Dencun, a combination of two separate upgrades named Deneb and Cancun, addresses both Ethereum’s consensus and execution layers in a single comprehensive upgrade.

This technical hard fork in blockchain terminology commenced at Ethereum epoch 269,568 at 1:55 pm UTC and concluded at 2:10 pm. Its primary aim is to significantly reduce the transaction fees of layer-2 solutions and enhance Ethereum's scalability.

The Deneb upgrade targets augmenting the consensus layer, which governs how network participants reach agreements on the blockchain's state. On the other hand, Cancun focuses on refining transaction management and processing on the execution layer. This upgrade arrives nearly a year after the Shanghai upgrade in April 2023, which allowed Ether (ETH) holders to unstake previously locked ETH.

The Ethereum Cancun-Deneb (Dencun) upgrade timeline

Rising gas fees on Ethereum necessitated action from developers to address the issue. Despite layer-2 solutions offering scalability to Ethereum by processing transactions off the main chain, gas prices on L2 solutions remained a barrier to widespread adoption.

Dencun introduces proto-danksharding, benefiting L2 networks such as Polygon, Arbitrum, and Optimism. Proto-danksharding, a central feature of Dencun, focuses on significantly reducing transaction costs for layer-2 transactions, paving the way for substantial scalability improvements on Ethereum. It's essential to note that shard chains are no longer part of the Ethereum roadmap.

Proto-danksharding, as a precursor to full danksharding, enables layer-2 solutions on Ethereum to store substantial transaction data off-chain, effectively lowering fees for users on L2 solutions while keeping the main Ethereum network clear for essential transactions.

What is EIP-4844 (proto-danksharding) A significant aspect of the upgrade is the introduction of data blobs via Ethereum improvement proposal (EIP)-4844. Data blobs represent a novel solution intended to enhance the effectiveness of L2 transaction data storage. Currently, L2 solutions rely on transaction calldata, which this upgrade replaces with blob data. Calldata stores limited transaction data on-chain, burdening validators significantly.

Proto-danksharding revolutionizes the existing on-chain data storage system, introducing a much more efficient data management mechanism. By utilizing data blobs specifically designed to manage large volumes of data off the Ethereum blockchain, rollups benefit from more scalable data storage.

This new rollup transaction storage method is expected to reduce the data overhead on Ethereum nodes, alleviating network congestion and optimizing network size for better performance. Moreover, lower gas prices will enhance the usability and effectiveness of L2 applications. Additionally, as blobs are pruned after about two weeks, Ethereum validator nodes can optimize disk space usage.

Proto-danksharding vs. danksharding

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

Significance of the Ethereum Dencun upgrade Despite a dip in Ether’s price following the upgrade, Dencun is considered a significant advancement in addressing Ethereum’s scalability challenges.

Dencun opens the door to a more affordable and accessible Ethereum ecosystem for several reasons:

Reduced fees on layer-2 solutions Dencun introduces a technique for scaling layer-2 solutions based on Ethereum, reducing transaction fees significantly. These layer-2 networks bundle transactions to reduce costs before sending them to the main Ethereum blockchain. The primary feature of Dencun, proto-danksharding, proposed via EIP-4844, reduces layer-2 costs by allowing specific transaction data to remain off-chain.

Stepping stone to danksharding Although not implementing sharding itself, Dencun’s proto-danksharding introduces essential concepts necessary for full danksharding. It introduces "blob transactions" with off-chain storage to handle substantial data and reduce fees. Moreover, cryptographic schemes enable efficient verification of this off-chain data.

Additionally, Dencun implements fee-reduction algorithms for layer-2 solutions, essential for future fee management within shards. Lastly, it lays the groundwork for a future where transaction data and processing are separated, a core principle of sharded systems.

Danksharding architecture

Potential for competitive edge and increased adoption Lower transaction fees make layer-2 solutions on Ethereum more attractive to users, potentially leading to broader adoption of Ethereum for various applications like non-fungible tokens (NFTs) and decentralized finance (DeFi). Reduced fees on layer-2 solutions demonstrate Ethereum's evolution and help it remain competitive with other blockchains.

Enhanced developer experience Dencun streamlines consensus processes and transaction handling, simplifying the development experience for DApp creators on Ethereum. A smoother development process may encourage more innovative projects on the Ethereum network.

Improved security via EIP-4788 and EIP-6780 Although not the primary focus, Dencun includes several upgrades to enhance Ethereum’s security posture. EIP-4788 establishes a communication link between Ethereum's consensus layer, where validators safeguard the network, and the execution layer, where transactions are processed. This robust communication between layers may make it more challenging for attackers to exploit vulnerabilities.

EIP-6780 changes how smart contracts’ “SELFDESTRUCT” function operates, making it more difficult for attackers to abuse this feature. This modification may enhance the general security of Ethereum smart contracts.

How the Ethereum Dencun upgrade benefits users and developers Dencun represents a significant step forward for the Ethereum ecosystem, benefiting both users and developers.

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

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

Dencun simplifies transaction handling and consensus mechanisms for developers, resulting in a smoother development experience, facilitating easier and faster creation and deployment of DApps on Ethereum. This enhanced developer experience unlocks a wave of innovative projects, enriching the Ethereum ecosystem.

In addition to its immediate advantages, Dencun lays the groundwork for further developments by introducing critical concepts needed for full Danksharding, the ideal solution for Ethereum's scalability issues.

Sharding splits the Ethereum blockchain into smaller partitions, enabling parallel processing of transactions and significantly increasing throughput. Dencun brings Ethereum closer to becoming a truly scalable and user-friendly platform, poised for broader adoption and a more vibrant future.