a16z: Dencun, the largest upgrade of Ethereum since The Merge

Original Title: “Understanding Dencun, the biggest upgrade to Ethereum since The Merge”

Written by: Noah Citron, Valeria Nikolaenko, a16zcrypto

Translated by: Kate, Mars Finance

Last week, Ethereum underwent its biggest upgrade since The Merge. "Dencun" is a portmanteau of "Deneb" and "Cancun," following the tradition of naming upgrades after stars and cities—"Dencun" bundles together nine proposed network changes.

Among these proposed changes, known as Ethereum Improvement Proposals (EIPs), the most anticipated is EIP-4844—considered a significant milestone on the path to scalability. EIP-4844 is also referred to as "protodanksharding" (inspired by developer Diederik Loerakker, also known as protoolambda, and Dankrad Feist).

Why is it important?

So why is EIP-4844 important? First, it introduces the concept of "blobs"—a place to store additional temporary data on Ethereum blocks. Simply put, a blob is a new location for storing rollup data added to the network. Rollups are Layer 2 (L2) services that reduce network load by processing transactions off-chain and then bringing them back on-chain. Since rollups only temporarily need this data, blob data (for the most part) will be forgotten by the blockchain afterward.

Moreover, because blobs are ephemeral—like Instagram Stories (designed to expire after 18 days in this case)—they reduce Ethereum's reliance on permanent data storage. This is also a step toward enabling Ethereum to store more data blobs through data availability sampling.

Here’s a helpful analogy from a16z crypto engineer Noah Citron that summarizes why all of this is important:

• Think of Ethereum as a highway.

• Mainnet transactions are people driving alone.

• Rollups are buses that gather people together, helping to alleviate traffic congestion.

• EIP-4844 essentially adds a "bus lane" to Ethereum, making the network more efficient.

• The Dencun upgrade also paves the way for adding more "bus lanes" in the future.

Advantages and Outcomes

Imagine if rollup data did not expire. This would add approximately 83.7 GB of data to the blockchain each month (about 31 days), resulting in an annual increase of 985.5 GB. This number would continue to grow, as remember: blockchains store information permanently. By regularly expiring, blobs limit the demand for excessive data storage—especially when other data can be stored off-chain through rollups. [To be more specific about the size of blob data: the target for each Ethereum block is 3 blobs, with a maximum of 6 blobs per block. Each blob is approximately 128 KB of data (a vector containing 4096 elements, each about 32 bytes).]

EIP-4844 has significantly reduced costs. For example, a transaction on the rollup provider Optimism now costs less than 0.1 cents [Source: l2fees.info]—about 1000 times cheaper than the transaction costs before the upgrade. Note that these immediate cost savings are unlikely to last: as more people put more transactions into rollups, fees may increase due to induced demand. [If you're interested in tracking the blob fee market, check out the Dune analytics dashboard created by Citron: the dashboard shows the current base fee for blobs and the percentage of the target base fee currently in use.]

Some believe that the Dencun upgrade could reduce costs by 10 to 1000 times (this is purely an estimate). However, future upgrades called PeerDAS or "full danksharding" aim to make rollups even more efficient, increasing transaction throughput by 32 times. The key innovation is adding more shards, thereby improving efficiency without too much additional cost. Thus, full sharding technology will allow for many bus lanes at the price of one, potentially leading to massive throughput growth in the future.

Impact and Applications

Lower transaction costs are important for everyone, as cheaper transactions can unlock entirely new categories of applications that would not make sense at higher fees.

Since Dencun also introduces the concept of transient storage (EIP-1153) to the Ethereum Virtual Machine (EVM), smart contracts can now store bits of data only during the transaction or only during the execution of specific contract calls. This means developers can do cooler things than before, and at a much lower cost, as they now have a form of "mid-term" memory for smart contracts. Think about the impact of different types of volatile memory on semiconductor innovation…

Other benefits of the Dencun upgrade for developers include more liquid staking protocol tools to understand what’s happening on the beacon chain (from the EVM), which helps decentralize these protocols. Another is the mcopy opcode, which, along with Dencun, now makes some memory-intensive smart contracts more energy-efficient.

Conclusion:

While the long-awaited "Merge" was one of the biggest technical feats to date—transitioning Ethereum from a more energy-intensive proof-of-work to proof-of-stake—we are now entering the "Surge," where ongoing updates can further scale Ethereum. Like all other updates, this one has been a long time coming (Ethereum held a trusted setup ceremony for it).

But most importantly, all these upgrades are the result of countless developers around the world coordinating and contributing through open source.