Ethereum Dencun Upgrade: Will it Boost ETH Price or be Another Merge?

  Key Takeaways

• Dencun targets Layer 2 fee reduction, aiming to make Ethereum transactions more affordable.
• Blobs, a new data storage method, help Dencun cut costs and ease network congestion.
• The upgrade promises significant improvements in transaction fees and overall network performance.

Ethereum enthusiasts have every reason to celebrate as the highly anticipated Dencun upgrade makes its debut. The hard fork could signal a pivotal leap for Layer 2 networks. Also, it is buoying hopes that Dencun can help keep ETH’s price  above $4,000.

This upgrade is far from routine, because it represents a significant leap forward in Ethereum’s ongoing development, with promises of marked enhancements in both efficiency and scalability.

New Standards for Speed and Efficiency in Blockchain Transactions

Following last year’s Shapella upgrade, the Ethereum network is embarking on another evolutionary step with Dencun. This latest development introduces several enhancements aimed at accelerating transaction speeds and expanding Ethereum’s transactional capacity. A highlight of Dencun is the implementation of ephemeral data blobs through EIP-4844, also known as “protodanksharding.” Ethereum claims Dencun will reduce Layer 2 transaction fees dramatically.

Dencun’s ambition doesn’t stop at just making transactions faster. It also seeks to make them significantly cheaper. The upgrade aims to lower transaction fees from an average of $1 to just one cent. Indeed, for smaller transactions, the cost could be just a fraction of a cent. This reduction in fees aims to elevate the user experience, outpacing the benefits introduced by the “Merge” in September 2022.

Moreover, Dencun introduces a novel approach to data storage for Layer 2 networks with the introduction of blobs. These are designed to store data for about 18 days, thus optimizing costs and enhancing Ethereum’s scalability.

According to CCN Analyst Valdrin Tahiri, a recent market rally coincided with the Dencun upgrade for Ethereum. Although many indicators point towards a continued upswing, there are worries about the possibility of facing resistance at the $4,000 mark. Despite these concerns, Ethereum remains in a position to maintain its long-term upward trajectory towards setting a new all-time high.

Lower Fees on Horizon, Not Today (But Ethereum Price Could Surge)

However, EIP-4844 will not directly lead to lower transaction costs on the Ethereum mainnet. Nevertheless, Dencun could indirectly contribute to reduced transaction fees, potentially opening up new possibilities for on-chain activities. These could include on-chain gaming, generative art, and artificial intelligence applications, which were previously hindered by high costs.

EIP-4844 marks the beginning of the “Surge” phase for Ethereum, as outlined in the updated network roadmap by co-founder Vitalik Buterin in December. The ultimate aim of this phase is to achieve a throughput of 100,000 transactions per second. Following the Dencun update, Ethereum’s development focus may shift towards further enhancements, such as enabling Ethereum nodes to be run on mobile devices.

Buterin has also responded  to a user on Twitter who voiced complaints about high transaction fees.

Dencun Already Affecting Platforms on Other Blockchains

The upgrade should make decentralized finance (DeFi) easier to use. Indeed, other cryptocurrencies already appear to be reacting to the change. It seems like Dencun is not only affecting ETH, but other coins and tokens as well.

MakerDAO is swiftly adjusting its lending rates  in response to its peg-stability mechanism (PSM) nearly depleting funds last week. The PSM ensures DAI stablecoin remains equivalent to $1 in other stablecoins, notably Circle’s USDC. Due to its lower borrowing rates, users were leveraging assets to borrow DAI and then converting it to USDC via the PSM for higher yields elsewhere. To address this, MakerDAO has enacted a proposal  to align DAI’s lending and borrowing rates with market averages.

In ~2 hours, @MakerDAO  will implement some unprecedented rates moves. There’s been some confusion about the cause, reasoning behind, and likely effect of these changes. Let’s go through them (in that order) 1/n pic.twitter.com/FdNvbNCJ4P 

— PaperImperium (@ImperiumPaper) March 10, 2024 

PaperImperium, a MakerDAO community member and GFX Labs governance liaison, believes that increased rates will motivate borrowers to repay loans, likely by exchanging USDC for DAI. Additionally, higher DAI yields should attract DeFi users to invest in DAI, ideally through the PSM.

Solana Trading Hit: Jito Labs Pauses Service to Fight Price-Manipulating Bots

Jito Labs, a firm developing staking and MEV software for Solana, has recently halted  its memepool, which serves as a holding area for transactions awaiting blockchain inclusion.

Jito Labs has decided to suspend the mempool offered through the Jito Block Engine due to negative externalities impacting users on Solana.

The decision has been made after deliberate conversations with the Jito Labs team and key Solana ecosystem stakeholders.

— Jito Labs (@jito_labs) March 8, 2024 

Jito Labs announced  on an X post their decision to suspend their mempool due to “negative externalities” affecting Solana users. This move aims to curb MEV bots  from executing sandwich attacks, where transactions are strategically placed before and after a trade to profit from price shifts, adversely impacting unsuspecting traders.

Such attacks, which can significantly worsen trade prices, especially in low liquidity assets like memecoins, cost traders millions annually. Notably, memecoin trading volume on Solana surged last week, reaching $2 billion within a 24-hour period.

Watch Ethereum’s Dencun Upgrade Unfold with New Monitoring Dashboard

Metrika, a blockchain data platform, has developed a dashboard  specifically for monitoring Ethereum’s Dencun upgrade. This tool lets users observe the transition as validators update to the latest network version. Additionally, it offers an estimated countdown to the upgrade.

Community Buzzing over Dencun, ETH Price Predictions Soar

Tim Beiko, a key figure among Ethereum core developers, shared his enthusiasm  on Twitter regarding the imminent Dencun upgrade. The developer community has shown robust engagement, with numerous client teams rolling out versions compatible with Dencun, featuring crucial enhancements for performance and stability​​.

The Gnosis Chain’s swift move  to embrace the Dencun upgrade ahead of its introduction on the Ethereum mainnet has generated excitement. Joseph Lubin, co-founder of Ethereum, commended the initiative, underscoring its significance for the Ethereum ecosystem.

Some analysts and leading indicators are pointing towards a potential continuation of the current rally, suggesting the asset could reach new unprecedented highs. Influential crypto enthusiast Ali echoes this sentiment, arguing that Ethereum’s trajectory towards the $5,000 mark is becoming more apparent as resistance levels diminish. Ali highlighted  the $4,522-$4,646 range as a critical supply zone, noting that it’s where nearly 600,000 addresses collectively possess over 1.63 million ETH.

Furthermore, data from the crypto analytics firm IntoTheBlock indicates that the asset’s recent surge in value has been advantageous for investors, with an impressive 95% of them currently enjoying unrealized gains.

However, there is one word of warning. When the much anticipated Merge saw Ethereum move to a proof-of-stake consensus mechanism in September 2022, ETH did not move anything like as much as it could have done. Investors will be hoping that Dencun will be better for Ether.

About the Author

Teuta Franjkovic

Teuta is a seasoned writer and editor with more than 15 years of experience. She has expertise in covering macroeconomics and technology as well as the cryptocurrency and blockchain industries. She has worked for several publications as a journalist and editor, including Forbes, Bloomberg, CoinTelegraph, Coin Rivet, CoinSpeaker, VRWorld and Arcane Bear. Teuta began her professional career in 2005, working as a lifestyle writer at Cosmopolitan in Croatia. From there, she branched out to several other publications, covering mainly business and the economy. She then turned her attention to the world of cryptocurrency and blockchain, believing that crypto is among the most important inventions in the history of humanity. Her involvement in fintech began in 2014 and she has since lent her expertise in writing, editing and gathering information about the world of crypto, blockchain, NFTs and Web3. An all-round news hound, mentor, editor, and writer, Teuta enjoys teamwork and good communication. She holds a WSET2 diploma and has a thing for chablis, punkrock music and shoes. She also holds a double MA in Political science and Entrepreneurship.

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