How will the Ethereum Dencun upgrade affect L2 and gas fees?

The Ethereum Dencun upgrade is scheduled for March 13, and discussions have been heating up about how it will affect L2 and gas fees. The Dencun upgrade is expected to reshape the landscape of the Ethereum blockchain, and developers expect the upgrade to be an important milestone, especially for the Ethereum L2 network.

The main content in the Dencun upgrade is EIP-4844, also known as "proto-danksharding", which will introduce a new type of transaction class that reduces the cost of rollup transactions by introducing data blobs. These blobs are in separate locations within transactions, and rollup networks or other protocols can temporarily store data on the blobs. Therefore, the cost of storing data on Ethereum for these L2 networks will be significantly reduced, and the cost reduction will also be passed on to users. So, how will the Dencun upgrade affect L2 specifically?

How will the Dencun upgrade affect L2?

Arbitrum: Offchain Labs is the developer behind the L2 (optimistic rollup) network Arbitrum. Offchain Labs co-founder Steven Goldfeder believes that Dencun will expose some very interesting things that will help reduce L1 fees. Since some operations use a lot of data on L1 but almost no data on L2, and some operations use mostly a lot of L2 data, each ecosystem will decide for itself how to do pricing and data on L1 and L2 . There are some competitors who set L2 fees as free, but this behavior is difficult to sustain.

StarkWare: Starkware is the main developer behind the L2 network Starknet, and the team has been preparing for the Starknet infrastructure after proto-danksharding is launched. Starkware CEO Eli Ben-Sasson believes that blobs will be significantly reduced, but this depends on the price of the blobs being used. This means that if this data were now added to blobs, and assuming the price was 10 times lower, the cost would also drop by 90%.

Base: Jesse Pollak, head of protocol at Coinbase and creator of L2 Base, estimates that proto-danksharding opens up approximately four times the blob space than currently used Ethereum rollups. At this level of demand, transactions will become cheap because rates are market-based and if usage doesn't increase, costs could fall by 90% to 95%. But low cost will likely lead to increased usage, and as demand rises, it will reach some stable equilibrium point where fees may end up being 2 to 5 times lower than they are now. A 2x reduction would mean a cost of around 10-15 cents per transaction, while a 5x reduction would bring transaction costs below 5 cents.

Polygon: Polygon co-founder Jordi Baylina said at the ETHDenver conference that fees will fall, mainly due to supply and demand issues. Increased supply makes Ethereum's data more available, but how much the fees will drop is difficult to predict. Brendan Farmer, another co-founder of Polygon, added that ZKrollup is different from optimistic rollup, which has to pay for data that proves to exist in the seven-day delay, but with ZKrollup, the cost of this is very low.

What impact does upgrading have on gas fees?

According to experts such as OP Labs CEO Karl Floersch, Dencun’s upgrade marks a new era for Ethereum. The upgrade is seen as an important step to improve user experience and scalability, and Dencun’s implementation is expected to resolve long-standing issues, especially regarding gas fees and scalability challenges.

L2 developers predict that the Dencun upgrade will significantly reduce gas fees, making transactions on the extended network more economical and easier to verify. According to David Silverman, vice president of product at Polygon Labs, once the settlement contracts of all L2 networks are updated, users can expect to save a lot of gas fees. Polygon Labs is committed to ensuring that users benefit from these cost reductions.

According to estimates by Offchain Labs developer Terence Tsao, assuming current network traffic levels, gas fees on the L2 network may drop by 75% immediately after the Dencun upgrade is implemented. This is due to the introduction of “blobs” and proto-danksharding, which provide Ethereum with a more cost-effective method of data storage. Proto-dankSharding will allow L2 data to be temporarily stored for approximately one month, significantly reducing storage costs while maintaining security. This enhancement has been likened to expanding Ethereum into a four-lane highway, with the potential for further expansion in the future.

0xTodd, a partner of Ebunker, a well-known non-custodial Ethereum staking service provider, said that the most important thing about the Cancun upgrade is to significantly reduce the gas cost of L2 and gain an advantage in competing with other competing L1s. At the same time, considering that the L2 sequencer is also a "big user" of gas consumption on the Ethereum main network, after the upgrade is completed, you can also see a slight reduction in gas on the Ethereum main network.

Changing Transaction Efficiency and Transaction Costs

The expected decrease in gas fees may have a profound impact. In the future, users will not even need to bear gas fees. Silverman, vice president of product at Polygon Labs, envisioned an abstract gas fee scenario similar to how Web 2 giants would attract users by covering the cost of services like video conferencing and email.

While the vision of no gas fees exists primarily on the L2 network, the Ethereum mainnet will continue to play a vital role in ensuring data security and facilitating communication between networks. However, it is expected that most on-chain transactions, including NFT purchases and other retail activities, will be permanently migrated to the L2 network.

Offchain Labs developer Terence Tsao believes that the Dencun upgrade will fundamentally change the way users interact with Ethereum, while the mainnet will gradually move behind the scenes. This shift will eliminate the high costs associated with on-chain transactions, making activities like NFTs more accessible and affordable for users.

OP Labs CEO Karl Floersch anticipates that by removing barriers to integrating on-chain elements, cross-chain development can flourish across a variety of media and platforms. For example, he envisions video games that generate NFTs within the game interacting with DeFi protocols and seamlessly leveraging social media presence at minimal cost.

The upgrade will tilt Ethereum towards rollup-centric

The Dencun upgrade also represents a shift towards an L2-centric scaling approach as Ethereum looks to slow down changes to its core components , putting innovation and user-level focus on L2. As opposed to the base chain, which is responsible for scaling, rollups are likely to be the future. Major rollup players have even started coordinating with each other at L2 meetings to discuss and suggest improvements. Changes to the EVM will not be brought to the Ethereum mainnet, such as new forms of account abstraction, precompilation, Opcodes, etc. With the implementation of EIP-4844, the ecosystem will start to see the real impact of proto-danksharding. In addition, it is worth noting that as more L2s are added to the blob space, the impact of cost reduction will gradually decrease.

Summary

Since the Dencun upgrade will significantly reduce gas fees and improve its related functions, Ethereum is expected to usher in a new era of scalability and low cost for on-chain transactions. The upgrade will further spur a surge in innovation and adoption of the L2 network, fundamentally changing the way users interact with the Ethereum ecosystem.

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