Dencun update significantly reduces transaction costs, increases transaction volume, and solidifies the importance of Layer 2 in the Ethereum ecosystem. This article is sourced from Filippo Pozzi’s work “Explanation and analysis of the Ethereum update ‘Dencun’ 4 months after its implementation”, compiled, translated, and written by Baihua Blockchain.
Prior to the update named “Dencun”, Layer 2 had already played a crucial role in the ecosystem. However, after the introduction of this renowned update, the explosion of Layer 2 has reached unprecedented levels, making it an indispensable element in expanding and enhancing the entire ecosystem.
Today, we focus on analyzing the actual effects of this update, approximately four months after its official release. This timeframe allows us to examine a significant amount of data and evaluate the actual success or failure of the update.
“Dencun” is an Ethereum update released on March 13, 2024, which combines the “Cancun” proposal of the Execution Layer and the “Deneb” of the Consensus Layer.
This update introduced a series of Ethereum Improvement Proposals (EIPs) aimed at enhancing various aspects of the Ethereum network. Among them, EIP-4844, also known as Proto-Danksharding, has significant implications for the scalability of Layer 2 by creating Blobs that increase the possibilities of data management within the network. How is this achieved?
Without delving into too many technical details, we can consider “blobs” as data packets (256 KB) representing a series of transactions that occur on Layer 2. These data packets are then packaged and subsequently sent to the Ethereum network for verification. Through txcity.io, I show you a graphic example.
Here we see representations of two blockchains: Ethereum on the left and Aviatram (the network of the Dencun update) on the right, with each moving person symbolizing a transaction.
Focusing on the right side, which represents the Arbitrum blockchain, one of Ethereum’s main Layer 2 solutions. As you can see, everyone using this blockchain leaves a note on the counter before passing through the conveyor belt represented by the Arbitrum blockchain. This note symbolizes the receipt of transactions that occurred within Arbitrum. Because Arbitrum uses a mechanism called Optimistic Rollup, it initially deems all transactions as valid based on the honest assumption. Subsequently, transactions are made public to everyone, providing an opportunity for review and dispute within a certain timeframe.
Once a certain number of transactions are reached, as shown in the video, the “postman” collects all transactions by rotating and forms what we define as a “blob”. Subsequently, upon closer observation, when the postman starts pointing toward the arrow directing towards Ethereum, we see the postman’s image also appearing on the left side of the screen, representing the Ethereum blockchain.
Here, the postman carries his “blob”, a data packet representing a series of transactions on Layer 2, and enters the Ethereum “bus”, which represents a block.
As the video shows, this process of creating a Blob is as simple as a “normal” transaction. In fact, there is no difference between the postman and the many passengers boarding the Ethereum block. The distinction lies in the fact that the postman brings a series of transactions, while others represent single transactions native to the Ethereum network.
Through this “simple” process of creating Blobs, transaction fees on various Layer 2 solutions have been reduced by over 90%, almost achieving feeless operations within these blockchains, leading to a significant increase in transaction volume across all major Layer 2 solutions.
Now, let’s examine the improvements brought by this update through on-chain data.
By observing this graph, we can summarize today’s discussion, which shows the average transaction costs before and after the implementation of Dencun.
It is clear from the graph that starting from March 13, the average transaction costs on Layer 2 solutions such as Arbitrum, Optimism, or ZkSync have instantly dropped from around $0.50 to close to $0.
Remarkably, despite some temporary spikes in transaction costs on the underlying blockchain as shown in the chart, all other major Layer 2 solutions have been able to maintain stability with transaction costs close to zero, avoiding the block congestion issues faced by blockchains like Solana.
The reduction in transaction costs has opened the doors for various individuals to enter this industry, even with limited investments. This has sparked a wave of activity on all major Layer 2 solutions, bringing about true operational prosperity.
Another indicator confirming the increased activity within major Layer 2 solutions is the number of transactions verified on the blockchain.
Source: Dune @glxyresearch_team/ EIP-4844 Blobs
As clearly shown in the above image, apart from zkSync, other Layer 2 solutions have recorded a significant increase in the number of transactions, leading to a substantial growth in transaction volume, with Base in early April and Arbitrum in late May being particularly noteworthy.
This graph provides a detailed view of the operational status of the blockchain network, highlighting the number of “blobs” contained in each Ethereum block. The target line and the constraint line represent the ideal and maximum values supported by the network itself. These parameters are crucial for optimizing the overall efficiency of the blockchain and avoiding excessive costs. Actively monitoring the number of “blobs” in each block is crucial to ensuring that the network can effectively handle transaction loads while maintaining stability and performance. Therefore, this data remains vital for operators to understand the network’s health.
Undoubtedly, this update has significantly reduced transaction costs, and despite the increase in transaction volume on major Layer 2 solutions, its effects continue to persist.
As Vitalik Buterin emphasizes in his article “Layer2 as Ethereum’s cultural extension kit”, Layer 2 has become an essential component of the blockchain space and will continue to grow in importance. This is attributed to its increasingly widespread infrastructure integration, making its usage in the Ethereum ecosystem increasingly critical.
I would like to conclude by quoting a part of the above-mentioned article where Vitalik answers the question about how to successfully develop the culture of Layer 2. His response, I believe, is very intriguing and reflects the true, fundamental spirit of developers and DeFi enthusiasts, the real spirit.
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