Protodanksharding will usher in much lower fees for Ethereum L2s and may allow ETH to outshine its competitors this year.
Ethereum's upcoming Dencun upgrade, slated for launch in just two days, is poised to be a pivotal event for the network, with experts dubbing it one of the most significant since the Merge. Unlike past upgrades, Dencun is expected to have minimal direct impact on Ethereum holders, as it marks a shift towards serving other blockchains directly.
At the heart of the Dencun upgrade is EIP 4844, also known as "protodanksharding," which promises to lower gas fees on Ethereum's layer two (L2) networks. This improvement will facilitate the settlement of L2 transactions on Ethereum through a new transaction type called "blobs," optimizing data storage for greater efficiency.
Networks such as Polygon, Arbitrum, and Optimism stand to benefit directly from this upgrade, particularly those processing transactions in batches known as "rollups" before finalizing them on Ethereum. Expectations include a significant reduction in costs for Polygon ZK EVM transactions, following the Feijoa upgrade, whose release date remains pending.
Furthermore, Ethereum's transition towards utilizing L2s as an execution layer signifies a broader strategic pivot within the network. This shift acknowledges the limitations of Ethereum's monolithic design and underscores the importance of scalability through layer two solutions.
While the Dencun upgrade may increase hardware requirements for Ethereum node operators, the impact on decentralization should be minimal. L2 submission fees, currently accounting for about 10% of all L1 fees, are anticipated to decline substantially post-upgrade.
Unlike previous upgrades like the Merge, Dencun does not introduce "number-go-up" technologies or new yield mechanisms for ETH. Nonetheless, analysts foresee it as a catalyst for Ethereum to outperform BTC in 2024, citing protodanksharding as a significant driver for network activity and market performance.
Recent market trends have seen Bitcoin reaching an all-time high above $72,600, with Ethereum surpassing $4,000. Both assets have witnessed impressive year-to-date gains of 63% and 71%, respectively.
