What Is Ethereum Cancun Upgrade?

Ethereum is the second-largest cryptocurrency by market capitalization and the most widely used blockchain platform for smart contracts and decentralized applications (DApps). However, Ethereum also faces some challenges, such as scalability, security, and usability, that limit its potential and adoption. To address these issues, Ethereum has been undergoing a series of upgrades, collectively known as ETH2 or Serenity, that aim to transform the network into a more efficient, secure, and user-friendly global transaction platform. The Ethereum Cancun upgrade, also known as Cancun-Deneb or Dencun, is the next planned upgrade to the Ethereum network. It is expected to go live in the first half of 2024, following the successful activation of Shanghai, the previous upgrade that introduced several improvements to the execution layer of Ethereum. The Cancun upgrade will focus on enhancing the scalability, security, and usability of the Ethereum network, especially for rollups, a Layer 2 scaling solution that processes transactions off-chain and submits proofs to the main chain.

Ethereum Cancun Upgrade Introduction

The Cancun upgrade will introduce five key Ethereum Improvement Proposals (EIPs) that will affect the execution layer of Ethereum. These are:

• EIP-4844 (Proto-Danksharding): This is the most anticipated feature of the Cancun upgrade, as it sets the stage for the full implementation of Danksharding, the final phase of the ETH2 upgrade that will dramatically increase the data availability and throughput of the network. Proto-Danksharding is a transitional phase that will introduce data blobs, which are chunks of data that can be stored on the network without being executed. This will allow rollups to access more data and reduce their gas fees, as they will only need to pay for data storage and not for computation. Proto-Danksharding will also enable cross-shard communication, which will improve the interoperability and composability of DApps on different shards.
• EIP-1153 (Transient storage): This EIP will lower the cost of on-chain data storage by introducing a new type of storage that is temporary and can be deleted after a certain period of time. This will optimize the block space and reduce the state size of the network, which will improve its performance and security. Transient storage will also benefit rollups, as they will be able to store their data on-chain for a short duration and then delete it after submitting their proofs, saving gas and storage costs.
• EIP-4788 (Beacon state root in EVM): This EIP will improve the structure of cross-chain bridges and stake pools by allowing the Ethereum Virtual Machine (EVM) to access the state root of the Beacon chain, which is the core component of the consensus layer of Ethereum. This will enable the EVM to verify the validity and finality of the Beacon chain, which will enhance the security and trustworthiness of cross-chain transactions and staking operations.
• EIP-5656 (EVM minor code changes): This EIP will introduce some minor code changes to the EVM that will improve its efficiency and compatibility. These changes include adding new opcodes, removing unused opcodes, and modifying existing opcodes. These changes will not affect the functionality of the EVM, but will make it easier to implement and maintain.
• EIP-6601 & EIP-6690 (Simple Serialize (SSZ) changes): These EIPs will introduce some changes to the SSZ, which is a data serialization and hashing scheme used by the ETH2 protocol. These changes include a new signature scheme, a new hash function, and a new merkleization algorithm. These changes will improve the security and performance of the SSZ, which will benefit the consensus layer and the execution layer of Ethereum.

The Cancun upgrade will also include some changes to the consensus layer of Ethereum, which is the part of the network that secures and validates transactions. These changes are collectively known as Deneb, and they will affect the Beacon chain and the Proof-of-Stake (PoS) mechanism that underpins it. The Deneb upgrade will include the following EIPs:

• EIP-7514 (Danksharding): This is the counterpart of EIP-4844 on the consensus layer, and it will enable the Beacon chain to support data blobs and cross-shard communication. This will allow the Beacon chain to coordinate and synchronize the data availability and validity across different shards, which will enhance the scalability and security of the network.
• EIP-7516 (Danksharding incentives): This EIP will introduce a new incentive mechanism for validators on the Beacon chain, who are the nodes that stake their ETH and participate in the PoS consensus. This mechanism will reward validators for producing and attesting to data blobs, which will encourage them to support the data availability and throughput of the network. This mechanism will also penalize validators for producing or attesting to invalid data blobs, which will deter them from cheating or attacking the network.
• EIP-7515 (Danksharding light client): This EIP will introduce a new type of light client for the Beacon chain, which is a node that can verify the state of the network without downloading the full data. This light client will be able to access and verify data blobs, which will enable it to interact with rollups and other DApps on different shards. This will improve the accessibility and usability of the network, especially for users with limited bandwidth or storage.

What Are the Benefits of Ethereum Cancun Upgrade?

The Ethereum Cancun Upgrade is a major development that will bring many benefits to the network, such as:

• Improved scalability: The upgrade will increase the data availability and throughput of the network, especially for rollups, a Layer 2 scaling solution that processes transactions off-chain and submits proofs to the main chain. This will reduce the gas fees and increase the transaction speed, making Ethereum more efficient and competitive as a global transaction platform.
• Enhanced security: The upgrade will improve the structure and coordination of the consensus layer and the execution layer of Ethereum, which will enhance the security and trustworthiness of the network. The upgrade will also introduce a new incentive mechanism for validators, who are the nodes that stake their ETH and participate in the PoS consensus. This mechanism will reward validators for supporting the data availability and validity of the network, and penalize them for producing or attesting to invalid data blobs, which will deter them from cheating or attacking the network.
• Increased usability: The upgrade will improve the accessibility and interoperability of the network, especially for users with limited bandwidth or storage. The upgrade will introduce a new type of storage that is temporary and can be deleted after a certain period, which will optimize the block space and reduce the state size of the network. The upgrade will also enable cross-shard communication, which will improve the composability and functionality of DApps on different shards. The upgrade will also enable the EVM to access and verify the state root of the Beacon chain, which will improve the structure of cross-chain bridges and stake pools.

What Are the Risks and Challenges of the Ethereum Cancun Upgrade?

The Ethereum Cancun upgrade is a major development that will bring many benefits to the network, such as improved scalability, security, and usability. However, like any major upgrade, it also comes with some risks and challenges that need to be considered and addressed. Some of the possible risks of the Ethereum Cancun upgrade are:

• Technical issues: The upgrade will introduce significant changes to the execution layer and the consensus layer of Ethereum, which will require extensive testing and coordination among the developers, validators, and users. There is a possibility of bugs, errors, or vulnerabilities that could affect the functionality or security of the network. For example, the Proto-Danksharding feature, which will increase the data availability and throughput of the network, could also introduce new attack vectors or complexities that need to be mitigated. Therefore, the upgrade will need to undergo rigorous testing and auditing before it goes live on the mainnet, and any issues that arise during the testing phase or after the activation will need to be resolved quickly and efficiently.
• User adoption: The upgrade will also require the users of the network, such as DApp developers, wallet providers, and exchange platforms, to update their software and adapt to the new features and changes. This could pose some challenges in terms of compatibility, usability, and education. For example, the Transient storage feature, which will lower the cost of on-chain data storage, will also introduce a new type of storage that is temporary and can be deleted after a certain period of time. This could require the users to adjust their data management and storage strategies, and to understand the implications and trade-offs of using Transient storage. Therefore, the upgrade will need to provide clear and comprehensive documentation and guidance for the users, and to ensure that the transition is smooth and seamless.
• Market volatility: The upgrade will also have an impact on the market dynamics and sentiment of Ethereum, which could affect its price and liquidity. The upgrade could generate positive or negative expectations and reactions from the investors, traders, and speculators, depending on the perceived benefits or risks of the upgrade. For example, the Proto-Danksharding feature, which will reduce the gas fees and increase the transaction speed, could also increase the demand and value of Ethereum, as it will make it more attractive and competitive as a global transaction platform. However, it could also create uncertainty and volatility, as it will introduce a new incentive mechanism for the validators, who will be rewarded or penalized for producing or attesting to data blobs. Therefore, the upgrade will need to communicate clearly and transparently with the market participants, and to manage the expectations and emotions of the community.

Closing Thoughts

The Ethereum Cancun upgrade is a major milestone in the development of the Ethereum network, as it will bring significant improvements to its scalability, security, and usability. The upgrade will also lay the groundwork for future developments, such as full Danksharding and the Ethereum WebAssembly (eWASM), which will further enhance the performance and functionality of the network. The Cancun upgrade will make Ethereum more efficient, secure, and user-friendly, and will enable it to support a wider range of applications and use cases.

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