Dencun Upgrade (EIP-4844) Another big upgrade from Ethereum.
Author: Mr. Arun Rungrojsunthorn
Job: Analyst
The popularity of digital assets continues to improve after the approval of the Bitcoin Spot ETF. He went at the beginning of January. With a large amount of money flowing in to buy Bitcoin, which other coins Ethereum is getting equal attention, where famous funds are also applying to open Spot ETFs.
But before the Ethereum Spot ETF decision deadline on March 13, 2024, There is a major upgrade to Ethereum called “Dencun” or Ethereum Improvement Proposal 4844 (EIP-4844) that will help reduce fees on Layer 2 of Ethereum, making fees significantly cheaper.
What is EIP-4844?
Usually, Ethereum offloads most of the transaction processing to Layer 2 and then logs it. Data goes back to Ethereum to reduce fees. and therefore able to support a large number of transactions EIP-4844 will change the method of recording data to be even more efficient. in order to support many transactions increasing and reducing transaction costs This will cause the fees on Tier 2 to be 10-100 times cheaper.
What effect will this upgrade have?
Normally, the fees we pay for transactions on Layer 2 are split into two parts, but more than 90% of them go to the cost of recording data on Ethereum, which will help on after upgrade EIP-4844 on March 13. Reduced data saving costs on Ethereum
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From the information below, you will notice that the average profit rate in Tier 2 is around 10-20% After this upgrade is completed, it is expected that the profit share that various projects can make will increase. increase to a level of 60-70%
Overall, users will benefit a lot from this upgrade. But not only that, lower fees will allow developers to create more complex applications. This makes it possible to see new applications or use cases that we may not have seen before.
From the information above, there may be positive factors for coins in the Tier 2 group, for example, Optimism, Arbitrum or other coins in this sector will also have good results.
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From info from welovetheblobs There is an example transaction simulation after this upgrade. Divided into 3 transaction types as follows:
1. Exchange, buy-sell coins The fees will be about 16.5 times lower.
2. Create NFT, fees will be about 16 times cheaper.
3. Sending coins to other people The fees will be about 47 times lower.
It can be seen that the fees on Tier 2 are significantly lower. Tier 2 like Optimism, Arbitrum, Base, zkSync will see significant fee benefit. However, you may have to wait for a test. Once again after the Dencun upgrade is completed how much will the fees be reduced.
In the recent past, new Tier 1 blockchains like Solana and Fantom have come in to solve the problem. Lower fees are considered a weak point of Ethereum, but after this upgrade, the fees on Layer 2 will be lower, increasing the ability to compete with those blockchains even more.
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In this section, there may be some concern about whether fees on Ethereum will decrease or not. Definitely an upgrade. This time it may lead to Ethereum collecting less fees, but currently the share of fees that Layer 2 pays to Ethereum is about 10-20% of the total revenue. Overall, this is not that important, as most Ethereum fees come from tier 1 transactions.
Source:
According to Artemis, the average 7-day Tier 2 fee is around $3.3 million USD. This is about 10.7% of the revenue that Ethereum collects every day, so it can be seen that the majority of Ethereum revenue may not be affected as much as many fear.
Source: Artemis
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