Title: Exploration and Interpretation of the Ethereum Upgrade “Dencun” 4 Months Following Implementation
Author: Filippo Pozzi, DeFi Researcher
Translated by: Blockchain Simplified
Prior to the update known as “Dencun”, Layer 2 had already played a crucial role in the ecosystem. However, following the launch of this renowned update, the explosion of Layer 2 has reached unprecedented levels, making it an indispensable element in the expansion and efficiency improvement of the entire ecosystem. Today, our focus is on analyzing the practical effects of this update, approximately four months after its official release. This period has allowed us to examine a large amount of data and evaluate the actual success or failure of the update.
1. Understanding Dencun
“Dencun” is an Ethereum upgrade released on March 13, 2024, combining the “Cancun” proposal for the Execution Layer and the “Deneb” proposal for the Consensus Layer. This update introduces 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, holds significant importance in the scalability of Layer 2, by creating Blobs that increase the possibilities for data management within the network. How is this achieved?
Without delving too deeply into technical details, we can consider “blobs” as data packets (256 KB) representing a series of transactions occurring on Layer 2. These data packets are then packaged and subsequently sent to the Ethereum network for verification. I will show you a graphical example through txcity.io.
Here we see representations of two blockchains: Ethereum on the left and Arbitrum (the network of the Dencun update) on the right, with each moving figure symbolizing a transaction.
Let’s focus on the right side, representing the Arbitrum blockchain, one of Ethereum’s primary Layer 2 solutions. As you can observe, all individuals using this blockchain leave a note on the counter before proceeding to the conveyor belt represented by the Arbitrum blockchain. This note signifies the receipt of transactions occurring within Arbitrum. Since Arbitrum utilizes a mechanism called Optimistic Rollup, it initially considers all transactions valid based on the assumption of honesty. 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 accumulated, as shown in the video, the “postman” collects all transactions by rotating and forming what we define as a “blob”. If we closely observe, when the postman starts pointing towards the arrow indicating the direction of Ethereum, we will see the postman’s image also appearing on the left side of the screen, representing the Ethereum blockchain. Here, the postman carries his “blob”, the data packet of a series of transactions occurring on Layer 2, and enters the Ethereum “bus”, symbolizing a block representing the main blockchain.
As depicted in the video, this process is as simple as a “normal” transaction. In fact, there is no distinction between the postman and the numerous passengers boarding the Ethereum block. The difference lies in the fact that the postman brings a series of transactions, while others represent individual 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%, nearly achieving feeless operations within these blockchains, leading to a significant surge in transaction volumes across all major Layer 2 platforms.
Now, let’s examine the improvements brought about by this update through on-chain data.
2. Average Fees of Major Layer 2 Transactions
By observing this graph, we can summarize today’s discussion, illustrating the average transaction costs before and after the implementation of Dencun.
It is evident from the graph that starting from March 13, the average transaction costs on Layer 2 solutions like Arbitrum, Optimism, or ZkSync instantly dropped from around $0.50 to near $0.
Impressively, despite temporary spikes in transaction costs on the underlying blockchain as shown in the chart, all other major Layer 2 solutions were able to maintain stability, with transaction costs close to $0, avoiding congestion issues faced by blockchains like Solana.
The reduction in transaction costs has opened doors for a diverse range of individuals to enter the industry, even with limited investments. This has sparked a wave of activity across all major Layer 2 platforms, leading to a true operational prosperity.
Another indicator confirming increased activity within major Layer 2 solutions is the number of transactions validated on the blockchain.
Source: Dune @glxyresearch_team/ EIP-4844 Blobs
As clearly depicted in the above graph, except for zkSync, other Layer 2 solutions have recorded a significant increase in the number of transactions, resulting in a substantial growth in transaction volumes, with Base and Arbitrum being particularly noteworthy in early April and late May respectively.
3. Average Blob Count per Block
Source: Dune @hildobby/ Ethereum Blobs
This graph provides a detailed view of the operating status of the blockchain network, highlighting the number of “blobs” contained in each Ethereum block. The target line and the limit 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” per block is essential to ensure the network can effectively handle transaction loads while maintaining stability and performance. Therefore, this data remains imperative for operators to understand the health of the network.
4. Conclusion
Undoubtedly, this update has significantly reduced transaction costs, and despite the increase in transaction volume on major Layer 2 solutions, its effects continue to endure.
As emphasized by Vitalik Buterin in his article “Layer 2 as Ethereum’s Culture Extension”, Layer 2 has become an essential component of the blockchain space and will continue to increase in importance. This is attributed to its growing infrastructure integration, making it increasingly vital within the Ethereum ecosystem.
I would like to conclude by quoting a portion of the aforementioned article, where Vitalik responds to the question of how to successfully cultivate the culture of Layer 2. His answer, in my opinion, is captivating, reflecting the true and fundamental spirit of developers and DeFi enthusiasts, the genuine spirit.
