Key Insights:
The Dencun Upgrade is expected to drastically reduce Ethereum (ETH) gas fees
Integrate rollup-like features.
It would help boost transaction speed in Ethereum.
The long-awaited Dencun Upgrade, aimed at reducing ETH gas fees, has finally arrived. Although gas fees are already at lows ranging from 50-70 Gwei, the upgrade promises further reductions. Moreover, if all goes according to plan, L2 fees could decrease even further, potentially revitalizing metaverses in the markets.
Will the Dencun Upgrade proceed as planned, or will it fail to achieve finality, akin to the last time it did on one of ETH’s testnets?
The top expectation from the Dencun upgrade is it would help boost transaction speed in Ethereum. This would then help decongest the network, ultimately reducing gas fees.
Gas is the measure of transaction costs in ETH and is measured in Gwei. Refer to the gas prices below to gauge the approximate amount of Gwei required to facilitate a transaction.
Ethereum Gas Prices
Transactions on Ethereum do not have fixed gas prices as they are auctioned to the highest bidder. This means that whoever pays the highest amount of transaction fees, gets to execute their transactions early. Such a mechanism looks good on paper until you take a look at Ethereum’s transaction capacity.
The Ethereum blockchain trades off speed for security in a situation called the blockchain trilemma which forces a blockchain to choose between either Decentralization, Scalability and Security. This causes Ethereum to have a very slow speed of 10-15 transactions per second.
Such a low transaction capacity made it necessary for it to rely on layer-2 scaling solutions such as Optimism, Arbitrum, Polygon, ZK Sync Era and others. These blockchains always posed a threat to Ethereum’s security as they had very low levels of decentralization (remember Blockchain Trilemma).
The Dencun Upgrade rolls up multiple transactions (into blobs) and only submits their summary to the blockchain. This helps the blockchain record much less info and still be able to process all these transactions securely.
Further, the individual transactions would be available for three months before they were deleted, giving users ample time to dispute their validity.
This is different from ZK Rollups and Optimistic Rollups which store this temporary data either in L2 blockchains or inside the Ethereum call-data space. Both of these methods of data storage either make the transactions less safe or make the Ethereum blockchain bulky.
With the Dencun Upgrade, the data will still be stored on the Ethereum blockchain but only their summaries will be retained forever, helping the blockchain stay light yet secure.
So, to wrap the discussion around its necessity, the upgrade is more about securely increasing the speed of Ethereum.
The Surge is the plan to upgrade Ethereum’s transaction speed towards 100k transactions per second which could reduce its transaction costs to a fraction and ultimately make it the only blockchain you ever need.
However, for the Surge to be implemented, the need is to implement something which is called Sharding. It divides the blockchain consensus mechanism into multiple shards or small teams each of which could add new blocks to the blockchain on their own.
The Dencun Upgrade is also known as Proto-Dank Sharding and serves as a kind of water test before the full Sharding is implemented.
The only challenge that appears before Ethereum is around the timeline of its upgrades. The much-needed Dencun Upgrade could only come almost 18 months after the last major upgrade called The Merge (Sept 2022).
Since the next upgrade, Sharding is a difficult one to implement, we might expect at least a couple of years before Ethereum’s blockchain becomes favourable for day-to-day transactions.
If everything goes as planned, we expect a small rise in prices followed by profit booking. This is because the surge in transactions has already been factored in as ETH rose 61% in the last 30 days.
ETH Price Last 30 Days
However, the cryptocurrency has been in an uptrend for the last six months without a break.
Let us take a look at technical charts to see what the future holds for ETH. We have used weekly charts to cover the outlook on ETH’s price for the next few months.
ETH Weekly Charts
As we can see in the chart above, ETH has been in an uptrend since the beginning of 2024. However, there is a price hurdle near $4900. If Ethereum goes above this, it could soon make a new ATH.
We suggest traders exercise utmost caution at this stage as markets are near ATH and any change in the trend could cause a misfortune and can even wipe out your trading capital.
Disclaimer: Voice of Crypto aims to deliver accurate and up-to-date information, but it will not be responsible for any missing facts or inaccurate information. Cryptocurrencies are highly volatile financial assets, so research and make your own financial decisions.