HomeNewsDencun Upgrade on Ethereum Could Influence Ether Supply, Says Analyst

Dencun Upgrade on Ethereum Could Influence Ether Supply, Says Analyst

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  • The Ethereum network’s Dencun upgrade could significantly impact ether’s supply by changing the gas fee structure.
  • This upgrade introduces a new blobspace mechanism, potentially reducing gas fees and altering the ether burn rate.

Ethereum’s Pivotal Dencun Upgrade

The Ethereum network is on the brink of a major shift with its upcoming Dencun upgrade. CoinShares Ethereum research associate Luke Nolan highlights that this significant upgrade could have a profound effect on the supply of ether, Ethereum‘s native cryptocurrency. Expected to roll out as early as March this year, the Dencun upgrade is set to introduce an alternative transaction mechanism known as blobspace.

Decoding the Blobspace Mechanism

The core feature of the Dencun upgrade is the introduction of blobspace, an alternative to Ethereum‘s current transactional calldata mechanism. This new mechanism is poised to reduce gas usage significantly, leading to a consequential decrease in the amount of ether being burned. Currently, all ether used to pay base gas fees for transactions is burned as part of Ethereum’s deflationary mechanism.

“Blobspace will alter how Layer 2 transactions are sent to the Ethereum network, resulting in reduced gas costs compared to the current calldata method. This could lead to lower gas prices and, in turn, less ether being burned,”

Nolan explained.

The Ripple Effect on Ether Supply

The anticipated reduction in ether burned due to the Dencun upgrade could influence the growth rate of ether’s circulating supply. Nolan notes that the deflation mechanism of Ethereum, driven by gas demand and subsequent burning, has the potential to reduce the circulating supply of ether. A decrease in gas prices could, therefore, impact Ethereum’s deflationary nature.

However, Nolan also points out that the overall effect of the Dencun upgrade might be offset by other factors. The primary driver of deflation remains the Layer 1 demand. He emphasizes,

“Even if Layer 2s shift to the more cost-effective blobspace mechanism, the resultant reduced gas prices are unlikely to cause Ethereum to become markedly inflationary.”

The Broader Perspective and Timeline

The Dencun upgrade aims to decrease transaction fees, thereby attracting more users and activities to the Ethereum network. Increased network activity could lead to higher overall gas usage, counterbalancing any potential reduction in gas prices.

The upgrade has already been activated on the Goerli testnet, with further activations on the Sepolia and Holesky testnets scheduled before its expected mainnet launch in March. While the exact timeline remains fluid, the Ethereum community is closely monitoring developments for any emergent testnet issues.

Ether’s price has experienced a slight dip in the past 24 hours, yet the broader implications of the Dencun upgrade on Ethereum‘s market share and network dynamics are yet to unfold. As Ethereum continues to evolve, the Dencun upgrade marks a critical juncture in its journey towards a more efficient and user-friendly blockchain ecosystem.

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Nikita Dmitrievich
Nikita Dmitrievichhttps://www.ethnews.com/
Nikita, a young and ambitious crypto investor who has been actively involved in the cryptocurrency world for the past 6 years. With a keen interest in blockchain technology, Nikita has been investing in various cryptocurrencies and has seen significant returns on his investments. He is passionate about educating others on the potential of cryptocurrencies and frequently shares his insights on social media platforms. Nikita believes that cryptocurrencies are the future of finance and is constantly researching new projects to invest in. With his dedication and knowledge, Nikita is quickly becoming a prominent figure in the crypto community. Business Email: info@ethnews.com Phone: +49 160 92211628