A week has passed since the launch of Dencun, Ethereum’s newest update, and it seems to be meeting expectations and even surpassing them in some cases.
Dencun was launched on March 13 with the promise of revolutionizing transactions by making them faster and cheaper. Ethereum has traditionally struggled to keep up with the increasing demand for faster transactions, so Dencun takes a different approach by scaling with the help of layer 2s.
According to Brian Gallagher, co-founder of Partisia blockchain, the timing of the Dencun update couldn’t have been better, as competing blockchains are threatening Ethereum’s market dominance. Gallagher explains, “Solana is gaining more market share compared to Ethereum, especially in areas like new token launches, decentralized exchange swaps, and nonfungible tokens, where retail traders are active.” He adds that the high cost of on-chain transactions on Ethereum has led to the rise of alternatives like Solana.
Indeed, the comparison of fees between Ethereum and Solana is not in Ethereum’s favor. Ethereum fees can range from $1 to $20, while Solana fees are only a fraction of a cent. In fact, on March 5, Ethereum fees even reached over $30.
Ethereum’s scaling issues have been a long-standing problem. Transaction fees started rising from under $1 to $5 in September 2020, then above $20 by the end of 2021 and into 2022. On April 30, 2022, the average fee reached a record high of $197.
Previous upgrades to the Ethereum network aimed to improve its speed and scalability, with the most significant one being the Merge in September 2022, which transitioned Ethereum from proof-of-work to proof-of-stake. While the Merge made Ethereum more energy efficient, it didn’t provide a lasting solution to the rising transaction fees. By March 2023, fees were once again on the rise.
Dencun takes a different approach by focusing on improving interactions with layer 2s like Arbitrum and Optimism, making transactions cheaper. The idea is that these improvements will incentivize users to shift traffic from Ethereum’s layer 1 to other networks.
Although Dencun is still in its early stages, the initial feedback has been positive. The promise to reduce fees on layer 2s by a factor of 10 has been fulfilled and even exceeded in some cases. Transaction costs on Optimism and Arbitrum are now below $0.01.
This successful launch of Dencun has created a sense of excitement within the Ethereum community. Nick Johnson, founder and lead developer of the Ethereum Name Service (ENS), praises the upgrade, stating that it will improve accessibility for Ethereum by reducing costly transaction fees. Layer 2 projects like Arbitrum and Optimism have also expressed their enthusiasm for Dencun, considering it a significant upgrade for scaling Ethereum.
However, the ultimate test for Dencun lies in whether it can attract users away from Ethereum’s base layer. Early signs are encouraging, with transaction volume on Arbitrum and Optimism increasing by 145% and 144%, respectively, in the last seven days. On-base transaction volume has also increased by 203% over the same period.
Gallagher emphasizes that the focus in the long term will be on how Dencun affects decentralized finance (DeFi) by increasing speed and reducing costs. If it fails to significantly lower costs, other chains that offer faster and more affordable transactions may continue to gain market share.
While it’s important not to be complacent and to remember that Dencun has yet to face all the challenges of the crypto market, Ethereum’s latest upgrade seems to be off to a good start.