TL;DR
- The much anticipated Ethereum Dencun upgrade went live on 13th March 2024, marking a monumental moment in the blockchain’s history.
- The critical element of the upgrade is creating a new place for storing data on Ethereum—also known as proto-danksharding. It gives dedicated space on the blockchain separate from regular transactions.
Ethereum Finalizes the Dencun Upgrade
The second largest blockchain after Bitcoin, Ethereum (ETH), completes its anticipated Dencun upgrade.
This latest upgrade will spur growth on Layer-2 networks like Polygon (MATIC) and Arbitrum (ARB) by minimizing their data fees.
Impressively, the upgrade replaces gas-intensive calldata by using lightweight Binary Large Objects (blobs) through proto-danksharding.
Unlike Calldata, blobs don’t compete with Ethereum blockchain transactions for gas. And are cut from the blockchain after 18 days, improving data availability and reducing costs for layer 2 rollups.
The upgrade is a monumental moment in the blockchain’s history, ushering in a new phase for solving Ethereum’s high transaction fees.
It could also rub off on other massive layer-2 networks to take advantage of the changes in scaling the blockchain.
Notably, the Dencun upgrade—a hard fork in blockchain terminology, was initiated at Ethereum epoch 269, 568, and completed at 14.10 UTC.
Layer 2 Networks Anticipate Fee Reduction
The crypto space has already started speculating on the impact of the upgrade. Market watchers believe that Dencun would reduce the price of swapping tokens via Layer 2-based decentralized exchanges (DEX) by 80%.
Others noted that cost reductions are feasible but were sceptical about blobs, citing that blob data handling is complicated. Therefore, it is only easily achievable by some layer 2 types.
In addition, some analysts raised concerns about the new fee market for blobs. They highlighted that blobs would still suffer from congestion-induced fee volatility.
Despite the positive sentiments from layer 2 teams, others are holding back, waiting to see its estimated impact in full effect.
Too many variables affect transaction costs in order to estimate post-Dencun fee savings accurately.
Moreover, the transaction loads used to model EIP-4844 on testnets are lower than Ethereum expects Layer 2s to manage on Mainnet.
The rollups may need to deploy upgrades to implement infrastructure to support EIP-4844.
Dencun Impact on the Crypto Market
The price of Ethereum (ETH) had a slight dip in the wake of the upgrade. ETH price is down by 2.10% to $3,952 in the last 24 hours on 14th March 2024.
Ethereum monthly performance is exceptional, rallying by 50%, which was in sync with the 49% rise over the same period.
Away from ETH, various layer 2 networks register an uptick in on-chain activity and transaction fees amid the bullish market conditions.
Growthepie data reports that average fees increase by 100% to 800% across layer 2 contenders, including Arbitrum, ZkSync Era, and OP Mainnet.
Moreover, the total value locked (TVL) in Layer 2 networks hit an all-time high of $39 billion. This is a staggering 262% increase in just five months.
If the Dencun upgrade successfully lowers fees, it would impact promoted accessibility to end users in the DeFi space. And pave the way for the adoption, innovation, and growth of Ethereum.
Will the Dencun upgrade reduce users’ barriers to engaging with DeFi by lowering fees on Layer 2s?
Michael Healy
Michael, an entrepreneur, and co-founder of Unit, is a full-stack, mobile, and blockchain developer with extensive experience in the crypto and blockchain industry since 2010. A leading token builder, Unit powers the token economy using the Polkadot-powered Unit Network blockchain. Michael has built a diverse portfolio with multiple successful exits, including encrypted P2P video conferencing, a large UK student social network, and the Wikileaks Android app. He has experience working with top organizations like Wellington Partners, Founders Forum, Google, KPMG,...
