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

The Ethereum Dencun upgrade is scheduled for March 13, and discussions about how it will affect L2 and gas fees have been heating up. The Dencun upgrade is expected to reshape the prospects 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 will reduce the cost of rollup transactions by introducing data blobs. These blobs are separated in the transaction, and the rollup network or other protocol can temporarily hold data on the blobs. As a result, 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 exactly will the Dencun upgrade affect L2?

How will the Dencun upgrade affect L2?

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

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

baokse: Jesse Pollak, head of protocol at Coinbaokse and creator of L2 baokse, estimates that the blob space open by proto-danksharding is roughly four times that of the Ethereum rollup currently in use. At this level of demand, transactions will become cheap because the rates are market-based, and if usage does not increase, the cost could drop by 90% to 95%. But the low cost could lead to an increase in usage, and as demand rises, it will reach some stable equilibrium point, and the cost may end up being 2 to 5 times lower than it is now. A 2x reduction would mean a cost of around 10-15 cents per transaction, while a 5x reduction would make the transaction cost less than 5 cents.

Polygon: Polygon co-founder Jordi Baylina said at the ETHDenver conference that fees will fall, mainly due to supply and demand issues, and that increased supply will make Ethereum's data more available, but it is difficult to predict how much fees will fall. Brendan Farmer, another co-founder of Polygon, added that ZKrollups, unlike optimistic rollups, have to pay a fee to prove the existence of data in the 7-day delay, but with ZKrollups, the cost in this regard is very low.

What is the impact of the upgrade on gas fees?

According to experts such as OP Labs CEO Karl Floersch, the Dencun upgrade represents the dawn of a new era for Ethereum. The upgrade is seen as a key step in enhancing user experience and scalability, and Dencun's implementation is expected to address long-standing issues, particularly around gas fees and scalability.

L2 developers predict that the Dencun upgrade will result in a significant reduction in gas fees, making transactions on the extended network cheaper and easier to verify. David Silverman, VP of Product at Polygon Labs, believes that users can expect significant gas savings once the settlement contract is updated across all L2 networks. Polygon Labs' goal is to ensure that its users benefit from these cost reductions.

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

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

Revolutionizing Transaction Efficiency and Transaction Costs

The expected drop in gas fees could have far-reaching consequences, and in the future, users won't even have to pay for gas fees. Silverman, VP of Product at Polygon Labs, envisions an abstract gas expense scenario, similar to how Web 2 giants attract users by affording the cost of services like video conferencing and email.

While the prospect of no gas fees primarily exists 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 the purchase of NFTs and other retail activities, will permanently migrate to the L2 network.

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

Karl Floersch, CEO of OP Labs, anticipates that by removing barriers to integrating on-chain elements, chains can thrive across a variety of mediums and platforms. For example, he envisions video games that generate NFTs in games that interact with DeFi protocols and seamlessly leverage the presence of social media at minimal cost.

Upgrade will make Ethereum inclined to be rollup-centric

The Dencun upgrade also represents Ethereum's shift to an L2-centric approach to scaling, with Ethereum looking to slow changes to its core components and focus innovation and user-level on L2. Contrary to the basic chain, which is responsible for scaling, rollups are likely to be the way of the future. The main rollup players have even started to coordinate with each other at L2 meetings, discuss and propose improvements. Changes to the EVM will not be carried over to the Ethereum mainnet, such as new forms of account abstraction, precompilation, Opcodes, etc. With the implementation of EIP-4844, the ecosystem will begin to see the real impact of proto-danksharding. In addition, it is worth noting that as more L2s are added to blob space, the impact of cost reduction will gradually decrease.

Summary

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