Ethereum Dencun Upgrade: What It Is & Why It Matters
Ethereum, the second-largest blockchain network after Bitcoin, launched a major network update over a year ago – the Dencun upgrade. With this new development, the Ethereum network was enhanced considerably, bringing much-needed changes to its layer-2 solutions, transaction costs, and overall network performance.
But what exactly changed after the Dencun upgrade, how did it impact the Ethereum foundation, its processes, and more importantly, monetary policies? Since Ethereum is scheduled to release a new update in March 2025 called Pectra, let’s explore Dencun.
Table of contents
Ethereum’s Major Updates Leading to Dencun
Since Ethereum was first launched in 2015, the project underwent continuous development, and the latest Dencun upgrade is dubbed by many as one of the biggest. But before we jump into Dencun, let’s briefly look back at other significant Ethereum developments.
- Ethereum 2.0 (2020): No doubt the most important update in Ethereum’s history which introduced Ethereum’s proof-of-stake (PoS) mechanism, laying the foundation for a more energy-efficient and scalable network.
- London Hard Fork (2021): The London upgrade implemented EIP-1559, in effect restructuring Ethereum’s fee market by introducing a base fee and burning a portion of transaction fees, thus turning ETH into a deflationary asset.
- The Merge (2022): During the Merge event, Ethereum fully transitioned from proof-of-work (PoW) to proof-of-stake (PoS), drastically reducing energy consumption by over 99%.
- Shanghai Upgrade (2023): The Shanghai upgrade made it possible for Ethereum network users access and withdraw their staked ether (ETH) funds
What Is the Ethereum (ETH) Dencun Upgrade?
The beginning of 2024 was quite literally shaped by key events in the global financial sector, brought about by evolving artificial intelligence frameworks as well as the Bitcoin BTC 0.0% ETFs approval in the United States.
Specifically, the positive attitude of governmental institutions towards cryptocurrencies and their adoption have resulted in significant funding from traditional finance, namely that of Blackrock and Ark Invest.
However, as motivating as these events were, the biggest driving factor for the Dencun upgrade were the increasing gas fees. While the layer-2 solutions have certainly enhanced the performance of the Ethereum blockchain network, offering a more scalable and faster mode for processing transactions off Ethereum’s mainnet, gas prices grew rapidly. This made it difficult to discuss further development plans and widespread adoption.
Enter Dencun. The Ethereum Dencun upgrade, also called Ethereum network’s cost-cutting upgrade, is actually a combination of two critical network updates: Deneb and Cancun, hence the name – Cancun-Deneb (Dencun). The joint upgrade rolled out on March 13, 2024, and it aims to essentially cut transaction costs of layer-2 solutions and enhance Ethereum’s scalability.
- Deneb focuses on improving the consensus mechanism of Ethereum PoS, which dictates how network participants agree on the state of the blockchain.
- Cancun focuses on improving the way transactions are managed and processed on the execution layer.
Key Feature of the ETH Dencun Upgrade
To address the rising issues like gas fees, processing speeds, and transaction costs, the Dencun software upgrade included a crucial Ethereum Improvement Proposals (EIPs), which was designed to improve network efficiency, lower transaction fees, and optimize data availability for rollups. Let’s explore the EIP-4844 more closely.
Defining EIP-4844 or Proto-Danksharding
One of the most significant proposals that came with the ETH Dencun upgrade was the introduction of proto-danksharding. It was arguably the most anticipated feature of the entire upgrade, which introduced a new transaction type called blob transactions.
To explain the blob transaction, it basically allows rollups to store data more efficiently off-chain, reducing transaction costs for layer-2 solutions. Cheaper transactions meant that Ethereum could become more affordable, leading to scalability and increased applicability.
Proto-Danksharding vs. Danksharding
Proto-danksharding is an intermediate step towards a full sharding implementation. The blob-carrying transactions store data temporarily, reducing costs for rollups and increasing transaction throughput. However, proto-danksharding isn’t full sharding, but rather, it sort of lays the base for it, adding necessary transaction types and execution logic.
On the other hand, danksharding represents the complete sharding design for Ethereum. The key goal of danksharding is to make the Ethereum network truly scalable, allowing multiple shards to process transactions at the same time.
Why the Dencun Upgrade Matters
We’ve gone through a lot of information to explain the newest update, so let’s summarize the key aspects of Dencun.
- Lower transaction fees for layer-2 solutions: With EIP-4844, rollups like Optimistic Rollups and ZK-Rollups will see a massive reduction in transaction costs, resulting with Ethereum becoming more competitive with other high-performance blockchains.
- Improved network scalability: Proto-danksharding is a stepping stone toward full danksharding, which will allow Ethereum to process more transactions, increasing the blockchain’s capacity to support more users and applications.
- Stronger security & interoperability: Decun enhanced network security by improving trustless verification and interoperability between Ethereum’s execution and consensus layers.
Wrapping Up
The Dencun upgrade is certainly neither the first, nor the last update Ethereum will launch to stay ahead of the game and attract new users. Dencun has already made steps towards Ethereum’s scalability, lower costs, and enhanced security. But for developers, end users, and investors, Dencun represents a critical advancement that further boosts Ethereum’s position as the leading smart contract platform.
FAQ
What is the Ethereum Prague upgrade?
The Ethereum Prague upgrade is a part of the upcoming new Prague-Electra (Pectra) update. It’s scheduled to take place in March 2025. Pectra will be the next development stage for consolidating Ethereum’s performance and scalability, building on previous upgrades like Dencun.
Will Dencun reduce ETH fees?
Absolutely. The main idea behind the Dencun upgrade was to reduce data fees. This particularly benefited layer-2 networks like Arbitrum and Polygon. To give you an example, just 5 days after the launch, on March 19, 2046, Arbitrum transaction costs dropped from $0.49 to $0.10.
What's the ETH price prediction post-Dencun upgrade?
Following the Dencun upgrade, ETH didn’t really experience any significant price changes, though ETH did see a slight decline of approximately 0.5%, trading around $3,968. Moving forward, many industry experts speculate that the latest Pectra upgrade could have a significant impact on ETH’s price growth in 2025.
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