, allowing for parallel processing of transactions and significantly increasing throughput. In essence, Dencun brings Ethereum closer to becoming a truly scalable and user-friendly platform, poised for broader adoption and a more vibrant future.

Ethereum’s roadmap to full danksharding

Ethereum’s roadmap to full danksharding is a staged approach, with Dencun being a crucial first step. The following milestones will involve building upon the concepts introduced by proto-danksharding.

Developers will concentrate on innovations simplifying block production, such as proposer-builder separation. They will also work on data availability solutions, ensuring that off-chain data may still be verified if certain validators are offline. Finally, a complete Danksharding system will divide the Ethereum blockchain into shards, each of which will handle a distinct set of transactions. This parallelization will make massive scalability possible.

Up next on Ethereum’s roadmap is the Petra upgrade, merging Prague and Electra. While specifics are still under discussion, potential features include Verkle trees for efficient data storage and laying the foundation for “The Verge,” which aims to simplify block verification. This focus on scalability paves the way for a more user-friendly Ethereum.

The precise time to full danksharding is unknown; estimates range from a few years to a decade. Nonetheless, Dencun’s successful implementation shows the Ethereum community’s commitment to ongoing development. Like Dencun, every milestone along the journey offers advancements and prepares the road for a scalable and future-proof Ethereum.

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