Detailed explanation of Ethereum Dencun upgrade details

With the much-anticipated Dencun upgrade, we are on the cusp of a major evolution for the Ethereum blockchain ecosystem. This update marks significant progress, enhancing Ethereum’s capabilities by addressing some of the most pressing challenges in the ecosystem, such as unlocking Layer 2 scalability and enhancing security for node operators and validators.

Source: Coin Metrics Labs

In this article, we dive into the details of the Dencun upgrade. We explore the nature of the upgrade, the proposed changes to the Ethereum execution and consensus chains, and some metrics that can help us monitor the progress of this upgrade.

What is Dencun?

Dencun is the nickname for the latest Ethereum upgrade, and its name comes from the unique fusion of celestial bodies and geographical locations - a common practice for Ethereum when updating. It combines the Cygnus star Deneb, which represents the consensus layer upgrade, and Cancun, the venue for Devcon 3, which symbolizes the execution layer upgrade.

Prior to its launch on the Ethereum mainnet, the Dencun upgrade had to be carefully tested on various Ethereum testnets. This critical phase ensures that all new features work properly and any potential issues are resolved in advance. As of now, Dencun has been successfully activated on the Goerli and Sepolia testnets, with activation planned for the remaining testnet, Holešky. These testnet deployments are essential to thoroughly test all different clients, especially for developers looking to examine L2 impacts related to blob expiration.

The anticipation surrounding the Dencun upgrade is palpable, but the exact date for its mainnet launch has not yet been disclosed. After 1-2 months of extensive testing during the testnet phase, the Dencun upgrade is expected to transition to the mainnet around March or April. This meticulous approach highlights Ethereum’s commitment to ensuring stability and reliability, aiming to achieve seamless and efficient integration of the Dencun mainnet.

The Big Story: Blob Transactions and EIP-4844

One of the key elements of Dencun is EIP-4844, which introduces "blob-carrying transactions". These transactions are designed to enhance data availability scaling within Ethereum. They provide a mechanism for on-chain applications to alleviate L1 fee pressure by shifting demand to L2, which is supported by a more economical large data blob transaction format. These blobs, while not directly accessible by the EVM, are anchored by commitments that are directly accessible. The format is designed to be compatible with the expected full sharding model, providing temporary relief for users currently suffering from high L1 fees.

Source: Coin Metrics Labs

The proposed EIP lists specific parameters, cryptographic techniques, and improved gas accounting methods tailored for Blob transactions. It further describes the execution and consensus layer validation, network impact, and the basis for transactions containing blobs. This EIP is a cornerstone of Ethereum's scaling strategy and its evolution towards sharding, providing a temporary solution to limit the number of these transactions to a cap, consistent with the target of approximately 0.375 MB per block and a cap of approximately 0.75 MB.

The Deneb upgrade is likely to reduce Ethereum’s fee income in the short term, as EIP-4844 will reduce fees paid for blockspace rollups by more than tenfold. The success of this upgrade can be measured by several metrics, including:

• L2 uses blob transaction type

• Reduce L2 sorter fee payments

• Lower transaction fees within L2

• Increase blob fees so that “spam” data is no longer economically viable

• Long-term adoption of Ethereum as a Data Availability (DA) protocol compared to competing alternatives such as Celestia

Upgrades affecting validators and staking operators

The expansion of services such as Lido and Rocketpool, as well as staking-as-a-service products from major players such as Coinbase, Binance, and Kraken, has been identified as one of the most important areas of active research within the Ethereum community to improve the security of the network. Some of these solutions, such as increasing churn limits, will only reduce the rate at which new validators join the network.

EIP-4788: Beacon Block Root in the EVM

EIP-4788 proposes to embed the hash tree root of each beacon chain block into the corresponding Ethereum execution payload header. This involves storing these roots in smart contracts, allowing access to the consensus layer within the Ethereum Virtual Machine (EVM) in a trust-minimized manner. This information enables providers of Liquidity Staking Derivatives (LSD) to reduce the scope of their operations for issuing tokens and rewards (in the case of rebasing tokens that update the ETH price using prices from a trusted on-chain oracle) in an automated and trustless manner by directly accessing consensus layer data.

Source: Ethereum Foundation

EIP-7514: Increase the maximum Epoch churn limit

As ETH stake levels increase, there is more pressure on the consensus layer. An increase in the number of validators leads to an increase in gossip messages, as well as an increase in the size of the Beacon state - our archived Lighthouse node takes up over 16TB! While the volume and rate of growth of the Beacon state can be reduced by increasing the maximum valid balance (currently 32 ETH) (there is actually an EIP being discussed that would be used for this purpose), introducing such a change requires a delicate balancing act. It needs to ensure that the network remains accessible to individual validators while optimizing for scalability and efficiency.

Source: Coin Metrics Network Data Pro

EIP-7044: Permanent and effective voluntary signature withdrawal

The introduction of permanently valid signature voluntary exit makes the staking operation design simpler, enhancing the user experience and the security of staking operators.

EIP-7045: Increase the maximum attestation inclusion slot

EIP-7045 proposes to increase the maximum attestation inclusion slot in the Ethereum blockchain. This change extends the inclusion slot from attestation.slot + SLOTS_PER_EPOCH to the last slot of epoch N+1, where N is the epoch that includes the attestation slot. This proposal is a critical change for the security of LMD-GHOST, enabling faster block confirmations and adopting new fast confirmation rules without negative security impacts.

EVM Upgrade

The Ethereum Virtual Machine (EVM) is the core of Ethereum applications. Its language and features allow developers to create secure and efficient contracts, but like any language, it needs to evolve as pain points are identified and addressed. Many of the following upgrades will help simplify applications running on the EVM, reduce costs, and enhance the developer and user experience in the Ethereum network.

The introduction of the EIP-1153 transient storage opcode and the EIP-5656 MCOPY instruction are technical advances that are expected to optimize smart contract interactions and reduce the gas costs associated with complex operations. Meanwhile, the EIP-6780 modification of the SELFDESTRUCT opcode reflects a thoughtful response to evolving blockchain architectures, addressing issues with state changes and aligning with future architectural changes such as Verkle trees.

EIP-7516 adds a new opcode (BLOBBASEFEE) for accessing blob base fees, facilitating the trustless transfer of L1 costs to rollup users based on on-chain prices. In addition, it also allows the creation of derivatives such as futures, options, and swaps based on blob fees.

in conclusion

The Dencun upgrade represents a dramatic shift in Ethereum development, addressing both immediate and long-term scalability, security, and efficiency issues.

With the testnet activation showing promising results, the Ethereum community is looking forward to the launch of the mainnet.

The proposed EIPs, especially those aimed at optimizing data availability and staking operations, will significantly enhance the performance and user experience of the network.

As the Ethereum landscape continues to evolve, it is critical that stakeholders, from validators to end users, stay informed and adapt to these changes.