The upcoming ethereum Dencun upgrade scheduled for March 13 offers the possibility of near-zero transaction fees for layer 2 (L2) solution users, possibly attracting more new ones, according to a research report from Fidelity Digital Assets.
The upcoming update marks the initial step in ethereum's rollup-focused roadmap. This advancement will enable the network to function as a resilient database, improving the efficiency and cost-effectiveness of data storage for Layer 2 blockchains.
Dencun Upgrade to Reduce L2 Blockchain Costs
Analyst Max Wadington wrote that the Dencun upgrade would provide the scaling capacity needed to accommodate millions of users on Layer 2 blockchains, positioning ethereum as a distributed database more suitable for other blockchains. These improvements are expected to attract many more users to the ethereum ecosystem and expand the network's total addressable market (TAM).
Additionally, the upgrade is set to reduce the costs of Layer 2 blockchains to store data on the mainnet. This cost reduction is expected to be passed on to users through lower rates.
Layer 2 solutions are separate blockchains built on top of Layer 1, or base layer, to alleviate scalability issues and manage data efficiently. However, the upgrade is not expected to significantly benefit ethereum users, 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 looking to capitalize on this fee adjustment would have to compromise on some decentralization and security by transacting on Layer 2 solutions rather than directly on the ethereum network. Therefore, it will probably encourage more users to connect assets with other platforms.
The report added that transacting on ethereum for application-specific purposes would remain the preferred option in the medium term, especially as layer 2 platforms mature.
ethereum Price Surges
ethereum surpassed the $3,000 mark and rose to over $3,900 earlier this week, reaching its highest value in almost two years.
Investor sentiment reflects optimism regarding the upcoming Dencun upgrade and the possible approval by the US 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 last week, reducing the circulating supply of the altcoin and potentially driving further price appreciation.
According to CoinGecko ethereum” data-wpel-link=”external” target=”_blank”>data, ethereum is trading at $3,789, up 8% in the last week. Notably, the second-largest cryptocurrency by market capitalization has risen more than 60% over the past month.
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