Luke Nolan, CoinShares Ethereum co-researcher, stated that Ether supply could be affected by the upcoming Dencun upgrade. The activation of mainnet may take effect from the beginning of March.
The Dencun upgrade will allow Layer 2 transactions to be sent to the Ethereum network via blobspace, providing an alternative to the current transaction calldata mechanism. This may result in decreased gas usage and result in Ether is burned in smaller quantities
“Transactional calldata accounts for 90% of the cost that Layer 2 pays in the form of gas fees, but after upgrading Dencun, Layer 2 can use the new blobspace mechanism, which has significantly lower gas costs. Therefore, if we believe that Layer 2 will gradually By switching to this new Blobspace mechanism, we will see gas prices drop which means less Ether will be burned,” Nolan told The Block.
Effects on Ether Burning Mechanism
“Gas demand on the Ethereum network drives Ether’s deflation mechanism through burning, which can reduce Ether’s circulating supply, but upgrading Dencun could reduce gas consumption,” Nolan added.
However, the impact of the Dencun upgrade and the introduction of the Blobspace mechanism could also be mitigated by other factors, with Nolan emphasizing that Layer 1 demand is what drives significant deflation, and “even the adoption of Blob that is very high has a low impact on the circulating supply.”
“Although we see gas prices drop as layer 2 moves to blobspace, there is no concern that Ethereum will become significantly inflationary. The point of the Dencun upgrade is to reduce gas fees for users transacting using roll-ups and get more users to return to the network due to lower transaction fees. More activity means more gas overall.”
Nolan added: The end goal of the Dencun upgrade is to strengthen Ethereum’s market share, “so the secondary effect is a net positive in the long run. regardless of short-term gas fluctuations.”
Dencun upgrade schedule
The Dencun network upgrade was launched on the Goerli testnet on January 17 and has presented several Ethereum improvement proposals, of which a particularly interesting one is EIP-4844, which enables the Blobspace mechanism.
The Ethereum Dencun upgrade on the Sepolia testnet is expected to go live by January 30, while the same upgrade on the Holesky testnet is scheduled to go live on February 7.
And according to Nolan, the mainnet launch of the Dencun upgrade could come in March of this year.
refer : theblock.co
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