Ethereum’s Dencun Upgrade: Why it Matters

The highly anticipated Dencun upgrade for Ethereum is scheduled to be released in two days, on March 13. It is being hailed as one of the most significant hard forks since the Merge. The reason for the excitement surrounding this upgrade is its potential to revolutionize layer-2 scaling solutions by drastically reducing transaction fees and improving the scalability of Ethereum as a whole. The Dencun hard fork encompasses nine different Ethereum Improvement Proposals (EIPs) and combines the Cancun and Deneb upgrades.

The Cancun portion of the upgrade focuses on enhancing transaction management and processing on the execution layer, while the Deneb component aims to improve the consensus layer, which determines how network participants agree on the state of the blockchain. According to James Wo, the CEO and founder of Digital Finance Group, this upgrade has the potential to greatly enhance the scalability, efficiency, and security of the Ethereum network. One key feature of the Dencun upgrade is the introduction of ephemeral data blobs with EIP-4844, also known as proto-danksharding. This development aims to reduce layer-2 transaction fees by improving data availability and establishing Ethereum as a scalable settlement layer.

It’s important to note that while layer-2 users will benefit from reduced fees, this change won’t directly impact users who transact on the Ethereum mainnet. According to a report by Max Wadington, a research analyst at Fidelity Investments, users who want to take advantage of the fee reduction will need to sacrifice some decentralization and security by transacting on layer-2 platforms instead of Ethereum. This may lead more users to bridge their assets elsewhere. Ethereum is still expected to be the preferred option for application-specific purposes, especially for high-value transactions, as layer-2 platforms continue to mature.

Gas fees on the Ethereum mainnet have reached a level not seen since May 2023, with an average of 98 gwei on March 5. The cost of an average swap is $87.45 in gas fees, and NFT sales average $147 in gas fees, according to Etherscan data. The anticipation surrounding the Dencun upgrade has boosted the price of Ether, Ethereum’s native cryptocurrency, to $4,000 on March 8, the first time since December 2021. Ether has seen a 14.7% increase on the weekly charts and over 59% on the monthly charts. Bitcoin has also reached a new all-time high of $71,415 on March 11, ahead of the anticipated Bitcoin halving event on April 20.