What is the Dencun update of Ethereum and why is it important?

The Ethereum Cancun-Deneb update (Dencun), explained

Dencun, a combination of two separate upgrades - Deneb and Cancun - addresses both the consensus and execution layers of Ethereum in a single upgrade.

Technically, a hard fork in blockchain terms, the upgrade was implemented at block 269,568 of Ethereum at 13:55 UTC and finalized at 14:10. This improvement is expected to significantly reduce transaction fees of layer 2 solutions and increase the scalability of Ethereum.

The goal of the Deneb update is to improve the consensus layer, which deals with how network participants agree on the state of the blockchain. On the other hand, Cancun enhances the way transactions are managed and processed in the execution layer. The Dencun update arrived almost a year after the Shanghai update in April 2023, which allowed Ether holders to unlock ETH that was locked on the network.

The rising gas fees on Ethereum have required corrective measures from Ethereum developers. While layer 2 solutions provided Ethereum with a path to scalability by processing transactions off the main chain, gas prices on L2 solutions remained a barrier to widespread adoption.

Dencun introduces proto-danksharding, which will benefit L2 networks like Gate, 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 Ethereum's roadmap.

Proto-danksharding, a step towards complete danksharding, allows layer 2 solutions on Ethereum to store bulky transaction data off-chain, like in a temporary storage locker, reducing fees for users on L2 solutions by keeping the Ethereum mainnet free for essential transactions.

What is EIP-4844 (proto-danksharding)?

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

Data blobs are a novel solution aimed at improving the efficiency of L2 transaction data storage. Currently, L2 solutions use transaction call data, which the update will replace with blob data. Call data stores limited transaction data on-chain, which nodes must retain forever, significantly increasing the burden on validators.

Proto-danksharding is an innovative technique that removes the limitations of the current on-chain data storage system, opening up a much more efficient data management system. By using data blobs specifically designed to handle large volumes of data outside of the Ethereum blockchain, rollups benefit from more scalable data storage.

The new rollup transaction storage method is expected to reduce data overhead on Ethereum nodes. It decreases network congestion and optimizes network size for better performance. Additionally, lower gas prices will enhance the usability and efficiency of L2 applications. Moreover, as the blobs are removed after approximately two weeks, Ethereum validator nodes can optimize disk space usage.

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

Importance of the Ethereum Dencun Update

Although the price of Ether fell after the update, Dencun is considered a significant step towards solving Ethereum's scalability issues.

Dencun paves the way for a more affordable and accessible Ethereum ecosystem. There are several reasons why this 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 lower costs before transferring them to the main Ethereum blockchain. Dencun's main functionality, proto-danksharding, proposed through EIP-4844, reduces layer 2 costs by allowing them to keep specific transaction data off-chain.

Step towards danksharding

The proto-danksharding of Dencun introduces essential concepts needed for full danksharding, the ultimate sharding solution for Ethereum, although 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 for efficient verification of this data off-chain.

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

Potential for competitive advantage and greater 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 non-fungible tokens (NFT) and decentralized finance (DeFi). Furthermore, the reduced fees in layer 2 solutions demonstrate how Ethereum is constantly evolving and helps it remain competitive with other blockchains.

Enhanced development experience

Dencun simplifies consensus processes and transaction handling. As a result, developers may find it easier to create and implement decentralized applications (DApps) on Ethereum. A smoother development process can encourage an increase in innovative projects on the Ethereum network.

Enhanced security through EIP-4788 and EIP-6780

Although security improvements were not the main focus of the Dencun update, it includes several updates to enhance the security posture of Ethereum. One aspect of Dencun involves EIP-4788, which serves as a communication link between Ethereum's consensus layer, where validators protect the network, and the execution layer, where transactions are processed. It could be more difficult for attackers to exploit weaknesses in either layer in the presence of robust communication between these layers.

EIP-6780, also part of Dencun, changes how the “SELFDESTRUCT” function of smart contracts works. A smart contract can practically destroy itself due to this feature. By making it more difficult for attackers to abuse this function for nefarious purposes, the modification can enhance the overall security of Ethereum smart contracts.

How the Ethereum Dencun upgrade benefits users and developers

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

Proto-danksharding reduces costs for layer 2 scaling solutions based on Ethereum, providing users with a more cost-effective experience, especially when using NFT and DeFi services.

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

Dencun streamlines transaction management and consensus mechanisms for developers, resulting in a smoother development experience, facilitating and accelerating the building and deployment of DApps on Ethereum. An improved developer experience additionally unlocks a wave of innovative projects, further enriching the Ethereum ecosystem.

In addition to its immediate advantages, Dencun lays the groundwork for future developments by introducing critical concepts needed for complete Danksharding ( as discussed earlier ), which is the ideal way to address Ethereum's scalability issues.

Fragmentation essentially divides the Ethereum blockchain into smaller partitions, allowing for parallel processing of transactions and significantly increasing performance. Essentially, Dencun brings Ethereum closer to becoming a truly scalable and user-friendly platform, ready for broader adoption and a more vibrant future.

Ethereum's roadmap towards complete danksharding

Ethereum's roadmap towards complete danksharding is a phased approach, with Dencun being a crucial first step. The following milestones will involve building on the concepts introduced by proto-danksharding.

Developers will focus on innovations that simplify block production, such as separating the proposer and the builder. They will also work on data availability solutions, ensuring that off-chain data can still be verified if certain validators are offline. Finally, a complete Danksharding system will split the Ethereum blockchain into shards, each of which will handle a distinct set of transactions. This parallelization will enable massive scalability.

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

The exact time for full danksharding is unknown; estimates range from a few years to a decade. Nevertheless, the successful implementation of Dencun demonstrates the Ethereum community's commitment to ongoing development. Like Dencun, each milestone along the way offers advancements and paves the way for a scalable and future-proof Ethereum.