Detailed Explanation of Cancun Upgrade and Positive Project Analysis

Why pay attention to the Cancun upgrade?

On January 12, the U.S. SEC announced the approval of a Bitcoin spot ETF, which was eagerly anticipated and seen as a milestone with significant implications. However, the crypto market reacted indifferently, and even after this announcement, the price of Bitcoin began to decline. In the past half month, it dropped from a high of $46,000 to below $40,000, with a decrease of -13%. The inflated effect of the ETF event was burst, and a large amount of capital flowed to other public chains and project protocols with new narratives.

The game of the Bitcoin ETF has temporarily come to an end, and the market's attention has shifted to the Ethereum spot ETF. The current market analysis estimates a 50% probability of approval in May this year. After experiencing the strong rise in coin prices during the previous Bitcoin ETF hype, it is essential to position in Ethereum in advance and not miss the opportunity for the next surge of mainstream tokens.

In addition, the next upgrade of Ethereum—Cancun upgrade—is coming soon and is expected to be completed by the end of February. The primary purpose of this upgrade is to expand the Ethereum main chain, enhance the scalability, security, and usability of the Ethereum network, increase the TPS of the main chain, and reduce gas fees, which is extremely beneficial for the Ethereum L2 ecosystem and will drive the flourishing of the L2 ecosystem.

Taking into account the above two reasons, this issue will explain the Cancun upgrade and analyze the favorable projects.

What is the Cancun upgrade?

The Cancun upgrade is another upgrade to the Ethereum main chain following the Shanghai upgrade. The name "Cancun" comes from a seaside city in Mexico, which is a world-famous resort and one of the cities where the Ethereum developer conference (EthCC) is held.

The Cancun upgrade aims to address the core issue of the Ethereum blockchain network, which is the transaction fees. In a document released by Vitalik Buterin in December 2023 titled "Make Ethereum Cypherpunk Again," it was stated that one of the core reasons why blockchain is limited to asset speculation is the rise in transaction fees. The high network transaction fees have caused people to shift from users of the blockchain network to speculators. In order to realize the application value of blockchain, the transaction fees of the blockchain network must be reduced by an order of magnitude. Even though the emergence of L2 has reduced network fees compared to the Ethereum mainnet, it is still far from enough.

The Cancun upgrade is expected to provide several enhancements to the Ethereum network:

Scalability improvement: The introduction of Proto-Danksharding is expected to increase transaction processing speed and volume, especially beneficial for L2 solutions built on the Ethereum main blockchain.
Gas fee reduction: By integrating Blob data and activating EIP-4844, transactions become more cost-effective.
Security progress: The implementation of EIP-6780 in this upgrade aims to improve network security measures, providing stronger protection for user data and investments.
Optimized data storage: The implementation of EIP-1153 in this upgrade will bring more efficient blockchain data storage, improve operations, and reduce costs, benefiting second-layer solutions that rely on simplified data management.
Cross-chain enhancement: EIP-4788 in this upgrade aims to improve the usability and security of cross-blockchain interactions, supporting enhanced interoperability with second-layer solutions.

The core content of the Cancun upgrade is the EIP-4844 protocol—introduction of Proto-Danksharding, which is a precursor to Danksharding. This protocol may reduce L2 transaction fees by 10 to 100 times.

Danksharding is a solution that describes how L2 can separately design a data type Blob (used specifically to store transaction data submitted from L2 to L1) and separate it from Layer1's Calldata. This way, the Blob data type only needs to be accessed and verified by those in need within a certain time frame, without the need for Layer1 execution layer to execute all of it, significantly reducing the burden on Layer1.

The Proto-Danksharding introduced in the Cancun upgrade is the first step in the comprehensive expansion of Ethereum. Each Blob introduced in this phase has a size of 128 KB, with each Ethereum block planned to contain 3-6 Blobs (0.375 MB - 0.75MB), gradually expanding to 64 in the future. In comparison, the current data size that each Ethereum block can accommodate is less than 200KB. With the introduction of Blob, the data capacity of Ethereum blocks will significantly increase. Therefore, Proto-Danksharding will lay the foundation for further complete Danksharing, introducing block proposers and builders separation, and implementing data availability sampling.

Specific content of the Cancun upgrade (completed technical improvements):

Introduction of Blob transactions: Blob is an abbreviation for Binary Large Object. Blob transactions are a new type of transaction that will be used in future sharding.
Introduction of all execution layer logic required for future complete sharding implementation.
Introduction of cross-verification logic between all execution and consensus layers required for future complete sharding implementation.
Implementation of hierarchical verification between beacon block (i.e., Ethereum Layer 2 data) and Blob data availability sampling.
Introduction of most of the logic required for future complete sharding implementation of beacon blocks.

Sharing of projects benefiting from the Cancun upgrade

For this upgrade, it directly benefits the entire L2 ecosystem. According to the data statistics from I2fees.info on December 11, 2023, the introduction of Blob significantly reduces L2 transaction fees and increases throughput to a certain extent. It also further promotes the development of Restake and DA track projects.