Can the Dencun upgrade promote the return of Ethereum?

On December 5, Ryan, the founder of Bankless , published a long article on the X platform stating that "ETH has not yet entered a bull market." As soon as this article came out, not only supporters followed suit, but also developers from the Solana and Bitcoin ecosystems joined the debate. Ryan explained the fundamentals of Ethereum from many aspects: such as high price-to-earnings ratio, deflation, POS does not consume energy and will be favored by ESG investors, etc., and even believed that ETH has become the so-called "digital gold." However, judging from the market response, these reasons are unlikely to directly drive the rise of Ethereum.

This article believes that the engines of Bitcoin and its ecosystem are mainly Bitcoin ETF and Bitcoin inscription ecosystem; the only thing that can rival Ethereum is the "Dencun upgrade", which is the real weapon that can attract market attention and funds and compete with Bitcoin ecosystem in this bull market. With the Dencun upgrade approaching, this article will interpret its core issues.

Why is Dencun Upgrade so Important?

Ethereum founder Vitalik Buterin once outlined the future Ethereum 2.0 upgrade route in six concise stages: The Merge, The Surge, The Scourge, The Verge, The Purge and The Splurge. Each stage revolves around the upgrade of a specific theme and function. The most important achievement of The Merge was to convert Ethereum from a PoW mechanism to a PoS mechanism. With the success of this upgrade, many market analysts believed that Ethereum would surpass Bitcoin in the next bull market. However, with the birth of Bitcoin Ordinals protocol, Bitcoin exploded. In contrast, the significance of the Dencun upgrade is almost as significant, and its essence is a very important link in The Surge stage.

The Surge is ultimately designed to solve the scalability problem that has plagued blockchain technology since its inception, so that its performance can eventually reach 100,000 TPS, close to the speed of traditional electronic payments (such as visa), and this upgrade is achieved through Danksharding ("DS", i.e. sharding). Proto-Danksharding (EIP-4844) is the first step of Danksharding, and an important step of Deneb-Cancun (i.e. Cancun upgrade), and an important step for Ethereum to implement the sharding mechanism and complete the expansion roadmap. Note: Dencun is a compound word composed of the two words Cancun and Deneb. Cancun represents the execution layer upgrade of Ethereum this time, while Deneb represents the protocol layer upgrade.

Which tracks will the Decun upgrade bring about major changes?

With the development of the crypto market, blockchain technology has gradually matured, and the upgrade of Dencun is one of the most important signs. After the technology matures, the crypto market will undoubtedly enter the next application stage, and the success of DeFi has demonstrated its strength. At present, we are at this important node. So, after the upgrade of Dencun, which tracks or fields are worth paying attention to? How did the connection between them come about?

Layer 2

The largest fee in the unit cost of Layer 2 transactions is "Call Data", which currently accounts for more than 80% of L2 transaction fees. When malicious validator activity occurs on L2s, the entire L2 chain can be rebuilt using Call Data published on L1s. One of the most important improvement proposals for the Ethereum Dencun upgrade is EIP-4844. It introduces a new type of transaction called Blob-carrying transactions, which are similar to regular transactions but contain additional data sets called Blobs, which are more economical than the current Calldata storage method. In addition to introducing Blob-carrying transactions, EIP-4844 will also implement other system changes such as execution layer logic, verification rules, and multi-dimensional fee markets to meet the needs of achieving complete danks sharding in the future.

Modular blockchain

A modular blockchain is a blockchain that focuses on handling a few responsibilities and outsources the rest to one or more independent layers. From the perspective of Ethereum's technological development, the development process of its modular technology stack mainly includes three stages: 1. Monolithic blockchain: represents Ethereum L1 or the main chain, which is itself a monolithic blockchain; 2. Rollup: L2 solutions that act as the execution layer, such as Arbitrum and Optimism , move the execution layer out of Ethereum L1, publish state roots and rollup data and transmit it back to Ethereum L1; 3. Modular rollup: rollup with modular data availability.

In addition to Layer2, in modular blockchains, the DA layer (data availability) is also worthy of attention, which acts as an immutable bulletin board where transaction data and proofs are published. Without DA, Rollup cannot guarantee activity. Using the transaction data provided by the DA layer, anyone can continue to calculate the next block from where the previous person stopped. Celestia and Avail are leading projects in this field.

Full chain game

In the application field, in addition to DeFi, chain games or metaverses are the most worthy of attention and the most likely to break the circle. Among the full-chain games, the most worthy of attention is DAW. DAW (decentralized Autonomous Worlds) is a subset of full-chain games. It is a type of game that is open on the entire chain and has no preset gameplay. It allows players to freely create, enhance and expand the game experience within the boundaries of this digital physical reality by providing publicly accessible programmable interfaces, further expanding the game's plot. In October 2022, OPcraft, a full-chain 3D Minecraft-themed game created by the Lattice team of Dark Forest, attracted much attention from the market.

Layer 3

Although there is no widely accepted definition of Layer 3 in the blockchain industry, it is equally important. Ethereum co-founder Vitalik Buterin believes that Layer 3 has three possibilities in the future: Layer 2 is used for expansion, and Layer 3 is used for customized functions, such as privacy protection; Layer 2 is used for general expansion, and Layer 3 is used for customized expansion; Layer 2 is used for trustless expansion (Rollups), and Layer 3 is used for weak trust expansion (Validiums).

How do crypto market bigwigs view the future development of Ethereum?

The Dencun upgrade is a very important upgrade for Ethereum , but there are still different voices in the market. This article summarizes the views of some crypto big Vs for readers’ reference.

Smarti Lab published a statement saying: Contrary to popular belief, relying solely on EIP-4844 is not enough for Ethereum to significantly improve scalability. We use two calculation methods to evaluate the possible reduction in gas fees, TPS (transactions per second), and the ability to accommodate Rollups after the implementation of EIP-4844. It is estimated that EIP-4844 may accommodate more Calldata, ranging from 38 times to 192 times, when the Calldata size is 10KB and 2KB respectively. Since more Calldata can be accommodated in the same block, the cost per unit of Calldata will also be reduced accordingly. Assuming that the Calldata size of each Rollup is uniformly 2KB, EIP-4844 can only accommodate up to 384 Rollups. Under normal circumstances (that is, when the block reaches the target size), Ethereum will reach 175 TPS through EIP-4844, up to 350.

@zen_llama, a former Solana core developer, said: “I personally disagree with Rollups as a scaling solution, but they make a lot of sense as a value capture solution for ETH assets, which brings revenue to different networks, which is why I think Rollups are dangerous for ETH.”

The Daily Gwei founder @sassa l0 x is very optimistic: "ETH will soar to more than $10,000, leaving investors on the sidelines trapped in the quagmire of fiat currencies and junk coins. In my opinion, we still need to explain to people where the value of ETH is supported!"

Summarize

Ethereum core developers have previously stated that the Dencun upgrade will not be carried out by the end of this year. On December 1, Christine Kim, vice president of Galaxy Research, wrote that the Dencun upgrade was activated on Devnet #12 on November 30. Some analysts pointed out that the Dencun upgrade is likely to be in the first quarter of next year. Judging from the time and current progress, it is very likely to be in the first quarter of next year. In addition, according to documents disclosed by Bloomberg analysts, BlackRock registered the Ethereum Trust in Delaware, and the registered entity is called ISHARES ETHEREUM TRUST. This means that once the Bitcoin ETF is launched, the Ethereum ETF will also have great hype expectations. Overall, in 2024, the Dencun upgrade is most likely to become the engine for Ethereum to return to the throne, and the Ethereum ETF will largely become a booster.