Ethereum’s Dencun update could be a major milestone for Layer 2 scaling solutions, as it is expected to significantly reduce transaction fees on Layer 2 networks and improve Ethereum’s overall scalability. Anticipation of the upgrade pushed ETH to $4,000 on March 8 for the first time since December 2021. The world’s second largest cryptocurrency rose 14.7% on weekly and more than 59% on monthly charts.
The Dencun hard fork includes nine different Ethereum improvement proposals (EIP-4844). The name of the update combines the Cancun update of the Ethereum execution layer and the Deneb update of the 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. Well, several Layer 2 cumulative packages aggregate and process off-chain transactions and transmit a summary confirmation of these transactions to the Ethereum blockchain.
EIP-4844 creates a new way of aggregation to add cheaper data to blocks by introducing blob space as a replacement for using call data for storage. Using call data to store cryptographic evidence of merged transactions off-chain has historically been expensive since all Ethereum nodes must process data that resides on the blockchain indefinitely. Proto-dunksharding, named after the researchers who proposed EIP-4844, allows rollups to send and attach large amounts of data to blocks. The data is not accessible to the Ethereum Virtual Machine and is automatically deleted after a fixed period of 18 days.
According to James Wu, CEO and founder of Digital Finance Group, the update could significantly improve the overall scalability, efficiency and security of the Ethereum network. “A key feature of the Dencun update is the introduction of ephemeral data blocks with EIP-4844, also known as proto-dunksharding. This development aims to reduce Layer 2 transaction fees by increasing data availability, which is an important step towards making Ethereum a scalable layer calculations,” Wu said.
However, according to a March 6 report from Fidelity Investments analyst Max Wadington, the fee reductions promised for Layer 2 users will not directly impact users transacting on the Ethereum network. “In the short term, users who want to benefit from this fee change will have to sacrifice some decentralization and security by transacting on L2 instead of Ethereum. This will certainly push more users to pool assets elsewhere. However, we strongly believe “that application-specific Ethereum transactions will continue to be considered the best option (especially for high-value transactions) in the medium term as L2 platforms continue to evolve,” Wadington explained.
Gas fees on the Ethereum network have risen to an average of 98 Gwei, a level not seen since early May 2023, according to Etherscan. According to Etherscan, the average swap will cost users $87.45 in gas fees, while non-fungible token sales on average result in $147 in gas costs.
