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This year is expected to bring many events that will trigger a rise in expectations for the overall cryptocurrency markets. However, there is also Dencun. The Merge was a significant moment but did not create the anticipated excitement in price. Yet, the Dencun upgrade for Ethereum could potentially lead to significant gains in the price of ETH and some altcoins.
Ethereum Layer2 Solutions
Layer2 solutions connected to the Ethereum mainnet are becoming the choice for investors seeking more speed, lower fees, and scalability. Last year saw serious interest in layer2 solutions. At the beginning of the year, the Ethereum mainnet was processing an average of 13.67 transactions per second (TPS), while layer2 networks had 4.38 TPS.
Last month, in December 2023, the scaling factor of L2 rollups increased by 5 times and even 7 times on some days. On December 15th, scaling solutions reached 91 TPS compared to Ethereum’s 13.45 transactions per second. This means that layer2 solutions have been used much more actively than Ethereum for some time now.
So what happens if steps are taken to support these layer2 solutions? Naturally, their prices should increase. We will touch on this in the second part and likely, layer2 solutions such as OP and ARB Coin are expected to have a good period. Especially since Arbitrum has been pricing this in for a long time due to being the largest in terms of total locked value.
Ethereum Dencun Upgrade
The Dencun (Cancun-Deneb) upgrade, abbreviated as EIP-4844, was one of the most anticipated developments for Ethereum in 2024. Known as Proto-Danksharding, the upgrade aims to achieve massive cost reductions in rollups. On-chain analyst Leon Waidmann pointed out the expected decrease in transaction fees following the upgrade.
In networks like Starknet, Optimism, and Arbitrum, the goal is to reduce DEX (swap fees) costs by up to 90%. This will mean an increase in current volumes and more interest in layer2 solutions. Of course, this should also be reflected in the prices of these tokens.
So what exactly will EIP-4844 do to make Ethereum so much better? Layer2 solutions, or rollups, accumulate many transactions and send them inside one transaction for verification to Ethereum. This results in lower fees compared to the Ethereum mainnet. However, the data is eventually stored on the chain indefinitely, and storage costs are included in the total transaction fees.
With the new update, data will be sent to consensus layer nodes where it will be automatically deleted after a certain period of time. This move to reduce storage costs will also lead to lower fees.
