Ethereum's Dencun Upgrade: Key Features and Market Implications

Ethereum is a living, breathing organism. Having started as a somewhat improved version of Bitcoin, it has evolved into the most demanded blockchain ecosystem in the world, shedding its PoW skin along the way. All in the course of less than ten years.

This, however, does not imply that Ethereum will remain the way it is today. There is no end of history, and Ethereum developers are working to make the ecosystem more sustainable, user-friendly, and, most importantly, scalable. 

The newest upgrade to Ethereum, dubbed Dencun, is expected to go live on March 13, 2024, at slot 8626176. This article explores the updates that this upgrade will usher in, as well as discusses other matters pertaining to it.

Ethereum Roadmap and Naming

The Ethereum roadmap is a somewhat complex plan outlined for the following years with the strategic goal of making the entire ecosystem future-proof, scalable, and utterly resilient while maintaining its high throughput, speed, and security. In a way, it is the plan to solve the conundrum first formulated by Ethereum co-founder Vitalik Buterin, commonly referred to as the “blockchain trilemma.”

Blockchain Trilemma and How to Solve It

Basically, it lists three things that any blockchain should have on a high level, yet it is impossible (or at least incredibly difficult) to attain all of them simultaneously. Those features are as follows.

1. Security
2. Scalability
3. Decentralization

The trilemma implies that similar to other trilemmas of this kind, you can easily have any two of its pillars but will have to sacrifice the remaining one. There were numerous attempts to solve this problem, all to varying degrees of success, but Ethereum’s plan seems to be among the most ambitious ones so far. 

The roadmap that outlines the path looks as shown in the figure below.

Aside from quite a visionary approach to evolving Ethereum, it shows a somewhat poetic stance, with all phases ending with a “rge,” although an “urge” may be sadly missing.

The phases, however, each have their own strategic goal, as quoted from Ethereum’s official material on the matter.

• The Merge: upgrades relating to the switch from proof-of-work to proof-of-stake
• The Surge: upgrades related to scalability by rollups and data sharding
• The Scourge: upgrades related to censorship resistance, decentralization, and protocol risks from MEV
• The Verge: upgrades related to verifying blocks more easily
• The Purge: upgrades associated with reducing the computational costs of running nodes and simplifying the protocol
• The Splurge: other upgrades that don't fit well into the previous categories.

The new Ethereum upgrade, Dencun, is a part of the Surge phase. Its naming, however, may seem as confusing to some as that of Ethereum’s new testnet, Holešky. That, however, is the result of the naming convention that the Ethereum community accepted and has been following ever since discarding the very curt and not marketing-friendly “Eth2” as the umbrella term for its subsequent phases of evolution.

Ethereum Naming Convention and Dencun

After the Ethereum hard fork, known as the Merge, a new naming convention was introduced since, from now on, all Ethereum upgrades were to happen on two layers:

• Execution layer (EL): responsible for maintaining the network’s essential operation, such as completing transactions using virtual machines.
• Consensus layer (CL): it is effectively a backend of the blockchain, which hosts and verifies the operation efficiency of Ethereum validators.

Ever since the Merge, EL upgrades were to be named after the cities where Devcons were hosted, in chronological order. The agreement is that should the number of upgrades outrun the number of cities, they will switch to other cities that have some significance to the Ethereum dev community.

As for the CL upgrades, they followed a seemingly more straightforward pattern of being named after stars in alphabetical order. This, however, is more challenging than it may seem since there are always several stars starting with the same letter, so deciding on which to use can lead to a heated debate. 

Those upgrades can occur separately or concurrently. In the latter case, the resulting meta-upgrade is named as either the names of the respective EL and CL upgrades put together (as in “London + Altair” or “Paris + Bellatrix”) or as their portmanteau. This is why the previous ETH upgrade was called Shapella: it is the merger between the city of Shanghai and the star of Capella. 

The next Ethereum upgrade is dubbed Dencun, and it was not an easy choice to make. The resulting name comes from the Mexican city of Cancún, and the star is Deneb (α Cyg).

Cancún was the city that hosted Devcon back in 2017. It is a significant tourist destination in Mexico, situated on the shore of the Atlantic Ocean. Devcon 2017 was the largest-ever Ethereum gathering at the time, with just under 2,000 attending. The year 2017 in Ethereum was marked by unprecedented growth in network use, adoption, and overall progress.

Choosing the star name posed a more significant challenge to the devs. The initial plan was to name it Dubhe after α Ursae Majoris, in the constellation better known as the “Big Dipper” or the “Big Bear.” The play was to associate the upgrade with the end of the bear market, yet eventually, they decided that the name was too hard to write for some people (unlike Holešky, obviously), so they switched to the other star starting with D, Deneb.

Deneb is the brightest star in the Cygnus constellation, sitting atop what is called “the Northern Cross” or “Summer Triangle.” Its mass is 19 times that of the Sun, and it is a supergiant that has exhausted most of its hydrogen. It has some cultural significance in countries such as China or Japan, primarily due to the legend of the cowherd and the weaver girl.

Notably, the next Ethereum upgrade was also no easy task in terms of naming. The city name would be Prague, and the star, Electra, the third brightest star in the Pleiades in the Taurus constellation (which is again a play on the cryptocurrency market, this time signifying a bull trend). After that, the city part would be Osaka. As for the star, we can only know that it will start with an F.

With that out of the way, let’s take a look at what Dencun is going to bring to the table once it goes live.

Ethereum Dencun EIPs Explained

At the core of the Dencun package is proto-danksharding, along with on-chain storage improvements and minor code changes for the Ethereum Virtual Machine.

The Ethereum hard fork, expected later this year, will include nine Ethereum Improvement Proposals (EIPs) to improve data storage and reduce fees.

At the core of this upgrade is EIP-4844, also known as proto-dank sharding, which expands the blockchain's capacity for data blobs and reduces gas fees for Layer-2 rollups.

The other EIPS included are:

• EIP-1153 - reduce on-chain data storage fees and improve block space.
• EIP-4788 - enhance bridge and staking pool designs.
• EIP-5656 - minor code changes to Ethereum Virtual Machine.
• EIP-6780 - remove code that could terminate smart contracts.
• EIP-7514 - improve validator stability and network security.
• EIP-7516 - optimize fees related to data blobs introduced in EIP-4844, further improving its efficiency benefits.
• EIP-7044 - voluntary withdrawal of staked assets.
• EIP-7045 - increase the number of attestations included in each Ethereum block.

Those upgrades will occur simultaneously on both the execution and consensus layers of Ethereum. The table below depicts all the main improvements included in Dencun, including their justification as described by their respective creators.