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Published on: Jan 24, 2024
#Crypto 360
The Ethereum team have made a significant update about the next big thing on the blockchain—the Ethereum Dencun upgrade.
Key Takeaways
• Ethereum completed the Dencun upgrade on the mainnet on the 13th of March.
• It is one of the solutions as part of Ethereum’s “Surge” phase, which aims to advance scalability.
• This upgrade incorporates Proto-Danksharding with EIP-4844, which is crucial in the case of Dencun. This new feature is expected to reduce the cost per transaction and increase throughput beyond what Ethereum can handle now.
• The new concept is “blobs” for efficient short-term data storage, which will result in more efficient Layer 2 solutions.
• Kiln has been involved in the upgrade's testing and development, especially in the Sepolia and Holesky testnets. At the moment, this upgrade does not require any action from Kiln’s customers.
The ETH Dencun upgrade significantly boosts Ethereum’s journey to achieving scalability, resulting in significant development from the already extensive planning and execution process. This upgrade is vital in Ethereum’s commitment to improving user experience by addressing two main issues: scalability and transaction costs, which are closely associated with the system’s operations. The Dencun upgrade is part of the Surge phase, and it contributes to Ethereum’s potential to expand and reach a throughput of more than 100,000 transactions per second.
Dencun stands for Cancun and Deneb, and two upgrades are scheduled to occur simultaneously. While the Cancun upgrade will take place on the execution layer, the Deneb upgrade will take place on the consensus layer. For beginners, the execution layer is where smart contracts and network rules lie, and the consensus layer is where blocks are generated.
The ETH Dencun upgrade will introduce EIPs 4844, 4788, 6780, 6475, 5656, and 1153.
• EIP 4844, or proto-danksharding, allows L-2 rollups to add data to blocks on the L-1 economically and provides more space for blobs of data to be attached to blocks.
• EIP 4788: Exposes the parent beacon block root in the execution layer to enhance the designs of cross-chain bridges and stake pools.
• EIP 6780: Limits the use of the self-destruct keyword to prevent the erasure of the smart contract code and the transfer of funds to the deployer.
• EIP 6475: Proposes a new Simple Serialize (SSZ) type for better readability and compact serialisation.
• EIP 5656: Provides memory copying instructions to create more adequate data structures.
• EIP 1153: Introduces transient storage, allowing storage to be used only for the duration of a transaction.
Dencun is part of a series of upgrades along Ethereum’s roadmap from Merge to Surge. It is the first major upgrade on the Ethereum network since the Shapella upgrade was implemented in April 2023. It was initially scheduled for the last quarter of 2023 but had to be rescheduled due to complex developmental aspects.
The Dencun upgrade took place on the Ethereum blockchain in March and is expected to significantly reduce the fees of Layer-2 networks for its users. This change allowed Ethereum to become a helpful data store for other chains, a significant milestone in Ethereum’s rollup-centric development. Fidelity Digital Assets stated in its report that this transition to a database could mean that the layer-2 users could have almost no transaction fees, which could attract more users.
This upgrade aims to increase the number of users Ethereum’s layer-2 blockchains can accommodate to millions, making it an ideal backend database for other blockchains. The expected result is that there will be a substantial increase in the number of people using the Ethereum ecosystem, thus increasing the overall adoption of the industry. This means that it will be cheaper for layer-2 blockchains to store data on the main Ethereum blockchain, and these cost savings will probably be transferred to the users in the form of lower fees. Nonetheless, it is worth noting that these upgrades will not directly reduce costs for those who engage in business on the Ethereum layer directly.
Shortly, anyone wishing to take advantage of lower fees will have to roll their transactions to layer-2 networks at the cost of having less decentralisation and security. This is expected to make more and more people transfer their assets from one platform to another. However, direct interaction with Ethereum is the most efficient approach for particular use cases in the medium term, while L2 solutions are still evolving.
The Dencun upgrade date is March 13, and it aims to improve the Ethereum network in the following ways:
• Enhanced Scalability: Proto-danksharding will improve Ethereum's transaction output, enhancing the network's scalability. The upgrade is expected to reduce network traffic congestion significantly.
• Reduced Gas Fees: The Ethereum network is well-known for its high gas fees, which ward off many potential onboarders. The latest upgrade is expected to reduce gas fees, which has huge implications for DeFi, GameFi, and other decentralised sectors.
• Secure Network: The ETH Dencun upgrade will fix a number of bugs on the network, which could make the Ethereum network more secure and more resistant to cyberattacks.
This was done during Ethereum’s consensus layer call 127, in which all the core developers participated in making the decision. This update also brings in a significant feature called the “proto-dank sharding” that targets to minimise the cost of transactions on the secondary “layer-2” networks.
This feature is designed to address the configuration of data storage, which reduces the cost of transactions within Ethereum’s layer-2 scaling solution. After making this decision, the upgrade was smoothly integrated into the Holesky testnet, and the integration presented no major technical issues.
The highly awaited Dencun upgrade, also known as the ‘hard fork,’ will take place when the blockchain reaches slot 8626176. This event was slated for March 13 and was validated by developers via the software development platform GitHub. In the core of the Dencun upgrade, a new transaction class called the “proto-dank sharding” will be introduced.
This feature aims to reduce roll-up transaction costs by adding a new form of data storage called “blobs.” Ethereum’s strategy is to improve the transaction process and decrease costs, making it one of the favourite blockchains.
Data availability is a clear winner of this upgrade. Dencun purposely increases data affordability and accessibility. It is especially useful for projects requiring frequent access to Ethereum data, such as Celestia, Avail, and EigenDA. To make the integration of Dencun smooth on the mainnet, the developers performed three tests on the Holesky testnet. These tests helped identify and correct any problems that could have affected the upgrade’s performance on the primary Ethereum network.
Proto-dank sharding is the first step in the so-called “dank sharding,” a larger project to help scale Ethereum.
The Dencun upgrade introduces several changes and new features to the Ethereum network, which are meant to make it faster and more user-friendly. Below, we will list some of them.
The Dencun upgrade is particularly beneficial for improving Ethereum's scalability. It does this by advancing how transactions work on the Ethereum Virtual Machine (EVM), changes that will enhance transaction efficiency.
Security is a significant concern for any blockchain network. The Dencun upgrade improves security by enhancing Ethereum's consensus and network layer of Ethereum. These changes help ensure the network is not vulnerable to specific security threats, making it more secure.
The upgrade also solves the issue of blockchain technology's environmental friendliness. It encompasses actions intended to decrease the network’s dependence on the energy-consuming PoW system and transition to the less energy-intensive PoS system.
The Dencun upgrade also impacts developers' tools and interactions with Ethereum. It also improves the developer tools, helping developers build and deploy their applications on Ethereum. Usability improvements are to ensure that Ethereum-based applications are easy to use and can be easily understood by more people.
When the announcement about the upgrade was made, ETH was already rallying north of $2,200. It seems that the news only pushed its price upward.
ETH is trading at $2,260.7 at the time of writing.
Source: ETH/USD trading chart, by TradingView
The Dencun upgrade is expected to reduce gas fees and create additional space on the Ethereum network. This development could significantly enhance the network's scalability among L-2s.
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The news is likely to instil more trust within the Ethereum community. The upgrade will benefit l-2 rollups such as Arbitrum, Base, and Polygon zkEVM. Moreover, it could invite more users and projects to adopt the upgraded Ethereum network.
However, observers should refrain from overestimating the significance of the Dencun upgrade. Though it is also a significant upgrade, it shouldn't be compared to the Merge at all. The latter transformed the Ethereum network from a proof-of-work blockchain into a proof-of-stake blockchain.
The Merge was the network's biggest and most crucial upgrade so far. Dencum, though significant, is only one of the several upgrades along the network’s roadmap to be able to execute 100,000 transactions per second (TPS). Therefore, we shouldn't expect too much of the Dencun upgrade. However, it doesn't mean it’s inconsequential, even if its impact would not be monumental.
Market analysts believe that the Dencun Upgrade, in tandem with the potential approval of spot ETH exchange-traded fund (ETF) applications, could drive ETH’s price up significantly. Additionally, it could lead to a price rally across L-2 tokens as they will gain significant traction following the upgrade.
The Dencun upgrade will help lower gas charges on Ethereum and will positively impact layer-2 solutions. However, it will not directly affect those transacting directly on the Ethereum mainnet. This upgrade is the starting point of the surge phase of Ethereum’s development, whereby the network aims to process 100Ktps. Like the earlier updates, the Dencun upgrade is another measure towards attaining Ethereum's scalable performance.
In the next phase, called the Surge, Ethereum intends to release Scourge to manage the concentration issues, and then the Verge to reduce the complexity of the transaction and block-checking mechanisms. The next stage will be the Purge, which involves the elimination of unnecessary code that is not strictly required for the program’s operation; the last stage is The Splurge, which is expected to resemble the old saying “the rest is fixed”.
This is a well-coordinated plan of several upgrades that will help to develop Ethereum and improve its efficiency, thus keeping it in a strong position in the blockchain technologies market.
BitDelta traders are recommended to educate themselves about the impact of the Dencun upgrade on the Ethereum network. Such developments often lead to significant price movements of a cryptocurrency. Traders should follow trusted resources such as BitDelta Academy to be acquainted with the latest market trends.
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The Dencun upgrade, or the “hard fork,” was implemented when the Ethereum blockchain achieved slot 8626176. The upgrade happened on March 13.
The Dencun upgrade for Ethereum aims to enhance the scalability of the layer two networks while lowering transaction costs through features such as proto-dank sharding and so-called blobs for efficient data storage.
The Ethereum upgrade in 2024 is known as the Dencun upgrade, which involves parallel modifications in the execution layer (Cancun) and the consensus layer (Deneb) to improve efficiency.
No, Dencun will not raise the price of Ethereum. However, it is crucial to understand that the price movement of Ethereum depends on numerous factors, including market conditions and market sentiment, as a result of the Dencun upgrade, which is expected to bring down gas fees and increase the network’s capacity.
Dencun upgrade implements some EIPs, such as EIP-4844 (proto-dank sharding), to strengthen the data storage mechanisms and minimise transaction costs, enhancing the network's throughput and capacity.
The Dencun upgrade for Layer 2 is mainly based on proto-dank sharding (EIP-4844) to enable Layer 2 rollups to add data to Ethereum blocks at a cheaper rate, thus reducing the e cost of transactions and increasing the number of transactions per second.
Although the Dencun upgrade can impact the Ethereum price by increasing scalability and decreasing transaction fees, the specific price increase is hard to determine since the market is relatively unstable and depends on many factors.
The upgrade in Dencun is believed to increase Ethereum's scalability, lower gas fees, improve security, and make Layer 2 solutions more effective, thus making them more attractive and possibly increasing adoption.
This article is for informational purposes only and not intended as investment or financial advice. It contains opinions and speculations that are subject to change without notice.
The author and publisher disclaim any liability for decisions made based on the content of this article. Readers are advised to conduct their own research and consult a financial advisor before making investment decisions.
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