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How Much Cheaper Will Dencun Really Make the Ethereum Ecosystem?

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How Much Cheaper Will Dencun Really Make the Ethereum Ecosystem?

On March 13, Ethereum is set to undergo its latest network upgrade, Dencun. While the event has certainly stirred excitement among the network’s die-hard tech enthusiasts, it has generated relatively little mainstream buzz in contrast to the 2022 merge, which transitioned Ethereum to the more energy-efficient proof-of-stake model.

Make no mistake, though: According to the developers responsible for running the largest layer-2 networks built atop Ethereum, Dencun will constitute a seismic event in the blockchain’s history—one poised to make gas fees a thing of the past on scaling networks, and usher in a new era of possibility for on-chain development.

“This is the beginning of a new paradigm for how Ethereum operates,” Karl Floersch, the CEO of OP Labs, which builds layer-2 network Optimism, told Decrypt.

“Since 2015, there has been nine years of stagnation in terms of user experience and capability set—a lot of fundamental research had to be done,” he continued. “That fundamental research is done. It is now ‘put this thing into practice’ mode.”

Numerous other layer-2 developers who spoke with Decrypt echoed the same sentiment: Dencun will shift Ethereum into an entirely new gear, principally by making layer-2 transactions exponentially cheaper and easier to validate.

Within a month or two of Dencun’s launch, once settlement contracts across all layer-2 networks have been updated, gas fees on most layer-2s should drop significantly—so long as networks pass those savings onto users, Polygon Labs VP of Product David Silverman told Decrypt. Silverman said Polygon intends to ensure its users reap the sum of those cost reductions.

Terence Tsao, a developer at Offchain Labs, which builds Arbitrum, told Decrypt he “can safely say” that gas fees on layer-2 networks should immediately fall by 75% once Dencun is implemented, assuming current levels of network traffic.

How will gas prices plummet so quickly? It’s all thanks to “blobs,” which will soon introduce a new, temporary method for data storage on Ethereum via a process called proto-danksharding. At present, data can only be stored on Ethereum forever, which is immensely expensive. Proto-danksharding will allow layer-2 data to instead be stored temporarily for a period of about a month. The process will be just as secure, but far cheaper.

To understand the potential impact of that change, says Polygon Labs’ Silverman, think of Ethereum as a road. For the last several years, Ethereum could best be described as a rural backroad—a reliable means to get from A to B, but one that’s slow, and easily clogged.

Proto-danksharding will single-handedly expand Ethereum from that backroad into a four-lane highway, says Silverman. Eventually, full danksharding will grow the network to a 16-lane highway. Those extra lanes might come in handy at some point, or they might be overkill; regardless, it’s Dencun that’s bringing Ethereum—to stay with the analogy—into the age of modern transportation. And to developers like Silverman, the significance of that leap cannot be understated.

Gas fees won’t just become miniscule post-Dencun; They may drop to the point that crypto companies and projects cover their cost—just as Web2 giants like Google cover the costs of video conferencing and email, for example—to entice users.

“We’re going to enter a world where most users are just not going to experience gas at all,” Silverman said. “And it becomes abstracted away.”

That gas-free future, to be clear, will exist on layer-2 networks, not the Ethereum mainnet. But post-Dencun, the overwhelming majority of retail user traffic is likely to shift—permanently—away from Ethereum proper, and onto layer-2 networks like Arbitrum, Optimism, and Polygon, says Offchain Labs’ Terence Tsao. And that appears to be exactly how Ethereum developers want it.

Before focusing on Arbitrum, Tsao previously worked on the Ethereum mainnet. He says Dencun will mark a major shift in how users interact with Ethereum, with the mainnet “fading away into the background.” It will still be essential, serving as an effective engine that secures data on layer-2 networks and facilitates communication between them.

But the overwhelming majority of on-chain transactions—for NFTs, for shoes, for cups of coffee—will never again take place on the Ethereum mainnet, says Tsao. Stories of tens of millions of dollars burned attempting to mint NFTs will soon be a charming relic of a bygone era.

Karl Floersch of OP Labs expects that Dencun will reinvent what it means to build applications—and to exist on-chain.

“We’ve never seen what the world looks like when blockspace is in abundance,” he said. “We’ve never seen the kinds of applications that people can build.”

Floersch anticipates that by effectively eliminating any barrier to entry for integrating on-chain elements with any product, a renaissance of cross-pollination will soon occur across mediums, sites, and platforms. As just one example, he offered the idea of a video game that generates NFTs in-game, interacts with DeFi protocols, and leverages your social media presence to influence gameplay. All seamlessly, and all at effectively zero cost.

“Oh my god, I’ve been dreaming of this,” he said. “I’m really excited for the world to know why we’ve been so excited about crypto.”

Edited by Andrew Hayward