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Dencun Upgrade Live: What Ethereum Hard Fork Means, Why It Happened, What Next?

Last Updated March 13, 2024 2:07 PM
Giuseppe Ciccomascolo
Last Updated March 13, 2024 2:07 PM

Key Takeaways

  • The Dencun upgrade went live on March 13, marking a milestone in Ethereum’s history.
  • This hard fork merges elements from Cancun and Deneb.
  • Here’s an overview of how Dencun could change the Ethereum ecosystem.

The Dencun upgrade was successfully deployed on the Ethereum mainnet on Wednesday, March 13, 2024. This marks one of the most significant advances in supporting Layer 2 scaling solutions for Ethereum.

The upgrade was executed as scheduled at 13:55 GMT. This was Ethereum’s most substantial update since the Shapella upgrade in April 2023, which facilitated the withdrawal of staked ETH.

What’s Dencun Upgrade?

The Ethereum Dencun upgrade  is poised to mark a pivotal moment for layer-2 scaling solutions. It will reduce transaction fees across layer-2 networks and bolster Ethereum’s scalability overall.

Comprising nine Ethereum Improvement Proposals (EIPs), the Dencun hard fork merges elements from two significant upgrades: Cancun, which targets transaction management and processing on the execution layer, and Deneb, focusing on enhancing the consensus layer. Together, these enhancements aim to streamline transaction handling and consensus mechanisms, thereby advancing Ethereum’s functionality and scalability.

By leveraging Proto-Danksharding, the upgrade will alleviate gas fees, which have surged by over 100% in the last year.

The three latest significant upgrades for the Ethereum network include the Shapella upgrade on April 12, 2023, the Paris upgrade on September 15, 2022, and the London upgrade on August 5, 2021.

The Impact Of an Ethereum Hard Fork

A hard fork is a substantial alteration that permanently divides a blockchain into two distinct networks in instances where the nodes are unable to reach a consensus.

One of the central aspects of the hard fork revolves around EIP-4844, which alters how Ethereum rollups store data on the mainnet. Numerous layer-2 rollups aggregate and process transactions off-chain, then present a summarized proof of these transactions to the Ethereum blockchain.

Currently, Ethereum only offers one type of storage – call data storage on the execution layer. It is permanent, meaning any data posted, be it the image for an NFT or transaction data for a rollup, must be stored by all Ethereum nodes indefinitely.

EIP-4844 introduces the concept of the blob space, providing rollups with a more cost-effective method of adding data to blocks. Utilizing call data for storage proved costly because all Ethereum nodes had to process the data, which remained on-chain indefinitely.

What’s Next For Ethereum?

Currently, Ethereum faces challenges with slow transaction speeds, low throughput, and high user costs. With average transaction fees reaching $2.3 as of February 22nd, Ethereum’s expenses significantly surpass alternatives like Solana, “posing a risk of user migration,” stated crypto asset manager Grayscale in a report.

According to the report , the Dencun upgrade “has the potential to enhance Ethereum’s scalability and competitiveness against faster chains”.

Fidelity noted  that recent Ethereum network changes could distinguish it from rivals. It can aid its shift from a general-purpose blockchain to a global Layer 2 network database. Monitoring metrics like active addresses will be vital in gauging the Dencun upgrade’s success.

ETH Price Outlook

On the ETH price side, CCN analyst Valdrin Tahiri said that in February 2024, the price of ETH surged. It broke out from a long-term ascending parallel channel and the middle of its long-term range (green circle). This breakout coincided with a weekly Relative Strength Index (RSI) increase into overbought territory (green icon).

ethereum upgrade price impact
ETH/USD Weekly Trading Chart: Credit – TradingView

At present, ETH is trading near $4,000, encountering a convergence of Fib and horizontal resistances. If the weekly close maintains, it will mark the seventh consecutive bullish weekly candlestick.

This breakout mirrors that of November 2020, the previous instance when the weekly RSI entered overbought territory after a prolonged consolidation period.

After the breakout in November 2020, ETH soared by 420% and reached a new all-time high price. It far surpassed the current 60% increase following the recent breakout.

Therefore, based on this fractal, ETH still appears to have significant potential for further growth. Although long-term indicators favor a bullish trend, a potential rejection from the 0.786 Fib retracement resistance level at $4,000 could prompt a short-term correction. This may lead the price toward $3,400, constituting a 15% decline.

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