What is the Ethereum Cancun upgrade?

Cryptocurrency is undoubtedly one of the most famous use cases of blockchain, but for Vitalik and Ethereum developers, it is more important to improve blockchain design so that it can become a solution to almost every problem.

Blockchain is the solution to almost every problem

What is blockchain?

As the name suggests, a blockchain consists of a series of blocks that are linked to each other. Information is collected and transformed into something that can be processed, called data. Splitting data into equal-sized chunks is the act of making data accessible in an efficient, fast, and reliable manner. Data is critical today as it helps individuals, businesses and governments make informed decisions to realize their full potential.

Data on the blockchain must be stored in a linear, chronological order, which means that new blocks can only be added to the so-called "end" of the existing data chain. It is worth noting that once a new block is generated, the contents of the previous block cannot be changed, because the hash value of each block, that is, their "unique digital identification", will change accordingly and require the network to Validation of most nodes. In part, this leads to blockchain’s well-known immutability, trust, transparency, and traceability.

L1, L2, Rollups

The blockchain is divided into first-tier projects (L1s): Bitcoin, Ethereum, Litecoin, Ripple, Solana, Binance Chain, TRON, and more. Looking at the security, decentralization, and scalability trilemma of blockchain, we know that original projects like Bitcoin and Ethereum chose to focus on security and decentralization, so they were poor at scalability. There will be difficulties. Why are Ethereum transaction fees so high? Because blockchain capacity is not proportional to user demand, users have to "bid" for their transactions during peak hours, causing transaction fees to rise. Additionally, blockchains are not yet fast enough to achieve global adoption: Ethereum’s current maximum transactions per second (TPS) is 62.34, while Visa’s is 1,700.

Upgrades/extensions of the blockchain are called Layer 2 (L2s). L2s are built on top of L1s so that they can redirect transactions that would have been processed on L1s to their network for faster and more efficient flow. Rollup is the way to achieve this "relocation" of data and is therefore a scaling solution. Knowing all of this will help us understand the next sections more easily.

Ethereum Consolidation and Forward

Ethereum Consolidation

Ethereum Consolidation is an event where Ethereum merges with the old Proof of Work (PoW) ) consensus mechanism completely implemented Proof of Stake (PoS) and parted ways. This is a practical compromise for security and decentralization for scalability reasons, as PoS is second only to PoW on Ethereum considering the number of validators, especially compared to other layer one (L1s) compared to. PoS can achieve more efficiency (energy saving) and higher data throughput. Ethereum is the largest blockchain ecosystem, with projects for various purposes and applications, as well as some of the most widely used L2 infrastructure (Polygon, Arbitrum, Optimism), so increased efficiency in Ethereum will undoubtedly benefit blockchains of all stakeholders.

The Ethereum merger occurred nearly two years after the launch of Beacon Chain, which was a PoS layer outside of Ethereum’s original PoW. This two-layer design has not changed after the merger, but now Beacon Chain is the consensus layer of Ethereum, while the other layer is the execution layer (where transactions occur).

Dencun Upgrade

The latest Ethereum upgrade is the Shapella upgrade in April 2023, which allows validators to unstake, while the Dencun upgrade is the first in 2024 The next big thing in Ethereum quarterly. In the Shapella upgrade, the part that happens on the Beacon Chain is named after the Capella star, while the execution layer is named after the city of Shanghai.

Now that Ethereum is working on improving scalability, they must find a way to achieve this goal. The original proposal was sharding, which described the process of dividing the blockchain into a total of 64 shards - smaller, more accessible, better, faster, and cheaper. Additionally, validators are pseudo-randomly assigned to shards and reshuffled after each epoch, that is, after a specific event occurs. This acts as an enhanced security barrier for the blockchain.

However, the Ethereum development team noticed Rollup’s continued popularity and decided to shift its focus to supporting Rollup’s development in the coming years. The idea now is to help the second layer (L2s) "communicate" or send data to Ethereum in the most efficient way, and this answer was proposed by Dankrad Feist, a researcher at the Ethereum Foundation, hence the name Danksharding: instead of putting Rather than splitting the entire blockchain into smaller pieces, data storage is split into "shards."

To implement Danksharding, we need to first prepare the blockchain, in other words, work on an early version of Danksharding ( proto in Greek). Add to that the name of another researcher on EIP-4844, and you have Dencun's upgraded Proto-Danksharding. The upgrade will be carried out on two levels, Deneb on the Beacon Chain and Cancun on the execution layer. A new type of transaction called "blob-carrying transaction" will be introduced to the execution layer, and Beacon Chain will store blob data for a limited time. Blob, or Binary Large Objects, is unstructured data stored in binary form. When Rollup interacts with Ethereum, they will send transaction information in the form of blobs instead of calldata (the read-only memory used for transaction data storage). Remember that the blob data is already stored separately from the calldata and is only stored for a limited time. , because they are already separated from the calldata. This will alleviate congestion on both levels, especially on the execution layer, and is therefore estimated to increase the speed and cost of Rollup.

The results are: most beneficial for the Rollup team as they don’t have to do extra work for the Danksharding transition, 10-100 times faster, Ethereum data fees reduced, accounting for 90% of L2 transaction fees. Logically, the most beneficial upgrades to Dencun will be L2 tokens such as OP and ARB. However, ETH value may also rise. Don’t forget, L2 relies on Ethereum, so when they thrive, the Ethereum ecosystem will grow too!

Disclaimer: The views expressed in this article are for reference only. This article does not constitute an endorsement of any of the products and services discussed, nor does it constitute investment, financial or trading advice. A qualified professional should be consulted before making financial decisions.

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