Ethereum’s Dencun Upgrade Will Benefit L2s Like Arbitrum and Optimism
Ethereum (ETH)'s highly anticipated Dencun upgrade, scheduled for March 13, is poised to be a landmark event for the network. Unlike previous upgrades, however, Dencun's impact won't be directly felt by Ethereum holders themselves.
Dencun's core innovation lies in EIP-4844, also known as proto-danksharding. This paves the way for significantly lower gas fees on Ethereum's layer 2 (L2) networks. L2 networks process transactions in batches before finalizing them on the Ethereum mainnet. Dencun introduces a new transaction type called "blobs" that allows L2s to store large amounts of data more efficiently on the mainnet.
The beneficiaries of this upgrade are L2 networks like Polygon, Arbitrum, and Optimism. These platforms are expected to see a significant reduction in transaction costs.
"This upgrade signifies a shift in Ethereum's focus," explains Max Wadington, a research analyst at Fidelity Digital Assets. "The network is moving from directly servicing users to empowering other blockchains."
Fidelity's research report highlights that Dencun will increase hardware requirements for Ethereum node operators by a moderate amount – 100GB of additional SSD storage and 64kbps of bandwidth. Compared to current requirements of 2TB storage and 25mbps bandwidth, these are negligible increases and shouldn't hinder Ethereum's decentralization. Currently, L2 submission fees contribute roughly 10% of total fees on the Ethereum mainnet. This figure is expected to decline significantly after the Dencun upgrade goes live.
