Ethereum upgrade outlook: Will it overturn the high gas fee situation? A full analysis of the key points of the Dencun proposal

The Dencun upgrade is finally here.

As Bitcoin breaks through its all-time high, the main narrative of Ethereum has officially entered the countdown to the final week. According to the Ethereum Foundation, the Dencun network upgrade has been successfully activated on all test networks. Ethereum will be upgraded on the main network at block height 8626176 at 21:55 Beijing time on March 13, 2024.

This upgrade is of great significance to the Ethereum ecosystem and is another important development node after the Shapella upgrade.

As an important opening chapter of the "Surge" phase in the Ethereum 2.0 upgrade route, the Dencun upgrade was previously delayed due to bug issues and was dubbed "the delayed Cancun". Now, after a series of test deployments at the beginning of the year, the Dencun upgrade is ready. In this article, Runpao Finance will help you understand the "key points" worth paying attention to in this Dencun upgrade from a simple perspective, hoping to provide you with in-depth value insights.

Core content: EIP4844

The Dencun upgrade mainly covers the consensus layer and execution layer of Ethereum, and the content focuses on fee reduction, speed increase, security, and user experience. Among them, EIP-4844 is the core content of this Dencun upgrade, which aims to improve the storage efficiency of the Ethereum system and reduce transaction costs.

High gas fees have always been the biggest obstacle to the development of Ethereum. The world has suffered from gas fees for a long time. According to reports, during peak hours, users have paid more than $100 in transaction fees. According to Etherscan data, the average gas fee for swap transactions is currently about $79.

From a short-term perspective, Rollup may be the only trustless scalability solution for Ethereum, which can increase Ethereum's processing power without burdening the network and without requiring users to trust the system. However, given the continued high transaction fees for L1, there is an urgent need to take action to promote the transition of the ecosystem to sharding. Since Ethereum is not sufficient for sharding at this stage, EIP-4844 essentially provides a stopgap measure that can meet current needs.

EIP-4844 adopts an advanced technology called "Blob", which will use an innovative temporary data storage mechanism on the Ethereum network by implementing the Proto-Danksharding process, which will help reduce L2 transaction fees. The L2 network will be able to store data on L1 more efficiently. Blob data is deleted approximately every two weeks, which is enough for L2 to manage and retrieve data and perform verification. Therefore, compared with regular transaction call data stored indefinitely on the Ethereum blockchain, Blob has lower data storage costs.

EIP-4844 will also introduce Blob Gas, an independent billing system that follows its own pricing rules to calculate basic fees. The format of Blob data is preset to be consistent with the format in the future sharding specification. This design allows Rollup to effectively alleviate network congestion, while a separate fee market ensures lower fees, making it more economical than the current Calldata storage method.

Developers at Offchain Labs said, “Assuming the current level of network traffic, once Dencun is implemented, the gas fee of the second-layer network should drop by 75% immediately.” Another developer said, “The Dencun upgrade is like upgrading a one-lane highway to a four-lane highway, bringing Ethereum into the modern transportation era.”

The largest expense item in Layer 2 transaction costs is the "Call Data" fee, which currently accounts for more than 80% of the total Layer 2 transaction costs. The Blob mechanism can temporarily store data, which is essential for short-term transaction verification, and can delete the data later to avoid network storage overload. The integrity and security of the data processing process is guaranteed by encryption technology that detects data changes.

According to previous analysis reports, Proto-Danksharding will limit the number of blobs per block to 16, with a single blob size not exceeding 128KB, which is expected to provide approximately 2MB of block space increase. The additional data space will allow Optimistic Rollup and Zero-Knowledge Rollup to publish proofs of transaction data on the chain, using blobs instead of "Call Data" to provide actual data. Blob data will be cleared after two weeks, while "Call Data" will be permanently stored on the Ethereum blockchain.

The EIP-4844 proposal not only introduces the Blob mechanism for transmitting transactions, but also implements comprehensive system changes such as execution layer logic, verification rules, and multi-dimensional fee markets. These changes will lay the foundation for the realization of complete "sharding" in the future.

How will gas fees change?

So, once the Dencun upgrade is completed, how will the gas fee change due to the EIP-4844 proposal?

Optimism has launched a website to predict the changing trend of Gas Fee after the introduction of Superchain Blob. However, the website's prediction is based on the simplified assumption that the Blob Gas base rate is 4.2 gwei, so the actual value may be biased.

Projections show that a Blob of approximately 125 kB will cost around 0.001 ETH. Currently, the cost of 125 kB of Call Data is approximately 30 gwei per Gas times 16 Gas per byte times 125,000 Gas (approximately 0.06 ETH).

Rollups currently generate about 60 transactions per second (TPS). If each transaction is about 200B, then they process about 12kB per second and about 144kB per Eth block. In the initial goal, for the 3 blobs in the EIP-4844 proposal (3*125kB = 475 kB), Rollup will only take up about 30% of the data availability capacity. Unless there are other sources of demand for Blobs (such as inscriptions), it is expected that in the short term, once Rollups migrate to Blobs, the following will occur:

• Blob fees will be very cheap (less than 0.001 ETH)

• Rollups transaction fees will also be very cheap (less than $0.05)

*The picture below shows the test results of gas fee changes posted by a Twitter user.

What do the other proposals say?

(1) EIP-1153: Transient storage opcode, used to process data that is only needed for a short period of time. The transient storage opcode allows smart contracts to use a storage space similar to memory when processing data. This storage space is different from permanent storage because its contents are cleared after each transaction is completed, just like the contents of a temporary notepad are erased after use. It has the following characteristics:

• Transient: Values ​​in transient storage are discarded after each transaction and are not stored for a long time.

• Performance advantage: Because no disk access is required, it is cheaper to use.

• Support for smart contract access: Smart contracts can access transient storage through two new opcodes, which means that contracts can read and write this temporary data.

• Convenience: When using transient storage, clients do not need to pay gas fees upfront to load raw data, nor do they need to clean up storage slots after use, which makes the entire process more efficient and cheaper.

(2) EIP-4788: The beacon block root in the Ethereum virtual machine helps the Ethereum virtual machine (EVM) interact with the consensus layer more securely. Without relying on external trust sources, the EVM can directly access and verify this data, improving the security and reliability of the system. This function supports the following application scenarios:

a. Staking pools. Staking pools can more reliably verify the number and status of participants’ tokens, thereby reducing the possibility of fraud and errors.

b. Re-staking. Relevant data can be directly verified, and the process of changing the staking settings will be smoother and safer.

c. Cross-chain bridge. Smart contract bridges can more efficiently verify transactions and states, thereby improving the security of cross-chain interactions.

d. MEV mitigation. MEV (Miner Extraction Value) is a means of profiting from optimizing the order of transactions during the block construction process. Using the beacon block root, more effective strategies can be designed to reduce the impact of MEV, making transactions more fair and transparent.

(3) EIP-5656: MCOPY is an efficient EVM (Ethereum Virtual Machine) instruction for copying memory areas. It can be found in Solidity, Vyper, and Fe compilers to implement precise word memory copying and partial word memory copying. EIP-5656 helps improve the performance of the Ethereum network, especially in smart contract execution, by introducing the MCOPY opcode. This is an important improvement for developers because it allows them to create more efficient and faster smart contracts, reducing the cost of calling identity precompilation from 700 Gas to 100 Gas.

(4) EIP-6780: Used to remove the SELFDESTRUCT opcode. In the original design, the SELFDESTRUCT function of the Ethereum smart contract is implemented by calling a special opcode. When the smart contract calls SELFDESTRUCT, the code in the contract is destroyed and the remaining ether and storage space will be sent to the specified address.

This function is designed to clean up after the contract is executed or a serious error occurs.

When a smart contract is no longer needed, self-destruction can free up storage space and send the remaining ether to the specified address, thus avoiding resource waste. Using SELFDESTRUCT will delete all code and storage information of the account. However, in the future design of the Verkle tree, this operation will no longer be possible. Because in the future design, the information of each account will be stored in many different account keys in a decentralized manner, and there is no obvious connection between these account keys and the root account. The passage and implementation of the EIP-6780 proposal will help improve the security of the Ethereum network and prevent the risk of fund loss due to contract self-destruction.

(5) EIP-7044: A proposal to improve the Ethereum staking exit mechanism. The main purpose of this proposal is to simplify and improve the Ethereum staking exit mechanism so that voluntary exits signed before the Capella upgrade can be permanently valid. Such improvements can ensure that staking operations are more secure while also improving the user experience. By implementing EIP-7044, the Ethereum network can better handle validator and staking-related operations, thereby enhancing the stability and reliability of the entire network.

(6) EIP-7045: An Ethereum improvement proposal for network proof slots, which improves the security of the Ethereum network and the speed of transaction confirmation by increasing the number of proof slots. Proof slots are a concept in the Ethereum protocol that is closely related to the behavior of validators and the security of the network. By expanding the range of proof slots, the network's ability to handle a large number of validators can be improved, while also enhancing the security of the entire network.

(7) EIP-7514: A proposal to improve the way Ethereum staked validators grow, which addresses the problem of rapid growth of Ethereum stake by changing the growth of the maximum number of validators from exponential growth to linear growth and by setting a fixed maximum churn limit to limit the number of validators entering or leaving the network in each epoch. The proposal aims to mitigate the negative externalities of a very high total supply of staked ETH before a proper solution is implemented.

(8) EIP-7516: An improvement proposal to reduce the cost of data usage, allowing users to calculate the cost of using Blob data programmatically. The advantage of this is that users can calculate and use data according to their actual needs, thereby reducing the cost of data usage. In addition, the proposal also mentions the concept of Blob Gas futures. Blob Gas futures are a financial instrument that users can use to lock in future Blob data usage costs, thereby eliminating the risks caused by fluctuations in data usage costs.

Competition may have just begun

Although Ethereum has reduced gas fees through the Dencun upgrade, its solution still faces challenges such as network fragmentation and user experience issues. These challenges may continue to limit Ethereum's ability to attract small transactions.

From an economic perspective, the average cost of NFT transactions on the Ethereum platform is about $140, which is usually a relatively high expense for users, especially when the transaction fee exceeds the value of the NFT itself. Therefore, high transaction fees drive users to explore more cost-effective alternatives.

For example, Solana, a Layer 1 blockchain, has much lower transaction fees than Ethereum, with an average transaction cost of only 0.000036 SOL, equivalent to approximately $0.0047. This significant cost advantage has attracted many users who want to reduce their expenses, especially those who frequently trade NFTs.

In addition, as smart contracts become more complex, ensuring their security and reliability becomes an ongoing challenge. Malicious behavior or programming errors may lead to major security incidents.

The challenges in the crypto world are ongoing, but the Dencun upgrade is only temporary. As Vitalik said, Ethereum needs three key technology transitions to achieve an open, global, and permissionless experience. Today, everything has just begun.