$4,000 Ethereum is just the beginning

Ethereum successfully broke through $4,000 last week, but in fact, this is just the beginning.

Why do you say that? Because if everything goes well, the Ethereum Dencun upgrade will be carried out on Wednesday, March 13, and Dencun is likely to be the next key detonation point for Ethereum?

What is Dencun?

Dencun is a compound word composed of Cancun and Deneb. Cancun represents the execution layer upgrade of Ethereum, while Deneb represents the protocol layer upgrade. Therefore, Dencun upgrade is a comprehensive name for Cancun upgrade and Deneb upgrade.

Ethereum founder Vitalik Buterin once outlined the future Ethereum 2.0 upgrade route in six concise stages: The Merge, The Surge, The Scourge, The Verge, The Purge and The Splurge. Each stage revolves around the upgrade of a specific theme and function, and the Dencun upgrade is an important technical upgrade in the Surge stage. The most eye-catching one is EIP-4844, in addition to EIP-7514, EIP-1153, EIP-4788, EIP-5656, and EIP-6780.

The EIP-4844 in the Dencun upgrade will greatly improve the storage efficiency of the Ethereum system and reduce transaction costs. You know, high gas fees have always been the biggest obstacle to the development of Ethereum, and the world has suffered from gas fees for a long time. It is reported that during peak hours, users have paid more than $100 in transaction fees. According to Etherscan data, the current average gas fee for swap transactions is about $79. EIP-4844 adopts an advanced technology called "Blob", which will use an innovative temporary data storage mechanism on the Ethereum network through the implementation of the Proto-Danksharding process, which will help reduce L2 transaction fees.

Not only that, EIP-4844 will also introduce Blob Gas, an independent billing system that follows its own pricing rules to calculate basic fees. The format of Blob data is preset to be consistent with the format in the future sharding specification. This design allows Rollup to effectively alleviate network congestion, while a separate fee market ensures lower fees, making it more economical than the current Calldata storage method.

Is $4,000 Ethereum just the beginning ?

If Dencun is successfully upgraded, it will undoubtedly be a boon to Ethereum.

According to data from Coinglass, ETH futures open interest has surpassed $13 billion and is at its highest level since November 2021 as of press time.

Moreover, an assessment of the token’s historical performance shows that the bull run on November 16, 2021, led investors to buy futures contracts, and on that day, ETH’s futures open interest peaked at $14 billion. The recent rise in ETH’s value has led to a surge in positive funding rates on cryptocurrency exchanges, and coupled with the increase in open interest, it is not impossible for ETH prices to break through the highest price point of $4,891 if this trend continues.

On the other hand, the number of stakers and validators on the Ethereum chain is also growing. According to Dune Analytics data, at the time of writing, the total stake of the Ethereum beacon chain has exceeded 31 million ETH, reaching 31,664,744 ETH, which is equivalent to approximately US$126.658 billion at current prices, and the number of network validators is close to 990,000, both of which are record highs. Not only that, since the Shanghai upgrade, the net inflow on the Ethereum chain has been close to 11.7 million ETH, which is quite "considerable".

Summarize

Whether the Dencun upgrade can ultimately stimulate Ethereum to reach the next level remains to be seen.

Although this upgrade is an important step in the right direction, some community members believe that Dencun is just a short-term patch, and Ethereum needs a sustainable long-term solution, because the focus of this upgrade is to make data storage more efficient, which is undoubtedly beneficial, but the long-term problem facing the Ethereum network is capacity, and the focus of future development must be on expanding network capacity to support the increasing number of transactions being executed. From this perspective, a multi-chain solution may be easier to achieve this goal.

In addition, according to Glassnode data (as shown above), the number of validators leaving the Ethereum network has increased by 42% in the past two weeks, as observed from the 7-day moving average. This trend has led to a brief drop in network participation. According to Glassnode data, as of the time of writing, the participation rate of the PoS network is at a two-week low of 99.46%. These problems may also need to be solved by developers and the entire community.

Of course, overall, the Dencun upgrade is a huge evolution of Ethereum, solving immediate and long-term scalability, security, and efficiency issues. At the same time, in the bull market environment, it is not a far-fetched thing for Ethereum to break through historical highs and set new highs. Let us wait and see!