Ethereum Dencun Update: Impact on ETH Price

According to Ethereum co-founder Vitalik Buterin, even after countless updates to the Ethereum blockchain, we are only 55% of the way there. Following a successful merger in 2022, Ethereum's post-merger upgrade schedule will likely follow the original roadmap, which starts with Surge and ends with Splurge. Following the workaround that was the Shanghai Update, which allowed Ethereum stackers to finally withdraw their deposited ETH, we see the core Ethereum developers restarting their post-Merge roadmap now that the path forward has been paved.

An upcoming upgrade to the Ethereum blockchain, known as “Dencun” (a portmanteau of “Deneb” and “Cancun”), is designed to improve the overall scalability and security of the network. In total, the upgrade includes five Ethereum Improvement Proposals (EIPs) that are expected to increase data storage and reduce costs.

Curious how the team plans to achieve this goal? Here's everything you need to know about the Ethereum Dencun update and how it could affect ETH prices when it's fully implemented this year, from proto-dunksharding to transitive storage opcodes.

Main conclusions:

• The Dencun update on Ethereum is the next major network upgrade that the core developers have decided to work on.
• Previously, the Ethereum Dencun Upgrade was scheduled for October 2023. However, it was then postponed and is now scheduled for the first quarter of 2024.
• In this article, you will learn how you can benefit from the Ethereum Dencun Upgrade.

What is the Ethereum Dencun update?

The Dencun upgrade on Ethereum is the next big step forward for the network that core developers have decided to work on. Dencun, outlined in the roadmap Ethereum Foundation like "Surge", is designed to increase the maximum number of transactions per second (GST) on the blockchain without compromising the security and ease of development of second-layer decentralized applications (DApps).

It is important to note that the Ethereum Dencun upgrade is not just a software upgrade, but rather a significant milestone for Ethereum. In a nutshell, Dencun aims to improve scalability and network security, as well as to reduce transaction fees, which can attract more users to the network. According to researcher Alex Stokes of the Ethereum Foundation, October 2023 was an achievable target for Dencun activation. However, the update was subsequently delayed and this possibility was discussed by the kernel developers. The launch of the Ethereum Dencun update will most likely take place in the first quarter of 2024 and will include the following EIPs:

• EIP-4844 (Shard Blob Transactions): Shard Blob Transactions scales Ethereum data availability in a simple, cutting-edge compatible way.
• EIP-1153 (transitional storage): Reduces the cost of on-chain data storage for opcodes, thereby optimizing blockchain space.
• EIP-4788 (root of Beacon block in Ethereum virtual machine): Expands the root of the parent beacon block at runtime to improve cross-chain bridge and stake pool designs.
• EIP-5656 (memory copy instruction): Provides an efficient EVM instruction for copying memory regions to build data structures more efficiently.
• EIP-6780 (SELFDESTRUCT only in the same transaction): Changes the functionality of SELFDESTRUCT, code that can potentially terminate smart contracts.

If you want to check the update progress, you can do this here.

Proto-Danksharding and Blob Transfer Transactions

As a new transaction format introduced in Danksharding, a binary large object (BLOB) refers to large data packets integrated into the Ethereum network to increase overall transaction throughput. These “blobs” consist of additional information temporarily stored in the Ethereum consensus layer, which contributes to a more economical and accessible solution to reduce overall gas costs.

Blob transactions essentially allow the sender of a transaction to attach a large piece of data, similar to how large files are attached to emails before they are sent. This ultimately frees up more space for transaction data in the protocols rollup, which will make transactions more accessible in the long term by lowering the fees for hosting data on Ethereum.

What is the Deneb update and how is it different from the Cancun update?

If you are just getting started in the Ethereum ecosystem, you may be interested to know that some crypto enthusiasts are using the term “Cancun.” Essentially, it is a reference to an upcoming upgrade of the Ethereum network that will include upgrades to both the execution layer and the consensus level. The Cancun update refers to an update to the Ethereum execution layer, while the Deneb update focuses on the network consensus layer.

These updates will happen simultaneously, so there is no need to worry about any delays in their implementation. It is worth noting that both updates are aimed at improving the overall efficiency and security of the Ethereum network, which is exciting news for anyone involved in the Ethereum ecosystem. Whether you are an experienced user or just starting out, this update is definitely something to keep an eye on.

Deneb update will be implemented primarily to support data availability for the long-awaited EIP-4844, known as Proto-Danksharding. In addition, Deneb will also include the following EIPs:

• EIP-7044 (Perpetual Signed Voluntary Exits): Fixes the voluntary exit domain on Capella for perpetuity.
• EIP-7045 (Increasing the maximum attestation enable slot): As stated, increases the maximum attestation enable slot.

Why is everyone talking about the Ethereum Dencun update?

Like The Merge, the Ethereum Dencun update represents another step in the right direction for the Ethereum Foundation and its core developers as they strive to complete part of their Surge roadmap. The execution of Dencun on the Ethereum blockchain marks the first significant step towards the overall progress of the project, as proto-dunksharding is a key EIP that must be performed to improve transaction throughput.

This has once again fueled interest in the long-term benefits of investing in Ethereum. It continues to become the most widely adopted smart contract platform that delivers on the promises of its roadmap. With the imminent arrival of Dencun, there is increasing interest in the potential volatility that could result from the implementation of this major network upgrade.

The Ethereum Dencun update has already launched on the Goerli, Holesky testnets and the Sepolia faucet, and users are awaiting its launch on the mainnet.

What is the purpose of the Ethereum Dencun update?

From scalability to improved security, here are some of the most talked about improvements coming with the Ethereum Dencun upgrade.

Improved scalability

Temporarily storing and retrieving off-chain data through Ethereum nodes will solve a key scalability issue for the Ethereum blockchain. Proto-danksharding will significantly increase transaction throughput, which can improve the overall user experience as transactions will be processed at a faster rate without the fear of congestion or reduced traffic load.

Reduced gas fees at level 2

The implementation of Proto-Danksharding and its associated EIPs is expected to solve the problem of high gas fees on the Ethereum network. By streamlining transaction processing and reducing the load on network resources, the upgrade could result in transaction costs being as low as a fraction of a cent. Such a significant reduction in fees will be especially useful for investors who frequently interact with the Ethereum ecosystem and related DApps. From GameFi to NFT trading, this could lead to even greater adoption of the Ethereum network in the future.

Network security and stability

The Dencun update also includes various improvements and bug fixes to improve the overall security and stability of the Ethereum network. For ETH investors, this means a more robust ecosystem with less vulnerability to potential attacks or network outages. By satisfying one of the most important areas of the blockchain trilemma, crypto enthusiasts and newbies who invest based on the security and stability of the network will be able to invest in ETH with more confidence in the long term.

Impact of Ethereum Dencun update on ETH prices

Given the Ethereum Foundation's solid track record of network modernization, the Ethereum Dencun update sounds nothing short of good news for maximalists and long-term ETH investors. This is because the implementation of multiple EIPs will help strengthen Ethereum fundamentals and encourage mass adoption once interest in the cryptocurrency picks up again during the bull run.

On the other hand, it could be a case of “buy the rumor, sell the news” where ETH traders and speculators may decide to sell off their ETH holdings or short sell ETH after the Dencun upgrade is complete. This is done to take advantage of retail investors and traders buying ETH due to FOMO (fear of missing out).