What Is the Ethereum Dencun Upgrade (Proto-Danksharding) in Q1 2024?

The Dencun upgrade rolled on the Ethereum mainnet on March 13, 2024. EIP-4844, or proto-danksharding, tackles Ethereum's high gas fees by expanding block space and improving data availability, especially for Layer-2 rollups. Learn how proto-danksharding and the Dencun upgrade can improve Ethereum’s scalability and reduce gas fees.

Ethereum, a trailblazer in smart contracts and decentralized applications (dApps), is on the verge of a significant evolution with its next upgrade. The Ethereum Cancun-Deneb (Dencun) upgrade, a pivotal moment in Ethereum's ongoing journey towards enhanced scalability and efficiency, is drawing considerable attention in the crypto world.

Ethereum Improvement Proposal (EIP) 4844 is central to this upgrade, a groundbreaking innovation introducing Proto-Danksharding. But what is Proto-Danksharding, and why is it generating buzz in the crypto community? This article delves into the essence of the next Ethereum upgrade and its implications for traders and enthusiasts alike.

The Ethereum Dencun upgrade, also known as the Ethereum Cancun-Deneb upgrade, is a cornerstone of the Ethereum 2.0 roadmap. Named after the luminous Cygnus constellation star, Deneb, this upgrade is critical to Ethereum's comprehensive strategy to boost its scalability, security, and overall efficiency. The Cancun upgrade rolls out on Ethereum’s Data Availability Layer, while the Deneb upgrade impacts the Consensus Layer of the Ethereum blockchain.

An Introduction to EIP-4844 (Proto-Danksharding)

EIP-4844, also known as Proto-Danksharding, is a pivotal element of the Ethereum Cancun upgrade, designed to significantly enhance the network's data availability and storage efficiency. This initiative introduces the concept of "blobs," which are large data bundles that increase the capacity for storing and processing data on the Ethereum network. Proto-Danksharding serves as an essential precursor to the full implementation of Danksharding, aiming to drastically expand Ethereum's scalability and throughput capabilities.

Furthermore, the Cancun upgrade incorporates a State Expiry feature aimed at optimizing the Ethereum blockchain's performance. This feature methodically removes outdated and unused data, thereby decluttering the network and improving its overall efficiency.

Proto-Danksharding is expected to significantly impact the emerging class of Data Availability (DA) layers such as Celestia, EigenDA, and Avail. These DA layers play a crucial role in supporting Ethereum and its Layer-2 solutions by providing a scalable infrastructure for data storage, particularly for transaction data. The introduction of Proto-Danksharding promises to reduce the costs associated with accessing and storing DA data, thereby enhancing the economic efficiency of these networks.

Other EIPs in the Ethereum Dencun Upgrade

Other key EIPs included in this Ethereum upgrade include:

EIP-1153: Introduces transient storage opcodes, allowing temporary storage during smart contract execution, which is expected to reduce gas costs and improve scalability.
EIP-4788: Enhances Ethereum's consensus layer by introducing Beacon Block Root commits, enabling direct access to updated consensus layer information, thus improving operational efficiency.
EIP-5656: Introduces the MCOPY opcode for more efficient data copying in memory during smart contract execution.
EIP-6493 (Fork Choice Rule): This slightly modifies the mechanism by which validators choose which block to follow, improving blockchain finality and potentially reducing mining centralization.
EIP-6780: Aims to restrict the SELFDESTRUCT function in smart contracts, enhancing network security and stability.

The Ethereum Dencun upgrade began testing on January 17, 2024, and was launched on the mainnet on March 13, 2024. This update was initially expected to roll out in Q4 2023 but was delayed following a discussion among Ethereum developers during the All Core Developer Consensus in November 2023.

According to data from the official Ethereum GitHub repository, the Ethereum Cancun-Deneb upgrade timeline is as follows:

Goerli Testnet - 17 January
Sepolia Testnet - 30 January
Holesky Testnet - 7 February
Mainnet Deployment - 13 March

The Dencun upgrade in Ethereum represents a significant step forward in the blockchain's ongoing evolution, focusing on improving scalability, security, and sustainability. One of the critical areas of impact of the Dencun upgrade is gas fees, both on Ethereum itself and its Layer-2 networks. This section explores how the upgrade is poised to influence these fees, thereby affecting users and developers within the Ethereum ecosystem.

Scalability Improvements: By introducing Proto-Danksharding and data "blobs," the upgrade is expected to increase transaction processing speeds and volumes significantly.
Reduced Gas Fees: EIP-4844, a pivotal component of the ETH Cancun upgrade, aims to drastically reduce gas fees on Ethereum Layer-2 networks, potentially by 10-100 times. The primary aim of the Dencun upgrade is to enhance the Ethereum network's efficiency and scalability.
Enhancements to Ethereum’s Throughput: By implementing more sophisticated transaction processing mechanisms and improving the network's throughput, Ethereum is expected to handle a greater volume of transactions more efficiently. This increase in efficiency directly translates to a reduction in gas fees because it alleviates network congestion. When transactions can be processed more quickly and in greater numbers, the competition for transaction processing (which often drives up gas fees) diminishes.
Enhanced Security: EIP-6780 aims to enhance Ethereum's network security by introducing advanced cryptographic techniques and reinforced network protocols. This enhancement would likely make the Ethereum network more resistant to a wider range of security threats, including sophisticated cyber attacks and vulnerabilities.
Optimized Data Storage: The Ethereum Cancun upgrade is expected to significantly enhance the blockchain's data storage capabilities by implementing sharding, which will split the network into smaller, more manageable pieces. This approach will increase the overall capacity and efficiency of the Ethereum blockchain, allowing for faster processing and reduced congestion, thereby improving scalability and performance.

Layer-2 networks are designed to provide scalability solutions for Ethereum by handling transactions off the main Ethereum blockchain (Layer-1), and then batch processing them to finalize on the main blockchain.

Fidelity reports layer-2s account for about 10% of total layer-1 fees, expected to decrease significantly post-upgrade. At the time of writing, L2fees data shows average ETH transfer costs on Arbitrum, Optimism, and Polygon are $0.24, $0.47, and $0.78, respectively, with token swap costs at $0.67, $0.92, and $2.85. These costs are anticipated to drop after the upgrade.

The Dencun upgrade impacts these Ethereum Layer-2 networks in several ways:

Improved Interoperability: The upgrade is expected to introduce changes that make it easier for Layer-2 solutions to interact with the main Ethereum blockchain. Enhanced interoperability means that moving transactions between layers becomes cheaper and more efficient, potentially reducing the overall costs associated with Layer-2 transactions.
Increased Throughput: As the main Ethereum network becomes more efficient, Layer-2 networks also stand to benefit. With the base layer capable of handling more transactions more swiftly, Layer-2 solutions can finalize transactions on the mainnet more rapidly and at a lower cost. This effect could lead to a decrease in the fees associated with Layer-2 networks.
Standardization of Security Practices: The Dencun upgrade may introduce new security standards and practices that Layer-2 networks will adopt. While not directly related to gas fees, improved security protocols can lead to a more stable and reliable network. A stable network, in turn, can process transactions more efficiently, indirectly affecting gas fees by reducing the likelihood of congestion-related spikes.

The Ethereum Cancun-Deneb upgrade, a crucial precursor to Danksharding and a key part of the Ethereum 2.0 roadmap, will significantly enhance the blockchain's scalability. This upgrade promises to make Ethereum 100-1000x more scalable and aims to reduce Ethereum gas fees to less than $0.001.

Here are some key developments that could result from the Ethereum Dencun update:

Improved Throughput and Scalability: Following the Cancun-Deneb upgrade, Ethereum's transaction throughput is expected to leap from around 15 transactions per second (TPS) to an impressive 1,000 TPS. Users of the Ethereum network can anticipate faster transactions due to improved scalability from Proto-Danksharding, along with enhanced security from Ethereum's stake-based system.
More Robust dApp Ecosystem: This increase will make the network more adept at handling a high volume of transactions and supporting various smart contracts and dApps. This will enable developers to experience a more robust environment for building complex dApps.
New Use Cases and Innovative Applications for Developers: The Dencun upgrade introduces significant improvements in transaction efficiency and compatibility, setting the stage for future innovations within the Ethereum ecosystem. One of the upgrade's standout features is the expansion of storage data through 'blobs,' with a fixed data bandwidth of 1 MB per slot. This enhancement will greatly benefit developers, enabling them to store and access more data and explore new use cases and innovative applications.
Boosting ETH Liquid Staking: The Ethereum Cancun-Deneb upgrade could reinvigorate ETH liquid staking, allowing users to engage in staking activities and earn rewards while maintaining liquidity. This aspect of the upgrade is poised to make Ethereum an even more attractive and versatile blockchain platform.

Ethereum 2.0 represents a transformative journey towards a more scalable, secure, and efficient Ethereum. Let's explore the key milestones of Ethereum 2.0 and look ahead to what's coming next.

Phase 0: Beacon Chain

The Beacon Chain, launched on 1 December 2020, was a pivotal first step in the Ethereum 2.0 roadmap. Operating as a separate Proof of Stake (PoS) blockchain parallel to the Ethereum network, the Beacon Chain enhanced security and laid the groundwork for subsequent upgrades.

The Merge

A landmark event in Ethereum's history was The Merge, which took place on September 15, 2022. This milestone merged the Ethereum Mainnet with the Beacon Chain, transitioning the network to a PoS consensus mechanism. The Merge significantly reduced Ethereum's energy consumption by over 99.5%.

Ethereum Shanghai/Capella Upgrade

The Shanghai/Capella upgrade, completed in April 2023, marked another significant step in Ethereum's evolution. This update enabled the withdrawal of staked Ether and rewards, enhancing network accessibility and incentivizing more users to participate in staking activities.

The Ethereum Dencun Upgrade and Proto-Danksharding

Building on these foundational phases, the Ethereum network is poised for the Ethereum Cancun upgrade on 13 March 2024. This upgrade could serve as a transformative step, primarily due to the introduction of proto-danksharding. Proto-danksharding will further improve Ethereum's scalability and efficiency, addressing some of the network's most pressing challenges.

Coming Up Next: Ethereum Petra Upgrade

Following the Dencun upgrade, the Ethereum community is setting its sights on the next phase of development, currently referred to as Electra + Prague (Petra). Among the potential features under consideration for this future upgrade is the introduction of Verkle Trees. This innovative data structure is anticipated to further enhance the network's ability to store vast amounts of data efficiently, marking another step forward in Ethereum's scalability journey.

Looking Ahead: The Path to Full Danksharding

Proto-Danksharding acts as a transitional phase, laying the groundwork for the eventual complete Danksharding implementation. It is a crucial aspect of the Ethereum Cancun-Deneb (Dencun) upgrade, involving new transaction types and mechanisms to scale the network further.

The Ethereum Cancun-Deneb (Dencun) upgrade, while a significant step forward, is not without its potential risks.

Technical Complexities: These risks include technical complexities and potential bugs, which could lead to vulnerabilities or network instability.
Compatibility and Interoperability Issues: Additionally, the transition to a new system may pose challenges in interoperability and compatibility with existing smart contracts and decentralized applications. This could lead to temporary disruptions or security risks during the transition phase. Developers and users must keep themselves informed and prepared for these changes to mitigate potential risks.
Temporary Fluctuations in Gas Fees: The transition period might see temporary fluctuations in gas fees as the network adjusts to the new mechanisms. Additionally, the actual impact on gas fees will depend on the adoption rate of the upgrade's new features by developers and users. Users and developers must stay updated and adapt to the changing landscape to optimize their interactions with Ethereum and its Layer-2 networks.

Following the successful implementation of the Ethereum Dencun upgrade, the Ethereum network is poised to advance towards the full implementation of Danksharding. This significant scalability enhancement is set to revolutionize Ethereum by introducing sharding technology. Danksharding will divide the Ethereum network into multiple shards, each capable of independently processing transactions and smart contracts. This strategic division is designed to alleviate network congestion and reduce transaction fees, thereby augmenting Ethereum's appeal to both users and developers.

Learn more about the difference between danksharding and proto-danksharding.

From Proto-Danksharding to Full Danksharding: A Seamless Transition

The Dencun upgrade is not just a standalone milestone but also a stepping stone towards the introduction of Proto-Danksharding, as outlined in EIP-4844. This is a crucial phase in the ETH Cancun upgrade and serves as a precursor to the full Danksharding implementation. Proto-Danksharding is anticipated to significantly improve Ethereum's scalability and usability. This advancement is particularly important for the Ethereum community as it strives to make the platform more efficient and user-friendly for both everyday users and developers.

The Ethereum 2.0 Cancun-Deneb upgrade, a significant milestone in Ethereum's evolution, marks a pivotal step towards creating a more efficient and scalable network. As the Ethereum community anticipates the ETH Cancun upgrade, there's growing excitement about its transformative potential, particularly with the introduction of Proto-Danksharding. The journey towards full Danksharding reflects Ethereum's commitment to continuous improvement and innovation. With each upgrade, including the Cancun-Deneb upgrade and the eventual implementation of full Danksharding, Ethereum is steadily progressing toward becoming a more scalable, efficient, and user-centric blockchain platform.

The crypto market will likely witness a parallel transformation as Ethereum evolves with the Cancun-Deneb (Dencun) upgrade. This evolution provides traders and investors with new opportunities to engage with and benefit from the Ethereum ecosystem.