Ethereum's Dencun Update Could Impact ETH Supply
Date: 2024-01-23 Author: Dima Zakharov Categories: BLOCKCHAIN
Reducing ETH Burn May Affect Asset Supply
The recent update to the second-largest cryptocurrency network could have implications for ETH supply, according to TheBlock, citing CoinShares analyst Luke Nolan. Currently, all ETH used to pay for transaction gas fees is burned. The main purpose of the Dencun hard fork is to lower transaction fees in the Ethereum network, thereby increasing activity. However, this move might potentially lead to a decrease in the amount of ETH being burned.
"If we expect second-layer networks (L2) to gradually switch to using the new blobspace mechanism, we will notice gas prices settling at a lower level, meaning less ETH will be burned," Nolan explained.
The reduction in burned ETH could, in turn, impact the asset's supply. According to the expert, demand for gas on the Ethereum network drives token deflation through gas burning, which could reduce the circulating supply of the coin.
However, there are no real concerns for the supply of the second-largest cryptocurrency. If blockchain activity for Ethereum indeed increases, more gas will be used overall, and there won't be a reduction in the amount of ETH being burned.
Dencun Hard Fork: What to Expect
The Dencun update aims to reduce gas fees in the Ethereum network. It is also expected to implement EIP-4844, known as "proto-danksharding," designed to scale the network by introducing a new type of transaction for storing more data.
Currently being tested on the Goerli network, it is set to be deployed in Sepolia and Holesky within two weeks. If all stages proceed successfully, the update will go live on the mainnet in February.
Previously, Ethereum co-founder Vitalik Buterin proposed increasing the gas limit by 33%, from 30 million to 40 million, to optimize the network's overall throughput. However, developers did not agree with his suggestion.
In the Ethereum community, disputes also arose regarding client implementations, sparked by a Nethermind error leading to the creation of invalid blocks.
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