Tech
Ethereum Blockchain’s Dencun Upgrade Could Mean Near-Zero Fees for Layer 2: Fidelity Digital Assets
The Ethereum blockchain’s Dencun update, scheduled for March 13, is the first step towards enabling its rollup-focused roadmap and will allow the network to function as a true database for layer 2 blockchain to store data more efficiently and cost-effectively, Fidelity Digital Assets said in a research report on Wednesday.
“Ethereum’s improvement as a database reveals the opportunity for near-zero transaction fees for Tier 2 users,” and this could attract more users, wrote analyst Max Wadington.
The upgrade will provide the scalability needed to support millions of users on Layer 2 blockchains, making it a distributed database more “suitable for other blockchains,” the report says. The improvements are expected to bring substantially more users into the Ethereum ecosystem and are expected to expand the network’s total addressable market (TAM).
THE update will reduce costs for layer 2 blockchains to store data on the main blockchain, and this reduction will likely be passed on to users in the form of lower fees.
Rollups are Ethereum protocols that process transactions separately from the main network to help increase speed and reduce costs. Layer 2 they are separate blockchains built on top layer 1or the basic level, which reduces bottlenecks with scaling and data.
However, the update will not have many direct positive effects for Ethereum users because the fee reductions promised to Tier 2 users will not affect those who transact on the core Ethereum blockchain, the note said.
“In the short term, users who want to benefit from this fee change must sacrifice some decentralization and security by transacting on layer 2 instead of Ethereum,” Wadington wrote. “This will definitely spur more users to link to resources elsewhere.”
“However, we strongly believe that transacting on Ethereum for application-specific purposes will still be considered the best option in the medium term as layer-2 platforms continue to mature,” the report adds.