A recent report published by Fidelity Digital Assets revealed more details about the event and the benefits and repercussions.
Aside from the Bitcoin halving, the upcoming Ethereum Dencun upgrade will be one of the most anticipated events in the world of cryptocurrencies.
The Dencun upgrade is a major upgrade for Ethereum, aimed at increasing data storage and reducing costs, and it includes five EIPs, with the most market attention focused on EIP-4844, which aims to address Ethereum’s scalability issues, help reduce transaction costs for Ethereum Layer 2 solutions, and directly benefit layers 2 and related ecosystems.
Ethereum continues to move towards efficiency, latest Dencun upgrade could bring fees to zero. This update may take place on March 13 if everything goes as planned. This means that in less than 72 hours, layer 2 blockchain users could benefit.
According to analyst Max Wadington, “The improvement of Ethereum as a database reveals the opportunity for near-zero transaction fees for layer 2 users.”
Specifically, Ethereum’s Dencun upgrade will establish a new protocol that will allow blockchain chains to be converted into data storage. This would basically lower transaction costs and allow for the development of better services. After the event, the chain will support up to millions of users simultaneously, one of the biggest dilemmas when using databases of this type in the ecosystem.
The upgrade will provide the scale needed to support millions of users on Layer 2 blockchains, making it a distributed database more “suitable for other blockchains,” according to the report. The improvements are expected to bring substantially more users to the Ethereum ecosystem and should expand the network’s total addressable market (TAM).
New Dencun Update Could Bring Rates to Zero, But Not for All Users
While it is true that improvements of this type in second-level layers will increase incentives to participate, not all users will benefit. Particularly those who value decentralization, as this new system sacrifices some centralization to store information and reduce transaction costs.
The update will affect the Ethereum base network, although only the second layer networks will benefit from this. This is because the new version will implement tools for data centralization and storage. Users of Arbitrum, Optimism, among others, benefit from these types of improvements. Mainly, lower rates benefit users in times like the current one, where gas and transactional rates tend to rise due to trading volume.
As the note published by Fidelity Digital Assets reveals, the improvement would be carried out specifically with the use of Rollups, protocols that process data outside the network and then enter the results. In this way, Rollups will facilitate the operation of layer 2, which, being built on layer 1, would avoid the saturation of transactions or information.
Despite this, the statement reads as follows:
“We firmly believe that transactions on Ethereum for application-specific purposes will continue to be considered the best option in the medium term as layer 2 platforms continue to mature.”
These types of improvements, such as the Shanghai controversy last year, increase the network’s user base and demonstrate the versatility of the ecosystem. However, despite the modest changes proposed by Dencun, it is expected to increase the network’s total addressable market (TAM). If all goes as proposed, by March 14, transactions on second-layer blockchains could be much cheaper.
“In the short term, users who want to benefit from this fee change must sacrifice some decentralization and security by transacting on layer 2 instead of Ethereum,” Wadington wrote. “This will certainly encourage more users to pool assets elsewhere.”
By Audy Castaneda
