Ethereum has gone through a big and much-announced update.  The update is called Deneb-Cancun, and it’s supposed to lower the fees paid for transactions and improve the user experience overall.

Ether (ETH), the native coin of the Ethereum blockchain, soared past $4,000 early Wednesday but gave up some of those gains to trade a shade under that threshold at 10:30 a.m. Eastern.  Updates such as these are especially important to day-to-day users who use Ethereum as a payment method since Ethereum casino websites utilize smart contracts and transmit large amounts daily.

What Is It?

The Dencun update has been made to prioritize scalability and efficiency and to make everyday use more secure.  This is done by improving the various Ethereum Improvement Proposals (EIPs).

According to the Ethereum Foundation, the most notable change is EIP-4844 for proto-dank sharding, which seeks to optimize gas fees for the Layer 2 network (L2).  That means that the transaction volumes will increase once the update is complete.  Ethereum and other cryptocurrencies are now much more widely accepted and used in many traditional industries, meaning that this update comes at the perfect time.

How Will The Update Affect the Users

The update process itself may have an effect on the day-to-day use of Ethereum.  

Exchanges may face delays in processing Ethereum transactions on Wednesday as the update rolls out.  Coinbase (COIN) said Monday that it expects disruption due to the update to last for at least an hour on or around 9:45 a.m. Eastern time, although that could change.

Kraken has warned its users not to “place or cancel orders during this timeframe.” Other than that, the update should go smoothly, as it’s been planned for a long time, and there are many experts involved in the technical side of things.

Using Less Energy

One of the main reasons for the update, other than the ones we mentioned before, is the push by Ethereum to spend less energy and to accommodate the needs and preferences of an eco-friendly user base.

Layer 2 networks, such as rollups, are secondary blockchains built on top of the base Ethereum network.  When scaling transaction volumes, rollups compress transactions by bundling them.  Even with the compression, nodes processing transactions hold onto Layer 2 data forever.  It expands their hardware requirements, which are then passed on to users via higher transaction or gas fees.

The Dencun upgrade will change how the information added to the Layer 2 is stored.  They will, in effect, be stored in a temporary storage that will consume less energy and therefore cost less.  The plan at the time of this writing is for the “blob” in which the information is stored to be available for 18 days rather than indefinitely, as is the case now.

“Each byte of data that L2s store on Ethereum costs roughly 16 gas.  The introduction of blobs and a new fee market designed for blob data drops the gas cost down to 1 per byte of data stored,” noted Fidelity Digital Assets in a report about the upgrade.  “This is a maximum gas cost reduction of 94%.

Long in the Works 

Proto-Danksharding is named after two Ethereum researchers, Dankrad Feist and Proto Lambda, who came up with the concept.  Their plans and ideas for the future of Ethereum.  Long-term plans, which will be years in the making, include Danksharding, which is a plan for even further simplifying the storage process.

This is a deviation from what Ethereum initially planned for its storage and energy cost problem.  However, it turns out that Danksharding is less costly and complicated than the planned alternatives, and it will be the way to go for Ethereum.  It’s important to note that despite the name, there’s actually no “sharding” – splitting the database into smaller parts.

Less Expensive Use of Ethereum

At this point, one of the main drawbacks of using Ethereum is its cost.  It’s more costly than other cryptos that it usually competes with.  Solana, as its biggest competitor, manages to have much lower fees.

The average transaction cost for Ethereum is $2.3 at the time of this writing, and that’s way too much if Ethereum wants to scale up and onboard many new users in the years to come.  Less energy costs can also lead to lower costs for an average user.

Biggest New Update

Ethereum hasn’t had an update on this size and importance since The Merge, which happened in 2022.  That update was also a systemic one, and it changed the way Ethereum operates in the broadest terms, as it was a transition from Proof-Of-Work to staking.

The goal for Ethereum is for this update to usher in a new way of handling transactions.  That way, it could cover millions of micro-transactions each month and be prepared for the new trend of cryptocurrency acceptance.

Criticism

Everyone agrees that the upgrade is a step in the right direction, but there are criticisms directed at Ethereum that it isn’t enough and that it won’t change things in terms of gas consumption on a scale that’s currently needed.

The Dencun upgrade does the bare minimum to extend the data usable by rollups on Ethereum, which should lower transaction costs in these L2 solutions.  This is a step in the right direction, but ultimately, rollups built on top of Ethereum remain very throughput constrained and are forced to adopt extreme centralization measures.” according to Arthur Breitman, the co-founder of the Tezos blockchain.

Some experts also claim that the effects of the cost reduction are limited, or at least that they won’t affect Ethereum mainnet users.

“In the short term, users who wish to benefit from this fee change must sacrifice some decentralization and security by transacting on L2s instead of Ethereum.  This will certainly spur more users to bridge assets elsewhere, said Max Wadington, a research analyst at Fidelity Investments.

However, regardless of these potential shortcomings, everyone agrees that Ethereum is moving in the right direction when it comes to market needs and user concerns.

How’s Ethereum Doing?

The upgrade comes at the perfect time when it comes to how widely it is used and accepted as a payment method and as a way to store value.  Businesses are allowing Ethereum payments, including the ones that are used by traditional financial institutions only.

The Ethereum price is $3,874.31, a change of -2.43% over the past 24 hours as of 6:19 p.m.  The recent price action in Ethereum left the token market capitalization at $465.25B.  So far this year, Ethereum has a change of 68.81%.

Conclusion

 Ethereum, one of the largest cryptocurrencies, is going through a major update.  It’s the first such update since 2022.  The update should make the transactions less costly as they will consume much less energy than before.  This is what both the end users and the regulatory agencies are expecting from Ethereum.

The Dencun update won’t disturb the crypto trade for that long.  At the same time, it’s only a first step into a long-term change in how Ethereum operates.  The long-run goal is to expand the network and accept new users and protocols, especially now that Ethereum is widely used.