Ethereum’s Dencun Upgrade: A Shift Towards Servicing Other Blockchains
Ethereum’s upcoming hard fork, known as the Dencun upgrade, is just two days away and is being hailed as one of the most significant events for the network since the Merge. However, unlike previous upgrades, experts believe that Dencun won’t have a major impact on Ethereum holders themselves. Instead, it marks a shift in Ethereum’s focus from servicing users directly to servicing other blockchains.
Introducing EIP 4844: Lowering Gas Fees on Layer Two Networks
The Dencun upgrade will introduce EIP 4844, also referred to as “protodanksharding.” This update will bring about lower gas fees on Ethereum layer two (L2) networks. It will enable L2 transactions to settle on Ethereum using a new transaction type called “blobs,” which efficiently store large amounts of data using less gas than before.
- Networks like Polygon, Arbitrum, and Optimism will benefit from this upgrade as they process transactions in batches called “rollups” before settling them on Ethereum.
Predicted Cost Reductions and Directional Pivot
The Dencun upgrade is expected to result in significant cost reductions for Polygon ZK EVM. David Silverman, VP of Product at Polygon Labs, anticipates a drastic decrease in costs for Polygon ZK EVM following the upgrade.
- Silverman also believes that there will be a slight decrease in proof-of-stake costs due to the reduced cost of Ethereum L1 block space.
- Overall, Silverman sees this upgrade as a broader directional pivot within Ethereum towards utilizing L2s as an execution layer.
Hardware Requirements and Decentralization
Fidelity’s research report states that the Dencun upgrade will increase the hardware requirements for Ethereum node runners. However, these increases are marginal and should not negatively impact Ethereum’s decentralization.
- Ethereum node runners will need an additional 100 gigabytes of SSD storage and 64 kilobytes per second of bandwidth, which is relatively small compared to current requirements.
No “Number-Go-Up” Technology, but Potential Outperformance of BTC
Unlike the Merge, the Dencun upgrade does not introduce any “number-go-up” technology or new yield mechanisms for ETH as a currency. However, JPMorgan analysts predict that this upgrade could be a catalyst for Ethereum to outperform Bitcoin in 2024.
- The bank’s analysts believe that the Dencun upgrade will improve Ethereum network activity and help Ethereum regain market share within the crypto ecosystem.
- This prediction is based on the primary catalyst of protodanksharding introduced by the upgrade.
Hot Take: The Future of Ethereum and Bitcoin
As Ethereum prepares for its Dencun upgrade, it is evident that the network is shifting its focus towards servicing other blockchains rather than just its users. This change signifies a strategic move towards utilizing layer two networks as an execution layer. While Dencun may not directly impact Ethereum holders, it has the potential to significantly reduce gas fees on layer two networks and improve network activity. Furthermore, analysts predict that this upgrade could be a turning point for Ethereum to outperform Bitcoin in the coming years. As both Ethereum and Bitcoin continue to experience substantial growth, the future of these cryptocurrencies remains promising.
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