Key Points
- The Dencun upgrade of Ethereum has finally been implemented, promising to enhance the network's cost-effectiveness.
- Following the upgrade, Ether's (ETH) price experienced a significant drop.
The highly anticipated Dencun upgrade for Ethereum was successfully launched on March 13, aiming to enhance the cost-effectiveness of the network.
Post-upgrade, the price of Ether (ETH) experienced a sharp fall, dropping from a peak of $4,082 to $3,932, as per CoinMarketCap data.
Ethereum's Dencun Upgrade and Its Impact
On March 14, Ether continued its downward trend, falling 3% in the last 24 hours to trade at $3,848 at the time of writing.
After the Dencun upgrade, Ethereum's layer-2s have seen a reduction in transaction costs.
Ethereum has undergone several upgrades, each aimed at enhancing the efficiency of the layer-1 blockchain, whether by increasing transaction speed, reducing gas fees, or altering the consensus mechanism, thereby increasing the network's long-term value.
Richard Meissner, co-founder of Safe, stated in an email that "Dencun will alter how Ethereum developers create smart contracts, leading to more secure and user-friendly applications."
Independent investor VirtualBacon praised the Dencun upgrade, saying it aims for a "75% reduction in transaction costs on layer-2 networks, set to reshape the ecosystem's capacity."
Ethereum layer-2 network Starknet confirmed that this goal had been achieved on the layer-2 scaling protocol, stating: "Among Validity Rollups, Starknet has the highest share of L1 data availability costs, making it the biggest beneficiary of this upgrade."
They added, "As a result, we have seen a dramatic reduction in gas fees, by more than 90%, thanks to it."
Starknet shared a chart on the X social media platform showing transaction fees on layer-2s, such as Starknect, OP mainnet, Base, zkSync, and Zora, dropping significantly.
Market analyst Psquare Daily echoed this, saying, "Ethereum Layer-2 (L2) protocols have seen significant reductions in transaction fees, with reductions of up to 99%."
Data from Dune shows that the median gas fees on Starknet have fallen from around $6 on March 1, just before Dencun went live, to about $0.04 after the launch.
The Dencun upgrade introduced several Ethereum Improvement Proposals (EIPs), including EIP-4844, also known as proto-danksharding, which aimed to reduce layer-2 transaction fees and improve data availability through blobs.
Historically, Ethereum upgrades have had minimal impact on the price of ETH.
In the week leading up to the Berlin upgrade in April 2021, Ether rallied 7.5%.
On April 14, 2021, ETH traded around $2,043, with the price rallying approximately 3.% to $2,520 on April 15, 2021, the day of the upgrade.
Prior to the London upgrade in August 2021, the price of the smart contract’s token traded at $2,724 on Aug. 4, rising by 3.4% to $2,821 on Aug. 5 when the upgrade went live.
ETH then rose again 30% to $ 3,191 by the end of that week.
The Grey Glacier upgrade, which took place on June 30, 2022, saw the price drop by 3.8% from $1,098 to $1,057.
During that week, ETH experienced a price decrease from $1,275 to $1,043.
In the week leading up to “the Merge,” the hard fork that saw Ethereum transition from a proof-of-work consensus mechanism to a proof-of-stake algorithm, ETH rose by 20%.
On the day of the Merge, on Sept. 15, 2022, Ether fell sharply from a high of $1,635 to close the day at $1,472.
The price continued declining steadily during that whole week to close at $1,325, representing a 25% weekly drop.
This week, as Dencun is implemented, ETH is trending lower, and if more headwinds add to the selling pressure, like the diminishing hope of a spot Ethereum ETF, its price could sink deeper.
