With only hours to go, the Dencun upgrade is scheduled to be implemented on Ethereum today. But what is the Dencun Upgrade? We get into the details.

After The Merge, the Shanghai upgrade, and the Shapella upgrade, the Ethereum network will be undertaking another key upgrade in approximately 12 hours. The Dencun upgrade, a combination of the word Deneb-Cancun, reflects the undertaking of two major implementations to Ethereum’s consensus and execution layers, and seeks to boost the scalability, efficiency, and security of the Ethereum network.

Here’s why the Dencun upgrade is a highly anticipated milestone for the Web3 community.

What Is The Dencun Upgrade About?

The Dencun Upgrade introduces nine different Ethereum Improvement Proposals (EIPs) that seek to enhance the Ethereum ecosystem further. These include EIP-1153, which proposes the integration of transient storage opcodes; EIP-4788, which incorporates the Beacon block root into the Ethereum Virtual Machine (EVM); and EIP-5656, which adds memory copying instructions

Yet the most significant is arguably EIP-4844, which introduces Shard Blob Transactions. Referred to as proto-danksharding, this proposal seeks to optimise gas fees for Layer-2 network that taps into the Ethereum blockchain and enables greater transaction volumes.

What Is Proto-Danksharding

Proto-Danksharding is Ethereum’s prototype attempt at ‘sharding’, a technique designed to fragment the blockchain into smaller, manageable shards of data to increase transaction throughput while reducing costs.

Specifically, it targets the data invoked by the CALLDATA opcode when initiating transactions. The information, although needed only temporarily, is also recorded on-chain which makes the transaction more expensive.

By implementing EIP-4844 during the Dencun Upgrade, it introduces Shard Blob Transactions which attaches temporary data ‘blobs’ to blocks. These shards of information are inaccessible to the Ethereum Virtual Machine (EVM) and are automatically purged after a predetermined period. This in turn means that the temporary data is not stored, which reduces transaction fees on the blockchain.

What Does The Dencun Upgrade Mean For Layer-2 Networks

As the largest and fastest growing blockchain network, Ethereum handles a staggering 1 to 1.5 million transactions on average. This throughput also comes with its own issues of high network fees and congestion on the Layer-1 blockchain.

To mitigate these challenges, Layer-2 rollups have emerged as a solution to reduce costs and accelerate transaction speeds by consolidating multiple transactions into a single bundle. With Ethereum’s continual expansion, Layer-2 networks will continue to grow in popularity as an essential mechanism for alleviating network congestion and enhancing scalability.

Currently, the Arbitrum network and Optimism network are the two main contenders in terms of Layer-2 solutions. Both networks utilise zero-knowledge rollups and optimistic rollups solution respectively.

A Fidelity report concludes that the Dencun upgrade will ‘lower fee revenue and burn from L2s in the medium term’, potentially bringing more users into the network while lowering ‘short-term revenues in hopes of expanding Ethereum’s total addressable market.’

As more decentralised applications (dApps) build on Layer-2 networks, the Dencun Upgrade will prove to be a boon for them with lower transaction costs and a better user experience for their user base.

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