What Is the Ethereum Dencun Upgrade? EIP-4844 Set To Lower Layer-2 Fees
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What Is the Ethereum Dencun Upgrade? EIP-4844 Set To Lower Layer-2 Fees

Created 2yr ago, last updated 2mo ago

Learn about the Dencun (Deneb-Cancun) upgrade for Ethereum, set for March 13, which targets scalability on layer-2 rollups.

What Is the Ethereum Dencun Upgrade? EIP-4844 Set To Lower Layer-2 Fees

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With the Shanghai-Capella (Shapella) upgrade behind us and Ethereum validator withdrawals functioning smoothly as expected, what’s the next big upgrade for Ethereum?

Well, it’s already underway. Ethereum devs have been hard at work since the completion of Shapella to begin working on the next big upgrade: Dencun (Deneb-Cancun).

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What Is the Ethereum Dencun Upgrade?

Deneb refers to the upgrade for the consensus layer, while Cancun refers to the upgrade for the execution layer, hence giving rise to the combined name: Dencun.
As laid out by Ethereum co-founder Vitalik Buterin, Ethereum has chosen to scale its network through the use of rollups, which brings the execution layer to a layer-2 blockchain. After a user sends a transaction on an optimistic layer-2 network, the following happens:

1. Transaction is processed by the sequencer and added to a L2 batch

2. L2 sequencer sends the batch to Ethereum mainnet as calldata

3. Seven days waiting period allows nodes to submit fraud proofs

4. Transaction is submitted and finalized

For the Dencun upgrade, the key focus is EIP-4844, more commonly referred to as Proto-Danksharding. This will mainly affect step 2, where instead of batching L2 transaction and posting it on Ethereum as calldata, it will be posted as blobs.

Blobs are more cost-efficient than calldata as the gas costs are lower, and they are only temporarily stored on Ethereum until the waiting period is over.

Source: Fidelity Research

Layer-2 fees account for roughly 10% of Ethereum fees when they post transactions on mainnet. However, the upgrade is set to drastically reduce the gas costs that L2s incur, which will then be passed on to users on these layer-2 networks. However, this upgrade will not reduce the fees of transacting on mainnet, which could cost upwards of $80 for a swap, according to Etherscan.
Proto-Danksharding is a key element in building Ethereum’s long-term rollup-centric roadmap and is expected to improve data availability for rollups and result in significant reductions in gas fees on Ethereum Layer-2 rollups.

What Is EIP-4844 and Proto-Danksharding?

Derived from the names of the two researchers who proposed the concept, Protolambda and Dankrad Feist, Proto-Danksharding is a method to significantly reduce the cost incurred by rollups in adding data from rollup transactions to L1 Ethereum.

Source: l2fees.info

At the moment, rollups are able to reduce the cost of transactions by batching thousands of transactions into a single transaction, and posting the data to L1 Ethereum as Calldata. However, since the transaction is posted to Ethereum, where it is processed by Ethereum’s nodes and stored forever on-chain, this still makes the single transaction expensive, which places a floor on how low transaction fees can get on rollups.

When Will the Dencun Upgrade Go Live?

The Dencun upgrade is expected to be completed on March 13, 2024. This is the next major upgrade for the network following the Shapella upgrade that went live on April 12, 2023.

How Does Proto-Danksharding Work?

Proto-Danksharding aims to fix this through the introduction of blob-carrying transactions, which are regular transactions but with an additional binary large object or “blob” attached to them.

Blobs still carry the data to the L1, but instead of posting the data to the L1 chain where it lives on forever, blob data is sent to the nodes on the consensus layer. In the beginning implementation of EIP-4844, each transaction will be designed to carry up to four data blobs, of which each can hold 128 KB of data.

At the consensus node level, these nodes then attest that they have received the data and that data has been made available across the network. These data blobs are then automatically deleted after one to three months. These node attestations show that the provers, which verify the legitimacy of transactions from the L2 chain, have had sufficient opportunity to verify the data. Rollup providers themselves can also store full transaction data off-chain separately if they wish to do so.

Therefore, since blob data is only stored temporarily, this significantly reduces the cost of data from rollups to L1 Ethereum, which then allows the rollups to pass on these cost savings to rollup users. While the exact cost saving is still unknown at the moment, Proto-Danksharding is expected to reduce fees on L2s by at least 10x. Additionally, the regular removal of blob data reduces bloat on nodes which keeps the hardware requirements for running a node at an acceptable level.

Beyond introducing blob-carrying transactions, EIP-4844 also implements a multi-dimensional fee market on Ethereum, based on EIP-1559. In simple terms, this means that blob-carrying transactions do not compete for blockspace with other transactions. This also means that pricing for sending blob-carrying transactions to L1 Ethereum will not be unnecessarily skewed due to gas fluctuations. This further reduces the fees required to push rollup data to L1 Ethereum, hence, lowering fees again for rollup users.

While all of these implementations already sound great by themselves, Proto-Danksharding is, in fact, only a transitional phase for Ethereum as it builds the foundation for the final form of Ethereum rollup scaling: Danksharding.

What Is Danksharding?

The concept of sharding originates from databases, where databases are split into shards in order to spread the load on the database, as information in each shard will require less effort to query through.
Similarly, this concept has also been applied to blockchains, where the blockchain is broken into independent shards, containing only a portion of the past transaction data on the chain, which also means that nodes only have to verify a subset of transactions occurring on the chain.
While Ethereum originally had plans to go down this route with Shard Chains, the Ethereum Foundation has chosen to adopt a different direction instead, in a process known as Danksharding, which does not shard the blockchain in the traditional sense.

Source: Vitalik’s Blog (link), originally QuantStamp

Expanding on the earlier Proto-Danksharding concept, Ethereum intends to significantly increase the amount of data carried on blob-carrying transactions from 0.5 MB per transaction to 30 MB. That’s a huge jump of 60x. However, nodes cannot be expected to store 60x more data as that would increase hardware requirements tremendously, which would threaten decentralization of the chain.
To solve this problem, Ethereum instead shards the data via a process known as data availability sampling (DAS). DAS refers to a process by which nodes can sample a fixed number of portions from a block and be reasonably certain of data availability if the sampled portions can be found.

This requires block data to be erasure-coded, which processes the data and enables the entire block to be reconstructed through only using an arbitrary subset, say 50%, of the block.

This makes it easier to verify data availability without having to download the entire block. This means that even if the data is intentionally hidden by a bad actor, this can be easily discovered once the entire block is reconstructed using the samples from the block.

Source: Vitalik’s Blog (link)

Since the block data can now be reconstructed without storing the entire block data, the erasure-coded block will be broken up into overlapping fragments and the data distributed across all validators, where the data is verified by the validators.

If there is an event where the block needs to be fully reconstructed, the interested party will have to interact with the entire validator set to obtain the necessary pieces to do so. As long as the required threshold of data is received, the entire block can be successfully recreated even if some of the validators choose not to cooperate.

Effectively, Danksharding allows data to be sharded and stored in a much more efficient manner, hence, allowing Ethereum to scale with hundreds of rollups without compromising on data availability. That said, in official communications from the Ethereum Foundation, Danksharding is still years away, after EIP-4844 in the Cancun upgrade is completed.

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