The Dencun update was successfully deployed to the Ethereum network at 13:55 UTC on March 13th. Dencun is the most anticipated hard fork since the merger and is expected to significantly reduce transaction fees on Layer 2 networks and increase Ethereum’s overall scalability. However, according to Arthur Breitman, co-founder of the Tezos blockchain, while the Dencun update is a step in the right direction, it will not eliminate all the shortcomings of second-layer solutions. “The Dencun update does the bare minimum to expand the amount of data that can be used in Ethereum pooling, which should reduce transaction costs in these L2 solutions. It’s a step in the right direction, but ultimately rollups built on top of Ethereum remain very limited in throughput abilities and are forced to take extreme measures of centralization,” he said.
Dencun’s launch comes nearly a year after the April 2023 Shanghai update, which allowed network participants to unlock their Ethereum (ETH) for the first time since the network transitioned to a proof-of-stake network following a merger. The Dencun hard fork includes nine different Ethereum improvement proposals (EIP-4844, also known as proto-dunksharding). The name of the update combines the Cancun update to Ethereum’s execution layer and the Deneb update to its consensus layer. The first part, Cancun, aims to improve the governance and processing of transactions at the execution level, and the second part, Deneb, aims to improve the consensus level, which refers to how network participants agree on the state of the blockchain.
Gas fees on the Ethereum network remain high, exceeding 72 Gwei. According to Etherscan, the average swap will cost users $86.15 per gas, while non-fungible token sales average $145.60 per gas. However, despite all this, fees for transactions in second-layer networks for Ethereum have decreased noticeably after the Dencun update on March 13. The Dencun update has reduced the processing and storage costs of second-layer networks (L2 networks) for Ethereum, such as Arbitrum, Optimism, Polygon or Base, by introducing transactions containing so-called BLOBs, which include only a hash reference to the object data and are stored off-chain.
According to the transaction tracker in second-tier networks on the Dune platform, after Dencun was activated, the average cost of transactions in the Optimism network dropped to almost $0.4. This is significantly lower than the average, which was about $1.4 before the upgrade. The average commission of the Base L2 network from the leading American crypto exchange Coinbase also decreased significantly – from $1.5 to $0.3. In the Arbitrum blockchain, the commission dropped to $0.4; in the zkSync and Zora networks, the commission after the update was $0.15 and $0.003, respectively. According to tracker Etherscan, Ethereum network fees at the base level are $4.47 as of March 14. The average commission for 7 days is $23.
Grayscale analysts argue that the Dencun update could prove to be a catalyst for launching more second-layer networks at minimal cost, which would be an added bonus for Ethereum to attract some new users to its own ecosystem. The full implementation of this update is also called a prerequisite that Ethereum will surpass both Bitcoin and other cryptocurrencies in growth rates in 2024 and increase its share in the crypto ecosystem. Experts believe that the upcoming technical update of the Ethereum blockchain, the deflationary model of issuing the second cryptocurrency, the generated income of $2 billion over the past year, as well as the expected decision of the US Securities and Exchange Commission (SEC) on ETH-based exchange-traded funds (ETFs) in May 2024 may act as growth drivers for Ethereum.
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