Ethereum’s Dencun Upgrade Set to Drive Near-Zero Transaction Fees

The forthcoming Ethereum Dencun upgrade scheduled for March 13 offers a chance for near-zero transaction fees for layer 2 (L2) solution users, possibly drawing in more new ones, as per a research report by Fidelity Digital Assets.

The forthcoming upgrade marks the initial step in Ethereum’s rollup-focused roadmap. This advancement will empower the network to function as a resilient database, enhancing the efficiency and cost-effectiveness of data storage for layer 2 blockchains.

Dencun Upgrade to Reduce Costs for L2 Blockchains

Analyst Max Wadington wrote that the Dencun upgrade would provide the necessary scaling capability to accommodate millions of users on layer 2 blockchains, positioning Ethereum as a more suitable distributed database for other blockchains. These enhancements are anticipated to attract significantly more users to the Ethereum ecosystem and broaden the network’s total addressable market (TAM).

Moreover, the upgrade is poised to reduce costs for layer 2 blockchains to store data on the main network. This cost reduction is expected to be transferred to users through lower fees.

Layer 2 solutions are separate blockchains constructed on top of layer 1, or the base layer, to alleviate scalability issues and efficiently manage data. However, the upgrade is not expected to benefit Ethereum users significantly, as the fee reductions promised to layer 2 users will not extend to those transacting on the base Ethereum blockchain.

Wadington explained that in the short term, users seeking to capitalize on this fee adjustment would need to compromise some decentralization and security by conducting transactions on layer 2 solutions instead of directly on the Ethereum network. Hence, it will likely encourage more users to bridge assets to other platforms.

The report added that conducting transactions on Ethereum for application-specific purposes would remain the preferred choice in the medium term, especially as layer 2 platforms mature.

Ethereum Price Surges

Ethereum surpassed the $3,000 mark and surged to over $3,900 earlier this week, reaching its highest value in almost two years.

Investor sentiment reflects optimism regarding the forthcoming Dencun upgrade and the potential approval by the U.S. Securities and Exchange Commission (SEC) of Ethereum exchange-traded funds(ETFs). Additionally, on-chain data reveals that nearly $200 million worth of ETH was burned in the past week, reducing the altcoin’s circulating supply and potentially fueling further price appreciation.

According to CoinGecko data, Ethereum is trading at $3,789, up 8% in the last week. Notably, the second crypto by market cap has surged over 60% over the last month.