Ethereum’s Dencun Upgrade to Reduce Transaction Fees, Testnet Launches Jan 17

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Ethereum: Is the Dencun Upgrade the Saving Grace L2s Need?

In recent years, Ethereum has established itself as one of the leading cryptocurrencies. However, with its growing expansion and increasing demand for scaling solutions, the network faces new challenges. One of these is the high and often unpredictable fee for transactions executed on the Ethereum blockchain. The upcoming Dencun upgrade could offer a solution here.

Explosive Scaling of L2 Rollups

In 2023, the scaling of L2 rollups, a technology that allows bundling thousands of transactions into a single transaction to reduce costs, has exploded. The scaling factors of L2 rollups increased fivefold and on some days even sevenfold. In December 2023, scaling solutions averaged more than 91 transactions per second (TPS) compared to Ethereum’s 13.45 TPS.

Ethereum L2s and the EIP-4844

The upcoming Cancun-Deneb upgrade, also known as Dencun or EIP-4844, is the most anticipated Ethereum upgrade of 2024. It is supposed to enable cost savings of 10-100x on rollups. On-chain analyst Leon Waidmann points to the predicted reduction in gas fees after the upgrade. The cost of swapping tokens on decentralized exchanges (DEXs) could drop by up to 90% for networks like Starknet, Optimism [OP] and Arbitrum [ARB].

The Technology Behind It

As is well known, rollups help reduce fees by bundling thousands of transactions into a single transaction and sending them back to Ethereum for validation. However, the data is ultimately stored on the chain forever and the storage costs are factored into the total gas fees. With EIP-4844, the data is sent to the nodes on the consensus layer, which are automatically deleted after a certain time. During this time, the nodes verify the authenticity of the data. Since the data is not stored permanently, the storage cost component is eliminated and users pay significantly less.

Outlook

Whether the Dencun upgrade can live up to the high expectations remains to be seen. Work on the upgrade is in full swing and the developers are planning to launch the testnet on January 17. If the optimistic forecasts prove correct, this could represent a significant step towards more efficient and cost-effective use of the Ethereum blockchain.

Source: AMBCrypto

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