What Will the Next Ethereum Upgrade, Cancun-Deneb, Bring?

Over the past year, Ethereum has successfully implemented some of the most consequential and technically impressive upgrades in the blockchain space, and they show no signs of stopping down. After the Shanghai upgrade, developers set their sights on Cancun-Deneb, and improvement focused on scalability through proto-danksharding, also known as EIP-4844.

Since 2014, Ethereum has made several improvements to its blockchain that have helped it keep its spot as the top smart contract platform. Over the years, these upgrades have come in a wide variety of areas and have included features such as greater efficiency, account abstraction, a change to proof of stake, and changes to fee structures, all of which serve the goal of making Ethereum a near-instant decentralized compute layer for Web3.

After Shanghai, the most recent update from April 2023 that enabled staking withdrawals, attention has been turned to improving Ethereum’s scalability, allowing for faster transactions and lower fees through a technology known as proto-danksharding. This is a long and confusing term, so let’s break it down and understand its meaning.

Sharding is a relatively established scalability concept that involves taking a blockchain and breaking it down into smaller pieces, or shards, each of which processes a portion of the total transactions. This allows for transactions to be processed in parallel, leading to greater efficiency. Each shard has a subset of the total nodes in the network, and those nodes would process their shard’s transactions. Some blockchains have already implemented sharding, namely Harmony and NEAR.

Around 2020, Ethereum pivoted to a rollup-centric roadmap and planned to scale mostly using Layer 2s instead of increasing the transaction times on the base layer. Consequently, its sharding strategy changed from creating more rooms for transactions to instead providing space for blobs of data or simply storage space that the mainnet hosts and does not interpret. These blobs will store data from Layer 2s that can be cryptographically verified off-chain through zero-knowledge proofs and other technologies.

Danksharding was named after Dankrad Feist, an Ethereum researcher who developed the concept. Its main innovation is its use of a merged market fee. Currently, Ethereum blocks are both built and proposed by the same entity, which has caused the emergence of Maximum Extractable Value, or MEV, which is when a block validator manipulates the order of transactions to one that siphons money to themselves. For example, if a block has a buy order for a token in it, an MEV sandwich attack would see the block validator order the transactions such that they buy a lot of the token and raise the price, then place the user’s buy order and further raise the price, then the validator’s sell order. Danksharding introduces a merged market fee and proposer/builder separation, meaning that the roles of builders and proposers are separated. Builders will create the blocks and bid on their inclusion, and one proposer per block will choose a transaction order based on this bid without being able to see the transactions inside of it. This will help to prevent MEV from siphoning billions of dollars from Ethereum users.

Proto-danksharding is the first step to a full danksharding implementation and is named after Ethereum researcher Proto Lambda. Its main goal is to introduce the previously mentioned blob data structure. Storing data in a blob is much cheaper than Ethereum transaction data since it is not compatible with Ethereum’s execution engine, and it will be used for Layer 2 transaction information. Therefore, interacting with Ethereum Layer 2s will become even cheaper while retaining the security and decentralization benefits of mainnet Ethereum.

One concern about introducing blobs is that it will significantly increase the size of Ethereum blocks. The hardware requirements for running a node could become prohibitively expensive, leading to greater network centralization. To combat this issue, a future Ethereum upgrade may automatically delete blob information after a certain time. This would sacrifice Ethereum’s ability to store the full blockchain transaction history. However, as Ethereum founder Vitalik Buterin wrote, “The purpose of the Ethereum consensus protocol is not to guarantee storage of all historical data forever. Rather, the purpose is to provide a highly secure real-time bulletin board, and leave room for other decentralized protocols to do longer-term storage.” 

Introducing proto-danksharding in EIP-4844 and Cancun-Deneb will pave the way for a full danksharding implementation that will reduce fees, increase transaction times, and create a more efficient, MEV-minimized blockchain. The estimated time upgrade date is not finalized yet can be anticipated to release before the end of the year, but it is, of course, subject to change. 

By Lincoln Murr

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