Dencun update significantly reduces trading costs, increases trading volume, and solidifies the importance of Layer 2 in the Ethereum ecosystem. This article is sourced from Filippo Pozzi’s article “Explanation and analysis of the Ethereum update ‘Dencun’ 4 months after its implementation,” compiled and written by Baihua Blockchain.
Before the update called “Dencun,” Layer 2 already played an important role in the ecosystem. However, after the introduction of this well-known update, the explosion of Layer 2 has reached previously unimaginable levels, making it an indispensable element for expanding and improving efficiency throughout the ecosystem.
Today, we focus on analyzing the actual effects of this update, approximately four months after its official release. This period allows us to examine a large amount of data and evaluate the actual success or failure of the update.
“Dencun” is an Ethereum update released on March 13, 2024, combining the “Cancun” proposal from the Execution Layer and the “Deneb” from the Consensus Layer.
This update introduces a series of Ethereum Improvement Proposals (EIPs) aimed at improving various aspects of the Ethereum network. Among them, EIP-4844, also known as Proto-Danksharding, is significant for the scalability of Layer 2, by creating Blobs that increase the possibilities of data management within the network. How is this achieved?
Without delving too much into technical details, we can consider “blobs” as data packets (256 KB), representing a series of transactions that occur on Layer 2. These data packets are then packaged and subsequently sent to the Ethereum network for verification. Through txcity.io, I show you a graphical example.
Here we see representations of two blockchains: Ethereum on the left and Aeternity (the network of the Dencun update) on the right, with each moving person representing a transaction.
Let’s focus on the right side, representing the Arbitrum blockchain, one of Ethereum’s main Layer 2 solutions. As you can see, all users of this blockchain leave a note on the counter before moving on the conveyor belt represented by the Arbitrum blockchain. This note signifies the receipt of transactions occurring within Arbitrum. Because Arbitrum uses a mechanism called Optimistic Rollup, it initially considers all transactions as valid based on an honest assumption. Subsequently, transactions are publicized to everyone, allowing for review and dispute within a certain time frame.
Once a certain number of transactions are accumulated, as shown in the video, the “postman” collects all transactions by rotating and forms what we define as a “blob.” Subsequently, if we observe closely, when the postman starts pointing towards the arrow indicating Ethereum’s direction, we see the postman’s image also appearing on the left side of the screen, representing the Ethereum blockchain.
Here, the postman holds his “blob,” a data packet representing a series of transactions occurring on Layer 2, and enters the Ethereum “bus,” representing a block of the main blockchain.
As the video shows, this process of creating a blob is as simple as a “normal” transaction. In fact, there is no distinction between the postman and the many passengers boarding the Ethereum block. The difference lies in the fact that the postman brings a series of transactions, while others represent single transactions native to the Ethereum network.
By simplifying the process of creating blobs, transaction fees on various Layer 2 solutions have been reduced by over 90%, almost achieving free operations within these blockchains, leading to a significant increase in trading volume across all major Layer 2 solutions.
Now, let’s examine the improvements brought by this update through on-chain data analysis.
By observing this chart, we can summarize today’s discussion, showing the average transaction costs before and after the implementation of Dencun.
From the chart, it is clear that starting from March 13, the average transaction costs for Layer 2 solutions like Arbitrum, Optimism, or ZkSync instantly dropped from around $0.50 to near $0.
Interestingly, despite some temporary increases in transaction costs on the underlying blockchain shown in the chart, all other major Layer 2 solutions were able to maintain stability, with transaction costs close to zero and without facing block congestion issues similar to blockchains like Solana.
The reduction in transaction costs has opened the door for various individuals to enter the industry, even with limited investments, sparking a wave of activity across all major Layer 2 solutions and bringing real operational prosperity.
Another indicator confirming increased activity within major Layer 2 solutions is undoubtedly the number of transactions verified on the blockchain.
As shown in the chart above, except for zkSync, other Layer 2 solutions recorded a significant increase in the number of transactions, leading to a substantial growth in trading volume, with Base in early April and Arbitrum at the end of May being particularly noteworthy.
This chart provides a detailed view of the operational state of the blockchain network, highlighting the number of “blobs” contained in each Ethereum block. The target line and constraint line represent the network’s ideal and maximum values supported. These parameters are crucial for optimizing the overall efficiency of the blockchain and avoiding excessive costs. Actively monitoring the number of “blobs” in each block is essential to ensure that the network can efficiently handle transaction loads while maintaining stability and performance. Therefore, this data remains critical for operators to understand the network’s health status.
Undoubtedly, this update significantly reduced transaction costs, and despite the increase in trading volume on major Layer 2 solutions, its effects continue to persist.
As Vitalik Buterin emphasizes in his article “Layer2 as Ethereum’s Cultivation Extension Kit,” Layer 2 has become an essential component in the blockchain field and will continue to grow in importance. This is due to its increasingly widespread infrastructure integration, making its use in the Ethereum ecosystem increasingly vital.
I would like to conclude by quoting a portion of the above-mentioned article where Vitalik answers the question about how to successfully develop the culture of Layer 2. His response, I believe, is very engaging and reflects the true, fundamental spirit of developers and DeFi enthusiasts, the real spirit.
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