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Ethereum’s Dencun Upgrade: A Bot-Infested Nightmare?

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Ethereum has made significant progress in becoming a more efficient data availability [DA] layer for roll-up, thanks to advancements like Dencun and EIP 4844. However, this transition brings its tradeoffs. As per Galaxy expert, Christine Kim, this shift comes at a cost to protocol revenue and has not entirely solved the issue of high DA costs for rollups.

These tradeoffs include a reduction in ETH’s share of rollup revenue. The report highlighted that total revenue earned is 69% below that of the average 150-day rolling sum before the upgrade; ETH burned is 84% below that of the average 150-day rolling sum before the upgrade. Secondly, the continued high costs for rollups using Ethereum’s data availability layer have become a nagging issue.

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Ethereum's Dencun Upgrade: A Bot-Infested Nightmare? 2

Before these changes, Ethereum captured a substantial portion of the value generated by rollups, reaching up to 77%. With the implementation of EIP-4844, this share has dropped significantly to 8% for optimistic rollups and 33% for ZK rollups. While this represents a notable improvement, Ethereum’s DA layer remains relatively expensive. Nevertheless, rollups face substantial costs, with average prices of $16,473 per gigabyte of blob data used and $12,458 per gigabyte purchased. These high costs are primarily driven by periods of increased demand, leading to surges in blob prices.

Ethereum Transaction Failure’s Main Culprit

Although activity on the leading L2s picked up immediately post-Dencun, the rise in transaction counts has been met with rising failure rates. The majority of the failed transactions arise from high-activity addresses, likely bots. Bots activity is further driven by low fees on L2s. “Average users who are not sending high volumes of transactions are experiencing failed transaction rates at a level only slightly more elevated than pre-Dencun levels,” per the report.

To further enhance Ethereum’s efficiency as a DA layer for rollups, the research analyst recommended that ETH undergo additional upgrades. This could involve exploring alternative consensus mechanisms, optimizing data storage and retrieval processes, or developing new economic models to incentivize efficient DA provision. By addressing these challenges, Ethereum can solidify its position as a cost-effective and scalable platform for rollups, fostering innovation and growth within the broader Web3 ecosystem.

Ethereum Upgrade: 100x Cheaper, But At What Cost?

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Ethereum’s most anticipated upgrade went live on the mainnet, introducing “blobs” and slashing Layer 2 gas fees by 10-100x. For example, zkSync fees dropped from $0.81 to $0.08, marking a 10x decrease. Starknet’s official Twitter account also showed a significant drop in the gas fee to about $0.01-0.04 from roughly $2 [a 99% decrease] after synchronizing the Dencun upgrade.

The estimated gas costs associated with a DEX swap, as highlighted in the screenshot from IntoTheBlock statistics, are: the gas fee for Aribitrum is estimated to be reduced from $2.02 to $0.4, Optimism from $1.42 to $0.28, and Base from $0.58 to $0.01.

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Ethereum Upgrade: 100x Cheaper, But At What Cost? 5

Regarding the impact of the Dencun upgrade on layer 1 fees directly reducing congestion on the main chain, the decrease in layer 1 fees is indirect. As of now, it primarily affects Layer 2. The implementation of Danksharding is anticipated to address layer 1 fees, but its execution will require some time.

Ethereum: Maturing Beyond Adolescence

Amidst these developments, L2s have secured more users in the Ethereum ecosystem compared to the mainnet. As seen in the graph below, the ETH mainnet remained flat for daily users over 2023, but daily users have grown consistently on Layer 2s such as zkSync, Arbitrum, Optimism, and Coinbase’s BASE.

Additionally, the Ethereum Layer 2 network has attracted more liquidity than its Layer 1 competitors. For instance, Arbitrum singlehandedly toppled most Layer 1s, including Solana, Avalanche, and Polygon, in TVL for $3 billion on February 20, 2024. “We believe that continued ETH Layer 2 traction could be a tailwind,” as per Grayscale’s analysis.

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Ethereum Upgrade: 100x Cheaper, But At What Cost? 6

However, every major Ethereum Layer-2 rollup runs a centralized sequencer at the moment. Relying on a centralized sequencer for processing and batching transactions might expose the chain to vulnerable scenarios such as outage risk as well as other potentially extractive actions such as MEV. Still, most Layer 2s have outlined plans to decentralize this over time, which Vitalik Buterin calls decentralization “stages.” This includes establishing a “distributed committee” of sequencers to mitigate the risk of value extraction.

Ethereum stands at a pivotal juncture, poised to move out of its adolescence and into its mature phase. The upgrade, alongside the broader Eth 2.0 initiative, marks a significant milestone in Ethereum’s journey towards becoming a more scalable, efficient, and user-friendly platform.

Ethereum Name Service Explores L2 Amid Mainnet Buzz

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Ethereum’s Dencun hard fork has successfully deployed on the Holesky at epoch 29696 [February 7th, 11:35 UTC], clearing the way for its mainnet launch. Numerous prospective projects are causing quite a stir in the community. Among the most noteworthy of these is Ethereum Name Service, whose executive director, Khori Whittaker, revealed intentions to investigate developing a protocol on the Ethereum L2 network and might introduce a dedicated L2.

Whittaker disclosed that the key topics of discussion within the team revolve around optimism development and the application of zero-knowledge proofs to safeguard user information; however, specifics remain unknown at press time. An official statement is currently awaited.

A few days prior, Ethereum Name Service joined hands with GoDaddy to integrate the ENS ecosystem with mainstream domain registration services, bringing the capabilities of Web3 to GoDaddy’s extensive user base. Both of the participating partners have released a dedicated section within their domain management interface to enable a seamless experience for their customers.

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Source: ens.eth

As reported by TronWeekly, users can leverage this innovative feature to simply link an Ethereum address with their domain names and get access to numerous applications across the Web3 landscape. The entire process is designed to be user-friendly, without the hassle of additional expenses or technical knowledge.

Meanwhile, the Dencun upgrade is known to introduce the highly awaited “proto-danksharding,” which introduces ephemeral data blobs. This innovative approach is expected to substantially reduce transaction fees on layer-2 rollup networks like Arbitrum, Base, and Polygon zkEVM.

Ethereum Dencun’s Game-Changing Upgrades in Focus

Moreover, Dencun is poised to introduce several significant enhancements, one of which is EIP-1153. This improvement introduces a “transient storage” system aimed at further reducing fees. Another noteworthy development is EIP-4788, designed to enhance transparency by storing the root of each beacon chain block in a smart contract, particularly benefiting bridges and staking pools.

Additionally, the integration of EIP-6780 aims to restrict the use of the self-destruct keyword. After the upgrade, this mechanism ensures that the keyword will not erase the code unless invoked within the same transaction as deployment. Consequently, all funds will be transferred to the deployer, even if invoked in a subsequent transaction.

Ethereum developers are slated to convene on February 8 for a meeting to finalize the mainnet deployment date in Dencun. Despite this, ETH bull Anthony Sassano indicated on February 7 that “all signs point to early-mid March.”

Ethereum First Blobs Land On Sepolia: Details

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Ethereum’s much-anticipated Dencun hard fork marked a significant milestone with its formal release on the Sepolia test network at 22:51 UTC on January 30. The final phase awaits on the Holesky testnet, scheduled for epoch 29696 on February 7th at 11:35 UTC. The imminent success of Holesky will pave the way for Dencun to transition to the Ethereum mainnet.

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Image Source: sepolia.blobscan.com

At the core of this upgrade is the realization of the anticipated “proto-danksharding” feature designed to enhance scalability and reduce gas fees. This is achieved through the introduction of a novel, compressed data storage mechanism termed “blobs.”

Sepolia upgraded to Deneb So far, it looks good!

The launch proceeded seamlessly, earning commendations from developers. Tim Beiko, a Core developer, expressed satisfaction, stating, “Everything looks smooth so far.” Ethereum engineer Terence playfully apologized for the lack of drama during the upgrade, emphasizing the sentiment that uneventful testnet forks are the most successful ones. Prominent DevOps engineer Parithosh Jayanthi, associated with the Ethereum Foundation, echoed this sentiment in a post on X.

Earlier this month, Ethereum core developers attempted the upgrade on the Goerli testnet, but it encountered challenges and failed to conclude within the allotted time frame. Despite being released on Goerli on January 17 at 6:32 UTC, Dencun appeared to have split, prompting the team to wait and properly assess the situation. Terence had anticipated potential difficulties, emphasizing the need for careful analysis before deeming the Goerli hard fork a failure or anticipating delays in the Dencun update.

Ethereum Dencun Update Sparks 9% Price Rally

In anticipation of the Dencun update, the price of the second-largest crypto surged by over 9% in less than a week. As of the latest data, ETH is trading at $2,331, reflecting a marginal rise over the previous day.

The Dencun mainnet upgrade is projected to conclude by the end of the first quarter, marking the most substantial enhancement since the Shapella update in March 2023. Initially slated for the last quarter of 2023, the Dencun hard fork was rescheduled to 2024 due to its intricate nature and the necessity for thorough testing.

Ethereum’s Dencun Countdown: Just 2 Testnets Away

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Ethereum’s Dencun upgrade has successfully debuted on the testnet Goerli, marking the first of three significant steps before its imminent launch on the ETH mainnet. Following in the footsteps of last year’s Shapella upgrade, Dencun is poised to revolutionize the Ethereum ecosystem with its ambitious enhancements.

Scheduled for deployment on Sepolia at epoch 132608 [January 30th, 22:51 UTC] and on Holesky at epoch 29696 [February 7th, 11:35 UTC], Dencun is on track to hit the Ethereum mainnet once these crucial milestones are successfully navigated.

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This hard fork represents the most significant upgrade since the Shapella update in March 2023. Initially slated for the last quarter of 2023, the Dencun upgrade was rescheduled to 2024 due to its intricate nature and the need for meticulous testing.

Dencun went live on Goerli at 6:32 UTC on January 17, 2024, introducing several transformative changes. Notably, the upgrade incorporates Ethereum Improvement Proposal [EIP] 4844, known as “proto-danksharding,” which introduces ephemeral data blobs. This innovative approach is expected to substantially reduce transaction fees on layer-2 rollup networks like Arbitrum, Base, and Polygon zkEVM.

Ethereum’s Consensus & Execution Layers Get a Major Overhaul

The Dencun upgrade encompasses pivotal changes to both Ethereum’s consensus and execution layers. Key improvements include EIP-1153, introducing a “transient storage” system to further decrease fees, and EIP-4788, enhancing transparency by storing the root of each Beacon Chain block in a smart contract, catering to bridges and staking pools.

Notably, EIP-6780 is incorporated to limit the use of the self-destruct keyword, ensuring that post-upgrade, the keyword will not erase the code unless called within the same transaction as deployment. This mechanism ensures the transfer of all funds to the deployer, even if invoked in a future transaction.

As the Ethereum community eagerly anticipates the upcoming upgrades on Sepolia and Holesky, the success of Dencun on testnets sets a promising precedent for ETH’s continued evolution and the potential reduction of transaction fees on layer 2 networks. The cryptocurrency world watches with bated breath as Ethereum takes another leap forward in its quest for scalability and efficiency.

Ethereum’s Merge & Shanghai Upgrade: A Mixed Bag in JP Morgan’s Lens

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Ethereum’s ambitious endeavors, the Merge and the Shanghai upgrade, designed to revolutionize ETH Tokenomics, have fallen short of their lofty expectations. In September 2022, Ethereum, the world’s second-largest blockchain, underwent a momentous transformation, transitioning from proof-of-work [PoW] to proof-of-stake [PoS]. This epoch-making move significantly slashed the network’s energy consumption by an astonishing 99%.

The subsequent Shanghai upgrade, introduced on April 12, 2023, facilitated the withdrawal of staked ether [stETH]. Shortly after its release, the blockchain experienced a surge, with 80% of inflows attributed to various institutional-grade ether staking service providers, marking a threefold increase. However, despite the commendable strides in energy efficiency, the overall activity on the network has left much to be desired, as observed by JPMorgan analysts under the leadership of Nikolaos Panigirtzoglou.

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Ethereum's Merge & Shanghai Upgrade: A Mixed Bag in JP Morgan's Lens 12

Drawing attention to Ethereum’s daily transaction count, JPMorgan’s report reveals a 12% decline since the implementation of the upgrade. Furthermore, daily active addresses have dwindled by nearly 20%, and the total value locked [TVL] in decentralized finance [DeFi] on the Ethereum blockchain has suffered a nearly 8% slump.

While the report attributes ETH’s performance to last year’s “bearish forces,” including notable setbacks like Terra and FTX, regulatory actions within the United States, and a contraction within the stablecoin ecosystem, it appears that these challenges have overshadowed the positive impact of the Shanghai upgrade.

Despite the 50% increase in staking following the hard fork, contributing to bolstered network security, concerns linger regarding the continued dominance of liquid staking protocols such as Lido, which raises doubts about centralization.

Ethereum Dencun Upgrade, The Road Forward

The report holds out hope for a potential uptick in Ethereum network activity with the impending EIP-4844 upgrade, colloquially known as “proto-danksharding.” This groundbreaking feature aims to scale the blockchain by creating additional space for “blobs.” However, it cautiously acknowledges that the persisting bearish trends in the cryptocurrency market could continue to pose challenges.

In a noteworthy development for the Ethereum network, developers have recently reached a consensus regarding the comprehensive scope of an upcoming upgrade dubbed “Dencun.” Expected to be introduced later this year, this hard fork will integrate five Ethereum Improvement Proposals [EIPs] designed to enhance data storage capabilities and reduce transaction fees, potentially ushering in a new era for Ethereum’s functionality and performance.

Ethereum Dev Finalize “Dencun” Upgrade, Set to Enhance Scalability & Reduce Fees

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In a significant development for the Ethereum network, developers reached a consensus on Thursday regarding the full scope of an upcoming upgrade known as “Dencun.”

Expected to be implemented later this year, this hard fork will incorporate five Ethereum Improvement Proposals (EIPs) aimed at enhancing data storage capabilities and reducing transaction fees.

One of the key components of the upgrade is EIP-4844, colloquially referred to as proto-danksharding. This groundbreaking feature intends to scale the blockchain by creating additional space for data “blobs.” 

This expansion is anticipated to result in reduced gas fees for layer 2 rollups, a significant improvement for its scalability.

As part of the upgrade, in addition to proto-danksharding, several other Ethereum Improvement Proposals (EIPs) have been chosen for integration. 

One of these is EIP-1153, which aims to decrease fees related to on-chain data storage, ultimately improving blockspace and transaction efficiency. Another selected proposal is EIP-4788, which focuses on enhancing the design of bridges and staking pools to enhance interoperability and usability within the Ethereum ecosystem. 

Additionally, EIP-5656 suggests minor code modifications to the Ethereum Virtual Machine to streamline and optimize the platform’s execution capabilities. Lastly, EIP-6780 is designed to eliminate code that could potentially terminate smart contracts, reinforcing the reliability and robustness of ETH’s smart contract ecosystem.

Release Date: Ethereum Dev Expected To Go Live by End of 2023

During the All Core Developers Execution Layer 163 call, Tim Beiko, the protocol support lead at the Ethereum Foundation, emphasized that no additional elements would be included in the fork. This commitment ensures that the upgrade remains focused and aligned with the outlined objectives.

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Although an exact date for the hard fork implementation has not been announced, the ETH community expects the Dencun upgrade to go live by the end of 2023. Notably, Dencun will encompass simultaneous upgrades occurring on both sides of the blockchain. 

The execution layer will undergo the “Cancun” upgrade, which primarily addresses protocol rules, while the consensus layer, responsible for block validation, will undergo its own separate fork known as “Deneb.” The term “Dencun” is a clever amalgamation of these two simultaneous upgrades.

The agreement among Ethereum developers on the scope of the Dencun upgrade signifies a significant milestone in Ethereum’s ongoing evolution. 

As the network continues to refine its infrastructure, users, and stakeholders eagerly await the implementation of these improvements, which are expected to enhance scalability and reduce transaction costs.

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