The Ethereum network successfully implemented the Dencun upgrade, taking a major step forward when it comes to scalability and reduction of transaction fees on layer-2 networks. Despite mixed reactions and a slight drop in Ethereum's price, the upgrade is viewed optimistically for its potential to boost Ethereum's competitiveness and foster long-term growth. The upgrade also allowed for quirky milestones like the inexpensive uploading of the Bee Movie script onto Ethereum, with many who did so gushing over the reduced transaction costs.
Dencun Upgrade Live on Ethereum Mainnet
The Ethereum network has taken a big step forward with the successful rollout of the Dencun upgrade at around 1:55 pm UTC on Mar. 13. This highly anticipated hard fork, which is considered by many as the most crucial development since the Merge, aims to drastically reduce transaction fees on layer-2 networks and improve Ethereum's scalability. Dencun's implementation arrives almost a year after the Shanghai upgrade in April of 2023, which allowed network participants to unstake Ether for the first time since Ethereum's transition to a proof-of-stake network.
Meanwhile, some believe that while the Dencun upgrade represents progress by extending data usability for rollups on Ethereum, thereby lowering transaction costs, it doesn't actually fully address the limitations of layer-2 solutions. These could include the persistent issues of throughput constraints and the need for extreme centralization measures for rollups built on Ethereum. Despite these concerns, the upgrade is still seen as a step in the right direction.
Dencun combines elements from both the Cancun upgrade of Ethereum's execution layer and the Deneb upgrade of its consensus layer. This dual approach will improve how transactions are managed and processed, as well as improve network consensus mechanisms. Another noteworthy change introduced in this hard fork is the incorporation of data blobs via EIP-4844, also known as proto-danksharding. This feature is expected to lower layer-2 transaction fees by improving data availability, positioning Ethereum as a scalable settlement layer.
However, the immediate fee reductions will not benefit Ethereum mainnet users just yet. They will have to transact on layer-2 solutions to enjoy lower costs, at the expense of some decentralization and security. This has led to some predictions that more users might bridge assets to other platforms, even though transacting on Ethereum might still be preferred for high-value transactions due to its robustness. Gas fees on the Ethereum mainnet still remain high, with an average swap costing users $86.15 and nonfungible token sales averaging about $145.60 in gas fees.
Mixed Reactions but Optimistic Outlook
Naturally, a lot of people have something to say about Ethereum’s latest upgrade. Ruslan Lienkha from YouHodler doesn't foresee an immediate impact on Ethereum's price but anticipates increased blockchain activity and long-term growth due to enhanced competitiveness against emerging layer 1 projects. According to CoinMarketCap, the price of ETH actually dropped by more than 2% over the past 24 hours of trading. This meant that the altcoin leader was worth $3,951 at press time.
Mara Schmiedt of Alluvial definitely sees the upgrade as a bullish development for Ethereum, especially considering Bitcoin's institutional interest and the nearing $100 billion mark of total value locked in Ethereum's DeFi ecosystem. She believes scalability enhancements are critical for mainstream adoption and handling the surge in users and transactions.
Onno Sterk from OSL also believes in the importance of the Dencun upgrade when it comes to tackling the long-standing issues of high fees and limited scalability in the blockchain sector. The upgrade's focus on proto-danksharding plans to slash transaction costs while boosting processing speed.
In the past year, Ethereum has seen a 141% return, mostly influenced by optimism around the Dencun upgrade, speculation on Ether ETF approvals, and a broader crypto market recovery, albeit lagging behind Bitcoin's 198% return. The crypto community is keenly awaiting a decision on Ether ETFs by the US SEC in May, though opinions on this outcome vary. Eric Balchunas from Bloomberg suggests the approval odds might not be as favorable as many people hoped.
Schmiedt also made sure to point out the importance of institutional adoption, accessibility, and regulatory clarity for Ethereum's widespread adoption, calling on the community to actively contribute to its future. Despite differing views on the immediate impact of the Dencun upgrade, there's a consensus on its potential to foster long-term growth and innovation within the Ethereum ecosystem.
Bee Movie Script Lands on Ethereum
Even the Bee Movie script found its way onto the Ethereum mainnet just minutes after the Dencun upgrade was launched. Ethereum developer Dan Cline achieved this peculiar milestone by leveraging the benefits of the upgrade to upload the full script for a mere $14. Mason Hall, an engineer and investment partner at crypto venture capital firm a16z, ended up doing the same thing about an hour after Cline. Hall reported that it only cost him $5 to do so.
The act of uploading the Bee Movie script onto new digital platforms is a well-known internet meme, with many people rushing to mint the script on newly launched networks and blockchain functionalities. This tradition continues with the Ethereum network's Dencun upgrade.
The Dencun upgrade, also referred to as EIP-4844 or "proto-danksharding," introduces "blobs" as a core feature. Blobs allow for temporary data storage during transaction execution on layer 2 networks, leading to significantly reduced costs for users. However, this data, including Cline's Bee Movie script, is set to exist on the network for only a few weeks, as blobs are pruned after about 18 days to maintain network efficiency.
After the upgrade, more than 2,000 blobs have been posted on Ethereum’s Beacon Chain, with major layer-2 networks like Starknet, ZkSync, Optimism, and Base incorporating blobs to reduce transaction fees dramatically. This has resulted in impressive savings for users, with transaction fees on the Base network, for instance, dropping from around $0.31 to nearly zero.
Despite these advancements, the full impact on transaction and swap fees across Ethereum layer 2 networks is still unfolding. While some networks have seen a visible decrease in fees, others await further integration of EIP-4844 to reap these benefits. Nonetheless, the Dencun upgrade is a massive step forward in Ethereum's ongoing evolution.
