Gas, Blobs, and Network Abstraction
Ethereum's Dencun upgrade looks like a silver bullet for ecosystem user growth. We'll explore some potential indirect implications.
In a period of constant financial innovation, the youngest people assumed power (and part of the reason young people got rich was that the 1980’s was a period of constant change). - Michael Lewis, Liar’s Poker (1989)
On Wednesday, Ethereum ($ETH-USD) is undergoing arguably the biggest upgrade to the network’s mainnet since “The Merge” from proof-of-work to proof-of-stake. If the impact of the “Dencun” upgrade proves to live up to expectations, it has the potential to radically change how the network ecosystem progresses for both the developer and the end user. In this article, we’ll go over what the upgrade will do and we’ll explore what I think some of the indirect ramifications from this could be.
What The Upgrade Is/Does
Simply put, Dencun will enable blobs and proto-danksharding.
I swear… these names and words…
Okay so in normal people speak; Dencun will allow for more data on the network and it will do so in a way that will essentially open up transaction throughput for the entire ecosystem. This will also result in lower fees for scaling chains. “Normal people speak” is probably relative…
Here’s another try: every blockchain has a limit to how many transactions per second (TPS) the network can handle. Ethereum’s TPS is not great (14.4 TPS yesterday). To help scale the blockchain, secondary layer chains, or L2s, build additional ledgers on top of Ethereum and pool transactions off the main network that are then recorded together on the primary layer. This system currently allows more than 8 times the TPS throughput over what Ethereum could do by itself:
Each L2 is slightly different. The most popular one by active user base is Optimism ($OP-USD):
Optimism’s share of active addresses between Optimism, Base COIN 0.00%↑, and Arbitrum ($ARB-USD) is generally 60-70%. However, the transaction volume edge goes to Arbitrum:
This would seem to indicate Arbitrum is the preferred chain for high volume users while Optimism is the chain for the most unique users. To get L2s where they ultimately need to be, the L2-based developer must be able to abstract away that an application user is engaging with a blockchain altogether. Think Reddit Avatars or Trump trading cards on Polygon ($MATIC-USD)
For instance, if I were purchasing a digital movie or song through a blockchain-based streaming application, I should be able to conduct my business without ever knowing I’m using a blockchain ledger or digital currency asset. As I understand it, this scenario is closer to a reality at scale with Dencun. And this is not a small deal because usability is still one of the biggest issues with public blockchain technology in my personal opinion.
Ask 100 small business owners if they would like to lower their payment processing fees and you’ll probably get a unanimous “yes.” As a Substack publisher, I can assure you I’d much rather cut Stripe out of our relationship. Theoretically, poor crypto UE and convenience are the only things really holding back people like myself from saying something like this:
Hey, shoot over some ZEC, DASH, or LTC to my Coindrop and email me the transaction hash so I can get your premium subscription squared away manually.
Of course, I’m not saying that. You should never do that. We should always stay captured by these rent seeking payment processors who play god with people and small businesses.
Digging More On Dencun’s Impact
Gas fee abstraction is actually a great thing for long term adoption, in my opinion. While faster and cheaper than Ethereum, even L2s currently leave quite a bit to be desired from a user experience standpoint. However, the ability to abstract away this poor UE because gas fees get so much lower might actually be a bit of a double edged sword in the shorter term.
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