Ethereum Cancun upgrade countdown, Layer 2 enters the era of reduced fees

Author: Jasmine

Source: Hive Tech

It is expected that at 21:55 Beijing time on March 13, the Ethereum Cancun Upgrade (Dencun Upgrade) will be officially deployed on the mainnet. This is a significant upgrade for Ethereum nearly a year after the Shanghai upgrade was completed in April 2023.

The Shanghai upgrade aimed to unlock staked ETH and rewards for validators, while the core of the Cancun upgrade is to introduce the Ethereum scalability solution (protodanksharding) data unit called Blob, which aims to reduce transaction fees for Rollup-type Layer 2 networks.

This means that after the Cancun upgrade, the Gas fees for Layer 2 networks such as Optimism and Arbitrum will significantly decrease, with developers estimating that fees could drop by 75%. The reduction in fees will directly benefit ordinary users and DApp applications that use these networks for transactions.

Nine Major Improvement Proposals Deployed to Mainnet

After the Ethereum mainnet completes the Cancun upgrade, the network's scalability, security, and user experience will be enhanced through nine proposals (EIPs). According to official Ethereum information, these nine proposals will be integrated into Ethereum's consensus layer and execution layer based on their functionalities.

The 9 Proposals and Functions of the Cancun Upgrade

Many of these EIPs are directly related to the user experience within the Ethereum ecosystem. For example, EIP-7044 aims to allow validators locked on Capella to voluntarily sign exit instructions.

Currently, validators need to stake 32 ETH to ensure they process transactions normally and maintain the network's secure operation. They earn rewards for fulfilling their duties, but if they fail to perform their validator responsibilities, they will lose part of their staked ETH due to penalties.

Users without 32 ETH can currently choose third-party staking platforms like Lido to participate in the validator pool with a smaller amount of ETH, but users cannot guarantee that these third-party validators will not default, and if they do, ordinary users may also be harmed.

Now, EIP-7044 will allow validators and ETH stakers to sign exit position instructions in smart contracts and specify when to execute them.

In addition to EIP-7044, the most noteworthy proposal is EIP-4844, which is also the core function of the Cancun upgrade. It will increase the data storage capacity for Rollup-type Layer 2s while significantly reducing transaction fees, laying the groundwork for Ethereum's future upgrade to a sharded data structure.

EIP-4844 proposes the "protodanksharding" sharding solution, which is an initial Layer 2 scaling solution and an intermediate step in the future Danksharding sharding technology roadmap. The Danksharding roadmap aims to enable Ethereum Layer 2, especially Rollups, to provide economically efficient transaction capabilities even during congestion on the mainnet. It is an important means of scaling Ethereum that will be realized in long-term upgrades.

The core implementation of protodanksharding is the introduction of "Blob" sharding data units, designed as part of Ethereum's transaction structure. It is more flexible and efficient than the current calldata used for storing transaction data because it carries transactions stored on the consensus layer and will be automatically deleted within 1-3 months. This approach helps reduce storage costs and allows for sending Rollup transaction data at lower fees, ultimately reducing Gas fees for users.

Layer 2 Network Fees Will Significantly Decrease

From the short-term and mid-term development perspective of Ethereum, Rollup may be the only trustless and permissionless scaling solution for Ethereum. Due to the high transaction fees on the Ethereum mainnet, the ecosystem urgently needs to take measures to transition to Rollup.

Indeed, Rollup-type Layer 2 networks have significantly reduced users' transaction costs: transaction fees on Optimism and Arbitrum are often about 3-8 times lower than those on the Ethereum mainnet, while ZK Rollups have even better data compression capabilities, with fees being 100 times lower than those on the Ethereum mainnet.

On March 12, Ethereum's Gas Fee was 57 Gwei, worth $4.8; during the same period, Arbitrum's Gas Fee was 0.2 Gwei, approximately $0.017, while Optimism's Gas Fee was close to 0 Gwei, about $0.000089.

According to user @msilb7 from the Web3 data platform Dune, if we calculate the total daily Gas fee consumption for Ethereum and each Layer 2, the current Gas fee price for Ethereum's mainnet reaches as high as $198.82 per second, while Optimism is $3.23 and Arbitrum is $6.32.

On March 5 of this year, Ethereum's mainnet Gas fee soared again, reaching an average of 98 Gwei, the highest level since early May 2023. According to Ethereum browser data, users spent an average of $87.45 in Gas fees for a single transaction, while the average Gas fee for NFT transactions that day reached $147. Meanwhile, the transaction fees for Optimism and Arbitrum remained consistently low, with each transaction costing single digits.

Even so, these fees are still expensive for many users. EIP-4844 introduced in the Ethereum Cancun upgrade will address this issue. The largest expenditure item in Layer 2 transaction fees is the "call data" fee, which currently accounts for over 80% of the total Layer 2 transaction fees. The mechanism of "temporary storage data" for Blob units is very favorable for short-term transactions.

According to estimates, the cost of Blob will be less than 0.001 ETH, and Rollup transaction fees will also be below $0.05. Developers at Offchain Labs predict that assuming the previous network traffic levels, the Gas fees for Layer 2 networks will immediately decrease by 75% due to the Cancun upgrade.

Undoubtedly, this will benefit users and lead to the large-scale adoption of the Ethereum ecosystem by DApps, further driving the prosperity of Rollup ecosystems like Optimism and Arbitrum.

Binance data shows that as of 11:00 on March 13, ETH was approximately $4020. In the early hours of the same day, due to a brief sell-off of BTC, ETH's 24-hour low was reported at $3828; Optimism's governance token OP was at $4.42, trending similarly to ETH, with a 24-hour low of $4.11; Arbitrum's governance token ARB was at $2.06, with a 24-hour low of $1.90.

It is worth noting that ARB will see a large number of unlocks during the Cancun upgrade. According to data from digital asset tracker Token Unlocks, on March 16, Arbitrum will release approximately 1.111 billion ARB, accounting for about 76% of the circulating supply. As of the time of writing, this batch of pending unlocked ARB is valued at $2.266 billion.

Among them, Arbitrum will unlock 673.5 million ARB for its team and advisors, worth approximately $1.38 billion at current prices; another 438.2 million ARB unlocked will go to Arbitrum's early investors, currently valued at about $902 million.

Crypto analysts warn that this large amount of ARB unlocking represents a significant portion of the circulating supply. According to Arbitrum's rules, no ARB will be released before the unlock date, and it will be injected into the market all at once on the specified issuance date. Users holding ARB should pay attention to price fluctuations.