Ethereum's Latest Upgrade
Ethereum’s Dencun Upgrade comes out tomorrow. How might it affect the world's second-most popular cryptocurrency?
The Dencun upgrade for Ethereum comes out tomorrow at 13:55 UTC. It’s expected to lead to lower fees for users of layer-2 networks - those built on top of a layer-1 blockchain such as Ethereum, allowing it to grow more efficiently.
Ethereum consensus layer upgrades use star names and execution layer upgrades use Devcon (Ethereum’s developer conference) city names. “Dencun” is a combination of “Deneb”, a star in the Cygnus constellation, and “Cancun”, the location for Devcon 3.
If you’re an Ethereum holder, don’t worry, you’re not required to do anything in preparation for the upgrade! The upgrade is meant to help reduce L2 transaction fees via the introduction of EIP 4844, also (although no less helpfully) known as proto-danksharding.
This will allow layer 2 transactions to be settled on Ethereum through a new type of transaction known as “blobs”. These blobs will store large amounts of data in a more efficient manner than the current scaling solutions before they are added to the Ethereum blockchain.
“This marks a significant shift in the focus of Ethereum, going from servicing users directly to servicing other blockchains directly” - Fidelity Digital Assets Research Analyst Max Wadington.
At the moment, no one really knows just how may more transactions there will be as a result of the upgrade and the fee for each transaction going down. If the price goes down enough, demand may rise which would push the transaction fees back up.
J.P. Morgan published a report at the end of 2023 in which it said “We believe that next year Ethereum will re-assert itself and recapture market share within the crypto ecosystem. We believe that this upgrade will likely prove a bigger step towards improving Ethereum network activity, thus helping Ethereum to outperform.”
Despite Bitcoin’s much publicised and meteoric rise in 2024, Ethereum has actually outperformed it so far, with the assets having risen 63% and 71% respectively.
2024 is already shaping up to be a good year for the crypto world and with the decision on Ethereum ETFs reportedly expected in May, it could get even better. Many analysts believe that the chances of the SEC approving an Ethereum ETF remain lower than 50%, but it now seems a question of when rather than if the approval will be made.
Regardless, the Dencun upgrade remains an important step in Ethereum and Web3’s evolution rather than a way to appease regulators.
The upgrade moves Ethereum closer to achieving its ultimate goal of becoming the world’s computer and will help it support a wider range of applications and higher transaction volumes.
Only time will tell how much the upgrade improves the network itself and whether demand for Ethereum-based applications will grow. But it’s certainly exciting to see the continued growth of arguably the most important Web3 platform and where it might take us…
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