The highly anticipated Dencun Ethereum upgrade has finally been implemented on March 13, offering the potential to enhance the network’s cost efficiency. As a result, the price of Ether (ETH) experienced a sharp decline from its peak of $4,082 to $3,932, according to CoinMarketCap data.
Data from Cointelegraph Markets Pro and TradingView reveals that Ether’s downward trend continued on March 14, with a 3% drop over the past 24 hours, currently trading at $3,848.
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The Dencun upgrade brings reduced transaction costs to Ethereum layer-2 networks
The Ethereum network has undergone multiple upgrades, each aimed at enhancing the efficiency of the layer-1 blockchain by increasing transaction speed, lowering gas fees, or changing the consensus mechanism. These improvements ultimately add value to the network in the long run.
According to Richard Meissner, co-founder of Safe, the Dencun upgrade will revolutionize how developers build smart contracts on Ethereum, resulting in more secure and user-friendly applications.
Investor VirtualBacon praises the success of the Dencun upgrade, highlighting its potential to reduce transaction costs on layer-2 networks by 75%, ultimately reshaping the ecosystem’s capabilities.
Starknet, a layer-2 scaling protocol, confirms that this goal has been achieved, stating that it has the highest share of L1 data availability costs among Validity Rollups, making it the biggest beneficiary of the upgrade.
Starknet shares a chart on the X social media platform, demonstrating the significant decline in transaction fees on various layer-2 networks, such as Starknect, OP mainnet, Base, zkSync, and Zora.
Market analyst Psquare Daily also notes the substantial drop in transaction fees on Ethereum layer-2 protocols, with reductions of up to 99%.
Data from Dune shows that the median gas fees on Starknet have decreased from approximately $6 before the Dencun launch on March 1st to only $0.04 after the upgrade.
The average fees on Base and Arbitrum have also significantly decreased, while zkSync and Zora have also seen a decline in fees.
The Dencun upgrade implemented several Ethereum Improvement Proposals (EIPs), including EIP-4844, also known as proto-danksharding, which focuses on reducing layer-2 transaction fees and improving data availability through blobs.
The Impact of Ethereum Upgrades on ETH Price
The price of ETH has historically not been significantly affected by Ethereum upgrades.
In the week leading up to the Berlin upgrade in April 2021, ETH saw a 7.5% increase in value. On April 14, 2021, ETH was trading at $2,043, and on the day of the upgrade, it rose by approximately 3% to $2,520.
Before the London upgrade in August 2021, ETH was trading at $2,724 on Aug. 4, and when the upgrade went live on Aug. 5, it rose by 3.4% to $2,821. By the end of the week, ETH had risen by 30% to reach $3,191.
The Grey Glacier upgrade, which took place on June 30, 2022, resulted in a 3.8% drop in ETH price, from $1,098 to $1,057. Throughout the week, ETH continued to decrease in value, reaching $1,043.
Prior to “the Merge,” the hard fork that transitioned Ethereum from proof-of-work to proof-of-stake, ETH saw a 20% increase in value. However, on the day of the Merge, on Sept. 15, 2022, ETH experienced a sharp decline from $1,635 to $1,472. This downward trend continued throughout the week, with a 25% decrease in value to $1,325.
As the implementation of Dencun approaches, ETH is currently experiencing a downward trend. If additional factors such as the diminishing hope of a spot Ethereum ETF contribute to selling pressure, the price of ETH may continue to decline.
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