Dencun's highly anticipated upgrade for the Ethereum (ETH) ecosystem is on the horizon, promising to bring significant improvements. cost reductions and notable changes in Layer 2 (L2) networks. The update, scheduled for March 13, will introduce a new data storage system called blobs, reducing congestion on the Ethereum network and bringing key new features in various areas.
Ethereum Dencun Upgrade
As highlighted in a recent Bloomberg article reportDencun aims to reduce the cost of Layer 2 networks such as Arbitrum (ABR), Polygon (MATIC), and Coinbase's Base by allowing previously expensive transactions to become significantly cheaper.
In particular, transactions that previously cost $1 may now cost as little as a penny, the report notes, while others that previously cost a penny may be reduced to a fraction of a cent. This cost reduction should significantly improve the end-user experience and is a significant improvement over previous upgrades such as the September 2022 “Fusion”.
One of the most crucial aspects of the Dencun upgrade is the introduction of blobs, a new type of data repository for layer 2 networks. Currently, layer 2 blockchains store their data on the Ethereum network, resulting in significant storage costs passed on to applications and users.
However, with blobs, Layer 2 will store their data for a significantly shorter period, around 18 days, resulting in reduced costs. Although this change sacrifices permanent storage of a complete record of all transactions, it frees up more space on the Ethereum network for other transactions, thereby reducing congestion.
AI-powered trading strategies
According to the report, the introduction of blobs through the Dencun upgrade also paves the way for the use of artificial intelligence (AI) in various applications. For example, games can incorporate AI-driven non-player characters, enabling advanced gameplay capabilities and a deeper experience.
In decentralized finance (DeFi), automated market makers can integrate “complex trading strategies” driven by AI models. This newfound flexibility and complexity should promote innovation and stimulate the development of advanced applications in the Ethereum ecosystem.
Additionally, the Dencun upgrade is expected to significantly reduce the operating costs of Layer 2 chains. Previously, launching and operating a Layer 2 project required considerable venture capital support. However, Bloomberg reports that with the cost reductions Dencun brings, smaller teams may be able to launch and maintain Layer 2 chains.
Although blob adoption and associated financial benefits are expected to generate immediate benefits, it should be noted that the cost of blobs may increase over time as demand increases.
How could Dencun increase the price of ETH?
Although the price of ETH has corrected by more than 3% in the last 24 hours, resulting in a current price of $3,916, the Dencun upgrade has the potential to be impactful positive on its price.
The upgrade aims to significantly reduce the costs of Layer 2 networks and improve the overall user experience, making Ethereum a more attractive platform for decentralized applications (dApps) and other use cases. By reducing transaction fees and improving scalability, Dencun could attract more users and developers to the Ethereum ecosystem, potentially increasing demand for ETH tokens.
Despite the ongoing correction, it is worth noting that the current ETH price is not far from its two-year high of $4,084. However, it is important to consider that the price has formed a double top model on the daily timeframe for two consecutive days, which may pose a short-term hurdle for the ETH price. The market reaction and whether ETH can break out past its nearest resistance level remains to be seen.
Featured image from Shutterstock, chart from TradingView.com
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