Ethereum’s Dencun upgrade is a step toward a scalable settlement layer: Goldman Sachs

Ethereum’s Dencun upgrade, likely to take place in first-quarter 2024, is the next step in the blockchain’s journey to becoming a scalable settlement layer, Goldman Sachs (GS) said in a note Thursday.

“Dencun’s primary impact will be to increase its data availability for layer-2 rollups via proto-danksharding, resulting in a reduction of rollup transaction costs which will be passed on to end users,” the bank said.

A layer 1 network is the base layer, or the underlying infrastructure of a blockchain. Layer 2 refers to a set of off-chain systems or separate blockchains built on top of layer 1s. Rollups process transactions on another, faster, blockchain, or layer 2, then port the data back to the parent blockchain, at a fraction of the price.

Proto-danksharding will also “serve to set the scaffolding for future scalability upgrades, including danksharding, as part of the blockchain’s ‘Surge’ roadmap,” the report said. Danksharding is a way of making Ethereum more scalable, and applies the same concept of splitting the network into shards, but instead of using these shards to increase transactions, it uses them to increase space for groups of data.

“Dencun will enhance Ethereum’s scalability via rollups,” and will “optimize gas fees and improve the network’s security and implement a number of housekeeping updates,” the report added.