Ethereum has been at the forefront of innovation in the crypto space ever since its inception. The forward-thinking blockchain platform introduced the concept of smart contracts and reshaped the crypto landscape with its groundbreaking features and expanding applications ecosystem. Its numerous upgrades and updates also stand as a testament to its pioneering nature and commitment to continuous development.
Even if the Ethereum price has experienced constant fluctuations and is not at the same level it was before the crypto winter hit, as can be seen on all major exchange platforms like Binance, the blockchain system remained steady in its pursuit of excellence. So now Ethereum is getting ready for its next big upgrade known as Dencun which is going to address a number of challenges that the network is facing. Most importantly, the upgrade comes with the promise of lower transaction fees which has been a major point of concern for developers and users over the years.
Dencun Upgrade explained
Ethereum’s architecture is vast and complex and the upgrades it rolls out regularly are equally intricate, so we should start by explaining what the Dencun upgrade entails. Dencun brings together two different upgrades, Cancun and Deneb, each of them aimed at improving specific areas of the network. Cancun covers changes to the Ethereum Virtual Machine which is responsible for the execution of smart contracts and the processing of transactions, while Deneb is set to revamp the consensus protocol in charge of ensuring the reliability and security of the network.
In order to reach its objectives, Dencun will introduce a set of nine Ethereum Improvement Proposals (EIPs). As the name implies, EIPs are formal proposals that describe potential alterations and additions to the Ethereum network. They can range from small changes like improving certain existing features to major upgrades such as the shift to a different consensus protocol. Regardless of their purpose or scale, all EIPs that are put forward for consideration have to be revised by community members and if they get the green light, they are included in future upgrades and scheduled for execution.
The Dencun upgrade features several such EIPs, with EIP-4844, also known as proto-danksharding or the Surge, being the first and most notable of all. This EIP offers an innovative solution for storing large amounts of data off-chain via data blobs. By employing temporary blobs to reduce the data storage burden on the consensus layer, EIP-4844 is bound to lower transaction costs significantly. This will particularly benefit Layer 2 solutions which play a key role in Ethereum’s data handling and scaling strategy. Following the implementation of the upgrade, gas fees are expected to drop to $0.02 from the current $0.23, making the Ethereum network more accessible to users and developers alike.
Houston, we have a gas fee problem
For all the benefits it provides and all the positive contributions it has brought to the crypto sphere, Ethereum has always been marred by one major drawback: its high gas fees. In order to perform any operation on the Ethereum network, be it transferring funds or executing a smart contract, users have to pay a fee for the computation power expended for these activities. The compensation people pay to use the platform’s services and features is called gas and is denominated in Gwei, a small division of an ETH, equivalent to 0.000000001 ETH.
In theory, this is a reliable mechanism for securing the blockchain and keeping it running smoothly. In practice, however, the gas fees have become higher than anticipated, acting as a barrier for many users. The spike in gas prices has been prompted by Ethereum’s increasing popularity which intensified the activity on the platform. The network becomes congested because of the large number of transactions waiting to be processed, thus leading to delays and bigger gas fees.
Another reason for the price surge is users’ inability to balance gas limits and gas prices. Setting a high gas limit combined with a high gas price will inevitably increase the costs of transactions. Therefore, one has to be careful when establishing transaction parameters.
Additionally, smart contract deployment is not a one-size-fits-all in terms of costs. The more complex the contract, the more computational power it requires, leading to higher gas fees. With dApps becoming increasingly intricate, the network is getting more congested and costs surge as a result.
Inching closer to Dencun’s launch on the Mainnet
Every Ethereum upgrade involves a lengthy and systemic process that follows several steps until completion, and the Dencun upgrade is no different. Before being launched on the Mainnet, developers have to test the viability of the upgrade and address any errors that might pose a risk later on. For this reason, the Dencun upgrade was initially implemented on the Goerli and Sepolia testnets back in January.
This first stage in the process has been deemed a success but it had little impact on the ETH price so far. The official launch of the upgrade has been scheduled for March 13 and there’s a lot of anticipation surrounding the event. If things go according to plan and the gas fees drop by at least 10 times as predicted, analysts believe that the upgrade could mark the beginning of a new bull run for Ethereum.
The altcoin is currently trading at $2,783, up by 10% in the last 30 days, so the possibility of an upcoming price appreciation doesn’t sound unreasonable. However, there are many other factors that can influence Ethereum’s trajectory, so there are no certainties regarding the upgrade’s effect on its price point.
Final thoughts
With its eyes constantly set on the future and an unwavering focus on tech advancements, Ethereum’s evolution is far from over. The long-awaited Dencun upgrade represents another major milestone in Ethereum’s development and is bound to make the network stronger and more competitive, which will likely boost its appeal among users.
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