Impact of the Dencun Upgrade on Ether Supply
The upcoming Dencun upgrade on the Ethereum network could potentially impact the supply of ether, according to Luke Nolan, a research associate at CoinShares Ethereum. The upgrade will introduce the blobspace mechanism, which allows Layer 2 transactions to be sent to the network with reduced gas usage. Currently, all ether used for transaction fees is burned, but with the Dencun upgrade, lower gas costs could result in less ether being burned.
Effect on Ether Burn Mechanism
The reduction in ether burned could have implications for the growth of ether supply. Gas demand drives ether’s deflation mechanism, and lower gas prices could lead to a decrease in circulating supply. However, other factors such as Layer 1 demand play a significant role in deflation. Despite the potential reduction in gas prices, Nolan believes Ethereum will not become significantly inflationary and expects more activity on the network due to lower transaction fees.
Dencun Upgrade Schedule
The Dencun upgrade was activated on the Goerli testnet and introduced several Ethereum Improvement Proposals. The mainnet activation is expected to occur after successful testing on testnets, with a potential timeline of March or later. The price of ether has fallen by over 3% in the past 24 hours.
Hot Take: Potential Impact on Ether Supply and Network Activity
The Dencun upgrade has the potential to affect both the supply of ether and network activity on Ethereum. With reduced gas costs and the introduction of the blobspace mechanism, there may be a decrease in ether burned and a subsequent impact on circulating supply. However, it is important to consider other factors such as Layer 1 demand that significantly drive deflation. Overall, the goal of the Dencun upgrade is to decrease transaction fees and solidify Ethereum’s market share, which could have long-term positive effects regardless of short-term gas fluctuations.
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