A Detailed Explanation of the Far-Reaching Impacts of the Ethereum Cancun Upgrade and EIP-4844
From a more macro perspective, the Cancun upgrade is a key stage in Ethereum's transition from proof of work (PoW) to proof of stake (PoS).Author: Haotian
The Ethereum Cancun upgrade has been successfully completed. This article is a transcript of an interview with Haotian, conducted by Yu Jianing, the founder of Uweb and former president of Huobi University. It discusses the significant positive impact of the substantial reduction in L2 GAS on developers after the upgrade, why it may lead to increased modularity and thus pose challenges to Ethereum, and the future development prospects of the OP and ZK ecosystems.
Below is a summary of the content; for the full version, please listen on Xiaoyuzhou and Youtube.
What profound impacts will the Cancun upgrade have on the industry?
To understand this question, it is crucial to grasp what specific improvements the Cancun upgrade introduced. In short, this upgrade primarily introduced the EIP 4844 standard, which brought in a data structure called "Blob," which can be understood as a form of data expansion. Before the upgrade, Layer 2 project teams would package a large number of transactions and submit them to Ethereum's mainnet (Layer 1). This data originally needed to be submitted to the execution layer of the mainnet contracts, which was limited by space and tightly bound to smart contracts, resulting in the need to carry this data every time the virtual machine executed, thereby increasing Gas fees, which was one of the main reasons for the high transaction costs before the upgrade.
The change after the upgrade is that the data generated by Layer 2 project teams can now be submitted directly to the consensus layer of the mainnet, rather than the previous contract execution layer. This change is achieved by introducing a data block called "Blob," which acts as a temporary data storage area. An important feature of this storage area is that the virtual machine does not need to call this data when executing transactions, significantly reducing the Gas fees for regular transactions. Specifically, transaction fees have been reduced by approximately 30 to 100 times. This means that if the cost of submitting a transaction on Layer 2 was originally $5, the current cost can be significantly lowered, making the cost almost negligible for users.
However, this is only a theoretical situation. In practice, since the "Blob" market is an independent charging market, there is resource consumption and competition. If a large number of Layer 2 networks compete for these resources, it may lead to an increase in the costs of using these "Blobs," thereby affecting the overall reduction in fees. Therefore, although the upgrade theoretically can significantly reduce Gas fees, the actual reduction may not meet the initial expectations.
From a broader perspective, the Cancun upgrade is a key stage in Ethereum's transition from Proof of Work (PoW) to Proof of Stake (PoS). The first phase of this process was the introduction of the so-called beacon chain, which effectively split Ethereum into two chains: one responsible for settlement and the other for execution. This differentiation reflects Ethereum's ongoing efforts to improve efficiency and reduce costs.
Although the public generally perceives Ethereum as a single chain structure, in reality, Ethereum's settlement chain primarily serves the consensus mechanism, which does not affect people's overall understanding of Ethereum. With the merging of the mainnet (Merge phase) and the subsequent sharding phase, Ethereum aims to enhance network capacity by treating each block as an independent sub-blockchain, thereby achieving more efficient parallel processing capabilities. Sharding technology aims to cut the original single chain into multiple smaller segments, significantly enhancing overall processing capacity.
The Cancun upgrade is a crucial step before the implementation of sharding and can be seen as a prelude to sharding. However, due to the widespread attention on the Cancun upgrade, discussions about sharding technology have relatively decreased. Some believe that after the Cancun upgrade, sharding may no longer be necessary, as the progress in modularity has already been quite significant. The competition in the market is also intense, and some argue that this may lead to Ethereum's core functions taking a backseat, becoming primarily a settlement layer. This change may require a rethinking of Ethereum's vision.
The Cancun upgrade will bring several major impacts:
Impact on Layer 2: The reduction in Gas fees will directly decrease the costs for developers building chains. This allows even projects with low user and transaction volumes to afford the costs of synchronizing with Ethereum, thereby promoting the growth and diversity of Layer 2 solutions.
Changes in the Layer 2 market: With the emergence of more Layer 2 projects, the market will experience polarization. Mainstream Layer 2 solutions will continue to solidify their positions, while new challengers will also emerge. This may lead to a reshuffling of the Layer 2 market, where some existing leaders may be replaced by new entrants.
Advancement of modularity: The Cancun upgrade has intensified the demand for modularity, as it reduces the necessity to rely on a single solution. This may lead to Ethereum's role gradually transforming into an option rather than a necessity, thereby changing its position and function in the crypto ecosystem.
An Introduction to Customized EVM and Settlement Layer
Regarding this issue, we can start with the structure of Ethereum. The Ethereum network can be divided into several different layers, including the execution layer, settlement layer, as well as the interoperability layer and data availability (DA) layer. The division of these layers reflects different aspects of how the Ethereum network processes transactions and ensures security.
Since its launch in 2015, Ethereum has faced demands for scalability and performance improvements as blockchain technology has developed and application scenarios have expanded. To address these challenges, the community has proposed various solutions, among which Rollup technology is a significant advancement. Rollup effectively enhances processing capacity and reduces Gas fees by handling a large number of transactions on Layer 2 (L2) and packaging transaction data for submission to the mainnet (Layer 1, L1). This is akin to building a highway for the Ethereum mainnet, making transaction processing more efficient.
In the context of Rollup and other L2 solutions, the concept of customized EVM (Ethereum Virtual Machine) and settlement layer has emerged. Customized EVM allows developers to tailor the EVM according to specific application needs to meet different performance and security requirements. The settlement layer focuses on how to efficiently and securely handle the final settlement of transactions.
An important topic is the trade-off between decentralization and centralization. For example, Matic (now Polygon) proposed decentralized sequencers to reduce reliance on centralized services and enhance the system's decentralized characteristics. Decentralized sequencers help protect Layer 2 networks from manipulation and malicious behavior, while also reflecting the trend of returning to the original decentralized ethos of blockchain.
With technological advancements, the modularization of the execution layer and settlement layer has also become possible. Modularity means that these layers can be developed and deployed as independent modules, providing greater flexibility and customizability. This is very helpful in meeting the specific needs of different blockchain applications. However, this modularization is still in its early stages, and many projects are still exploring and experimenting.
Overall, as blockchain technology continues to evolve, we can anticipate more innovative solutions being proposed to enhance the performance, scalability, and user experience of the Ethereum network. The advancements in customized EVM and settlement layers, particularly in the context of Layer 2 solutions, open up new possibilities for Ethereum's future development.
Will the Cancun upgrade lead to a new competitive landscape for ZK and OP?
The Cancun upgrade, by lowering Gas fees, provides greater potential for Layer 2 solutions, especially in terms of improving processing efficiency and cost-effectiveness.
Optimistic Rollups are already relatively mature, and their ecosystem has developed quite well, particularly in terms of token distribution and building a user base. Therefore, the Cancun upgrade may bring direct benefits to Optimistic Rollups, allowing them to gain significant advantages in the short term.
However, Zero-Knowledge Rollups offer higher efficiency and security from a technical standpoint. ZK Rollups ensure the correctness of transactions through validity proofs without relying on optimistic assumptions. This approach reduces the possibility of malicious behavior and has inherent advantages in data compression and processing speed. As the technology matures and the community recognizes ZK Rollups more, they have the potential to change the competitive landscape in the long term, especially if they can address the current challenges of developer friendliness and ecosystem building.
After the Cancun upgrade, the ability to submit more transaction data to the mainnet at a lower cost is expected to significantly enhance the transaction processing speed (TPS) of ZK Rollups, potentially giving them an advantage in performance competition. Additionally, ZK Rollups have not yet widely launched token incentive mechanisms, which is a potential growth point that may attract more developers and projects to join their ecosystem in the future.
Therefore, while Optimistic Rollups may benefit more visibly in the early stages of the Cancun upgrade, the long-term development prospects of Zero-Knowledge Rollups remain promising. With technological advancements, ecosystem development, and increased community support, ZK Rollups are expected to demonstrate greater potential in the future, forming a new competitive landscape.
How will the landscape of Ethereum and its L2 change in the future?
Benefits for the Ethereum mainnet: The Cancun upgrade may not only benefit Layer 2 but also be a huge boon for the Ethereum mainnet itself. The volatility of Ethereum's Gas fees is partly due to all Layer 2 projects acting as users of Ethereum, competing to raise Gas fees to quickly submit transactions. The Cancun upgrade, by introducing an independent Blob charging market, may reduce the impact of Layer 2 on Ethereum's Gas fees, making the Gas fees of the Ethereum mainnet more stable.
Ethereum as an incremental user entry for Layer 2: With the emergence and maturation of more Layer 2 solutions, Ethereum is gradually becoming the main entry point for incremental users of Layer 2. This trend may continue, bringing more users and transactions to Ethereum.
The modularity and DA (data availability) war: As the Layer 2 ecosystem develops, some projects may choose to use third-party data availability layers instead of relying entirely on Ethereum. This trend of modularity may pose challenges to Ethereum but also prompts Ethereum to evolve itself in response to market changes.
Native tokens and ecosystem building for Layer 2: As more Layer 2 projects launch their own tokens and incentive mechanisms, these projects will be better positioned to establish and develop their ecosystems. This is a positive signal for the entire Layer 2 market, indicating that the Layer 2 ecosystem may become richer, more diverse, and more active in the future.
The role of Ethereum may change: With the development of Layer 2 technology and the advancement of modularity, Ethereum's role may gradually transform. While Ethereum remains the foundational layer for submitting transactions on Layer 2, in some Layer 2 solutions, Ethereum may no longer be the only settlement layer option. This change may affect Ethereum's position and role in the entire cryptocurrency ecosystem.
In the next three months, will the L2 leaders experience a Matthew effect or weaken their leading position?
The answer to this question is not binary. In the context of the Cancun upgrade, several factors may influence the position of L2 leaders:
- Strengthening of the Matthew effect: For L2 solutions that have already established a strong ecosystem and user base (such as Optimism and Arbitrum), the Cancun upgrade may further strengthen their market position. By lowering Gas fees and improving transaction efficiency, these platforms may attract more developers and projects, further expanding their ecosystems.
- Rise of new challengers: At the same time, the Cancun upgrade also provides opportunities for new L2 projects. New projects can leverage the improvements brought by the Cancun upgrade to attract users and developers through innovative technological solutions and marketing strategies. For example, new L2 projects focusing on decentralization and user experience may disrupt the existing market landscape.
- Diversification of technology and strategies: After the Cancun upgrade, L2 solutions may explore more technological innovations and market strategies to respond to competition and changes in market demand. This includes improving cross-chain interoperability, increasing transaction speed, and reducing costs. The diversification of technology and strategies may allow some L2 projects to stand out and challenge existing leaders.
- Uncertainty in market dynamics: The market dynamics in the cryptocurrency and blockchain space are highly volatile. Investor sentiment, regulatory policies, macroeconomic factors, and other external events may all impact the position of L2 leaders. Certain external events may quickly alter the competitive landscape of the market.
Is there a possibility that L2 disruptors will fill Blob data, undermining the goal of reducing Gas fees?
I believe this possibility exists. However, considering that potential disruptors can think of such interference methods, the development teams responsible for maintaining the system can foresee and consider this issue as well. Based on this, we can speculate that using block resources, especially storing large amounts of data on the blockchain, is not inexpensive. This high cost is likely to limit the motivation of malicious developers to execute such attacks, as they would need to bear the corresponding high costs.
For mainstream blockchain projects, using blockchain resources (such as Blob data storage) to optimize performance and reduce Gas fees is beneficial to them. Although in the short term, malicious actors may create chaos by increasing invalid data, in the long run, strong blockchain projects can overcome these challenges through various measures to maintain the health and stability of their systems. Therefore, while facing short-term challenges, in the long run, these mainstream projects are likely to continue optimizing their systems to reduce the impact of malicious interference.
Will there be opportunities for BTC L2 and ETH L2 to merge in the future?
This perspective does indeed have a certain possibility based on the trend of modular development. As Layer 2 networks gradually become the entry points for applications and user ecosystems, theoretically, all main chains can become a specific modular layer. For example, Bitcoin can be chosen as the consensus layer, while Ethereum or other platforms can serve as the data availability (DA) layer or execution layer, depending entirely on the developers' choices and the market's response to these choices.
This concept of cross-chain integration is still in the theoretical stage, and its practical application may take a long time to realize. Although Ethereum's Layer 2 solutions have encountered various challenges in practical applications, this has prompted exploration into Bitcoin's Layer 2 network to seek faster development paths. This exploration is partly due to the fact that the implementation progress of Ethereum's Layer 2 network has not met expectations, prompting developers and investors to seek new opportunities.
The rise of Bitcoin's Layer 2 network is partly due to the underperformance of Ethereum's Layer 2 solutions and Bitcoin's advantages in consensus and attention. At the same time, Bitcoin's Layer 2 projects, due to their novelty, have attracted the attention of investors and the market. Currently, some projects aimed at compatibility between the Bitcoin and Ethereum ecosystems have emerged, although the emergence of these projects may lead to some degree of conflict, these conflicts are not considered major.
Ultimately, whether supporters of Bitcoin's Layer 2 network or Ethereum's Layer 2 network, they are essentially exploring how to expand the capabilities of their respective platforms. Although the concept of integration is still in its early stages, as technology develops and ecosystems mature, the possibility of cross-chain collaboration remains promising.
What impacts will the Ethereum L2 after the Cancun upgrade have on high-performance public chains like Solana?
The impact of Ethereum's Layer 2 network (L2) after the Cancun upgrade on high-performance public chains like Solana mainly manifests in the competitive landscape and ecosystem building.
Ethereum's Layer 2 solutions, such as ZK Sync, aim to enhance the scalability of the Ethereum network and reduce transaction costs, which is crucial for accelerating the development of the Ethereum ecosystem. However, high-performance public chains like Solana have already demonstrated their advantages in these areas, including lower transaction fees and higher processing speeds, attracting a large number of developers and users, especially in high-frequency applications such as gaming and decentralized finance (DeFi).
The Cancun upgrade and subsequent Ethereum L2 solutions may have the following impacts on high-performance public chains like Solana:
Intensified competition: The Ethereum L2 after the Cancun upgrade may improve its performance, reducing the gap with public chains like Solana in terms of performance, thereby intensifying competition in ecosystem building and user experience.
Ecological attractiveness: Ethereum has a large developer community and a mature ecosystem. The advancements in L2 solutions may further enhance its attractiveness to developers and projects, challenging Solana's advantages in rapidly developing ecosystems.
Technological innovation and cooperation: Competition may also promote cooperation between both sides in technological innovation, such as achieving interoperability between ecosystems through cross-chain bridging technologies, jointly expanding the application scope and user base of the entire blockchain industry.
Market positioning: Solana may need to further clarify its market positioning and advantages in the blockchain space, especially as Ethereum L2 technology matures, in order to maintain its competitiveness in specific application scenarios.
User experience: For users, improvements in Ethereum L2 may mean better transaction experiences and lower costs, which may prompt some users who originally leaned towards using Solana to reassess the advantages of both platforms.
