Ethereum's Dencun Update Has the Potential to Reduce Ether Burn

Dencun's update to the Ethereum network is expected to have a significant impact on the supply of ether. According to Luke Nolan of CoinShares, this update introduces 'blobspace', a new technology that will replace the calldata system currently used for Layer 2 transactions . This technology is expected to reduce gas usage in the network.

Effect on Ether Burn Mechanism

Currently, the ether used to pay base gas fees in transactions has been burned. Nolan explained that with blobspace, gas costs will be lower, which means the ether burn process will also be reduced.

This is because blobspace has much lower gas fees compared to calldata, which currently accounts for 90% of the gas fees paid by Layer 2.

Impact on Ether Supply and Final Goal of Ethereum's Dencun Update

Despite a possible reduction in the amount of ether burned, Nolan emphasized that demand at Layer 1 is still the main driver of ether deflation.

Thus, high blobspace usage is expected to have a low impact on the circulating supply of ether.

The main goal of the Dencun update is to lower gas costs for users and increase activity on the network, which in turn will increase overall gas usage.

Dencun Ethereum Update Schedule

The Dencun update was enabled on the Goerli testnet on January 17, with several Ethereum Improvement Proposals (IEPs) , including EIP-4844 which enables the blobspace mechanism.

Activation on the Sepolia testnet is expected on January 30, and on the Holesky testnet on February 7. Nolan stated that activation on the mainnet might occur around March.

Conclusion

Ethereum's Dencun update is expected to bring significant changes in the way transactions are carried out, with potential impacts on reducing ether burning and long-term consequences on the Ethereum ecosystem.

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