Ether supply could be affected by Ethereum's Dencun upgrade, analyst says
The Dencun upgrade will enable Layer 2 transactions to be sent to the Ethereum network through blobspace, an alternative to the current transactional calldata mechanism. This could result in reduced gas usage and, consequently, a lower amount of ether being burned.
All of the ether used to pay gas base fees for transactions is currently burned.
"Transactional calldata makes up 90% of the costs Layer 2s pay in terms of gas fees. But after the Dencun upgrade, instead of posting their data through calldata, Layer 2s can use the new blobspace mechanism, which has significantly lower gas costs. So, if we expect layer 2s to gradually shift to using this new blobspace mechanism, we could see gas prices settle at lower levels, which means less ether is burned," Nolan told The Block.
Impact on the ether burn mechanism
The possible reduction in ether burned could have an impact on the growth of ether supply.
"Gas demand on the Ethereum network drives ether's deflation mechanism via gas burn which can reduce the circulating supply of ether. The Dencun upgrade could see gas prices settle at lower levels," Nolan added.
However, the impact of the Dencun upgrade and the introduction of the blobspace mechanism could be mitigated by other factors. Nolan stressed that Layer 1 demand is what significantly drives deflation, and that "even very high blob usage has a low impact on circulating supply."
"Even if we see this reduced gas price because layer 2s are using the blobspace, there is no real concern that Ethereum will become significantly inflationary. The point of the Dencun upgrade is to decrease gas fees for users transacting using roll-ups, and bring users back to the network because of lower transaction fees, so more activity means more gas usage overall," Nolan said.
Nolan added that the end goal of the Dencun upgrade is to solidify Ethereum's market share, “so secondary effects are a net positive over the long run, regardless of short-term gas fluctuation.”
Dencun upgrade schedule
The Dencun network upgrade was activated on the Goerli testnet on Jan. 17 and introduced several Ethereum Improvement Proposals. Of particular interest is EIP-4844, which enables the blobspace mechanism.
The Ethereum Dencun upgrade on the Sepolia testnet is expected to be activated by Jan. 30, while the same upgrade on the Holesky testnet remains scheduled for activation on Feb. 7.
According to Nolan, the mainnet activation of the Dencun upgrade could come as soon as March of this year. "Ethereum core devs expect that at least one month after Holesky the mainnet activation of the Dencun upgrade will go live. So at least March, or likely after. It is hard to give an exact time, as testnet bugs appear and change timeline," Nolan said.
The price of ether has fallen by over 3% in the past 24 hours to trade at $2,377, according to The Block's Prices Page .
The price of ether has fallen in the past 24 hours. Image: The Block.
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
You may also like
Since the Outbreak of the US-Iran War, Sovereign Debt Costs in Developed Countries Have Soared; G7 Has "Borne" $16 Billion
If high yields persist until the first quarter of 2027, this figure will expand to $34 billion. The energy supply crisis triggered by the closure of the Strait of Hormuz is one of the main drivers behind this round of rising yields. Combined with structural pressures such as increased defense spending, an aging population, and AI infrastructure, the upward trend in yields may become a long-term pattern.
For the first time in over a month! U.S. airstrikes Iran's Larak Island, oil prices surge in response
On August 30 local time, the U.S. military launched a new attack on Iran after more than a month, carrying out airstrikes on two Revolutionary Guard facilities on Larak Island. In retaliation, Iran fired missiles towards Jordan. Oil prices surged in response, with Brent crude temporarily exceeding $90 per barrel. Meanwhile, several senior U.S. military commanders warned internally that continued operations against Iran would be unsustainable, as only about a quarter of U.S. Navy destroyers are combat-ready. After six months of conflict between the U.S. and Iran, the situation has reached a stalemate, negotiations have broken down, and both sides are under pressure.
Gold roller coaster: how to deal with it?
Crypto prices
More
