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As Ethereum gears up for the highly anticipated Dencun upgrade on Wednesday, March 13, the blockchain community is abuzz with excitement.
The update aims to revolutionize Ethereum by reducing layer 2 (L2) transaction fees and bolstering scalability.
Ethereum’s evolution: from Beacon Chain to Dencun upgrade
Ethereum has undergone a transformative journey, setting the stage for the upcoming Dencun upgrade.
The introduction of the Beacon Chain in December 2020 marked a crucial shift to a proof-of-stake (PoS) consensus mechanism, enabling users to stake ETH and move away from the traditional proof-of-work (PoW) model.
The subsequent Merge upgrade in September 2022 seamlessly linked Ethereum’s main network with the Beacon Chain, solidifying its commitment to PoS.
In April 2023 the network successfully underwent the Shanghai upgrade, allowing users to withdraw staked ETH, easing the management of stakes for validators.
Then, in a strategic move on September 28, 2023, Ethereum launched the Holešky testing network, supporting 1.4 million validators—a foundational step for the upcoming Dencun upgrade.
The Dencun upgrade: unlocking Ethereum’s potential
Scheduled for March 13 at 9:55 am ET, the Dencun upgrade amalgamates elements from previous upgrades, Cancun and Deneb.
Unlike earlier updates that laid the groundwork for sustainability and security, Dencun is poised to directly address the scalability challenge.
A key focus of the Dencun upgrade is the introduction of “proto-danksharding” through Ethereum Improvement Proposal (EIP) 4844. This revolutionary feature enhances scalability by efficiently managing large data chunks.
By temporarily holding transaction data in “blobs,” proto-danksharding streamlines and reduces the cost of processing transactions, particularly for layer 2 (L2) solutions like rollups.
Ethereum (ETH) and Layer 2 token reaction ahead of Dencun
With Dencun on the horizon, Ethereum’s price is soaring, hitting a high of $4,092.28, which is just a few hundreds below the all-time high of $4,891.70.
This ETH bullish momentum is driven by the anticipation of reduced transaction fees and improved scalability that the Dencum upgrade is expected to introduce. According to analysts, Ether could easily surpass its ATH if the Dencum upgrade executes without a glitch.
On the flip side, while the price of ETH has been soaring, Ethereum Layer 2 tokens, which the Dencum upgrade targets most with reduction of transition costs, have experienced sharp declines.
Among the most affected Layer 2 tokens include Polygon (MATIC), Immutable (IMX), Optimism (OP), Arbitrum (ARB), and Mantle (MNT).
At press time, MATIC, OP, and ARB prices had dipped by 5.1%, 6.3%, and 6.8% in the past 24 hours, while IMX and MNT experienced 4.1% and nearly 5% losses, respectively.
Large wallet investors, known as whales, are observed swapping Layer 2 tokens for stablecoins or other cryptocurrencies, as evidenced by transactions on blockchain explorer Spot On Chain; possibly to stay safe from the expected market volatility during the upgrade.
Intriguingly, these price corrections present a potential “buy the dip” opportunity for traders eyeing the post-Dencun era, where reduced fees for L2 networks are expected to enhance user experiences.
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