Ethereum, Dencun, Cancun upgrade, and the potential for ETH to get back above $4,000

The highly anticipated Dencun upgrade of the Ethereum (ETH) ecosystem is on the horizon and is expected to significantly reduce costs and bring significant changes to the Layer 2 (L2) network. The update, scheduled for March 13, will introduce a new data storage system called blobs, reducing congestion on the Ethereum network and driving key new features in various areas.

Dencun's goal is to reduce the cost of Layer 2 networks such as Arbitrum (ABR), Polygon (MATIC), and others by making previously expensive transactions cheaper.

In particular, transactions that used to cost $1 can now be as low as a penny, while others that used to cost a few cents can be reduced to a fraction of a cent, the report notes. This cost reduction is expected to dramatically improve the end-user experience and represent significant improvements over previous upgrades such as the September 2022 "Merge".

One of the most significant aspects of the Dencun upgrade was the introduction of blobs, a new type of data repository for Layer 2 networking. Currently, Layer 2 blockchains store data on the Ethereum network, resulting in significant storage costs being passed on to applications and users.

However, for blobs, Tier 2 will store data for a significantly shorter period of about 18 days, reducing costs. While this shift sacrifices the permanent storage of a complete record of all transactions, it frees up more space on the Ethereum network for other transactions, reducing congestion.

The introduction of blobs through the Dencun upgrade also paves the way for the use of artificial intelligence (AI) in a variety of applications, the report said. For example, games can incorporate AI-driven non-player characters, allowing for advanced gameplay features and a deeper experience.

In decentralized finance (DeFi), automated market makers can incorporate "complex trading strategies" driven by AI models. This newfound flexibility and sophistication is expected to foster innovation and drive the development of advanced applications in the Ethereum ecosystem.

In addition, the upgrade of Dencun is expected to significantly reduce the operating costs of the layer 2 chain. Previously, launching and operating Layer 2 projects required significant venture capital support. However, Bloomberg reports that small teams may be able to launch and maintain Layer 2 chains as the costs brought by Dencun come with reductions.

While the adoption of blobs and the associated cost benefits are expected to deliver immediate benefits, it's worth noting that the cost of blobs is likely to increase over time as demand grows.

While the price of ETH has corrected by more than 3% in the last 24 hours, resulting in a current trading price of $3,916, the Dencun upgrade has the potential to have a positive impact on its price.

The upgrade aims to significantly reduce the cost of the Layer 2 network and enhance the overall user experience, making Ethereum a more attractive platform for decentralized applications (dApps) and other use cases. By reducing transaction fees and improving scalability, Dencun can attract more users and developers to the Ethereum ecosystem, potentially driving demand for ETH tokens.

Despite the constant corrections, it's worth noting that ETH's current price isn't far from a two-year high of $4,084. However, it is important to consider that the price has formed a double top pattern on the daily timeframe for two consecutive days, which could pose a near-term obstacle to the price of ETH. It remains to be seen how the market reacts and ETH's ability to break through the nearest resistance level.

(Source: Ronaldo Marquez)