Ethereum: what the Dencun update will change

Tuesday, March 12, 2024

The Ethereum blockchain is about to undergo a fundamental update that will substantially reduce the costs of its layer 2s.

This was one of the most eagerly awaited developments since "The Merge", the Ethereum update of September 2022 that changed the consensus mechanism from the energy-intensive proof-of-work to the much less energy-intensive proof-of-stake.

Named "Dencun" and scheduled for 13 March, this hardfork will enable the various layers 2 (secondary layers that lighten the main blockchain) to offer much lower transaction fees. These were sometimes as high as one dollar, while much better performance could be found from competitors outside the Ethereum ecosystem (Solana in particular).

The main proposal is crystallised by EIP-4844, also known as "protodanksharding". This feature will bring a new type of transaction class that will reduce the costs of publishing transaction data on rollups, through the introduction of data "blobs". These blobs are a separate place in a transaction where networks can temporarily store data. Developers sometimes use the image of a "sidecar" because it doesn't take up space in the main vehicle (i.e. Ethereum).

Starkware, the start-up behind layer 2 Starknet, estimates that costs will be divided by 10. On the side of Base, the competing project developed by the American exchange platform Coinbase, transaction costs are expected to fall by up to 95%.

Note that these projections are calculated on the basis of current usage levels. If projects attract more transactions, costs will mechanically increase. But this is all good for the Ethereum ecosystem.

For users and ethers (ETH) holders, there is no need to take any specific action in preparation for this update. Node operators and validators, however, should ensure that they update their software to the recommended versions to be compatible with Dencun.

This analysis is not investment advice. It has been prepared without taking into account your personal situation, particularly your financial situation, risk profile, and investment objectives.

Before investing in any product, investors should fully understand the risks involved and consult their own legal, tax, financial, and accounting advisors.

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