According to Luke Nolan, researcher at CoinShares Ethereum, the upcoming Dencun upgrade of the ETH network bitcoin could potentially impact ETH supply.
This, according to the analyst, could lead to a decrease in transaction fee (gas) usage and therefore the amount of ETH burned.
Currently, all ETH used to pay gas base fees for transactions is burned. Nolan said the following about the issue in his statement:
“Transactional calldata accounts for 90% of the costs Tier 2s pay in terms of gas fees. But after the Dencun update, instead of sending their data via calldata, Layer 2s can use the new blobspace mechanism, which has significantly lower gas costs. “So if we wait for layer 2s to gradually switch to using this new blobspace mechanism, we may see gas prices drop to lower levels, which means less ETH burned.”
According to Nolan, the potential decrease in burned ETH could impact the growth of ETH supply.
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However, the impact of the Dencun update and the introduction of the blobspace mechanism may be offset by other factors. Nolan emphasized that Tier 1 demand drives deflation significantly and that “even very high blob usage has a low impact on circulating supply,” adding:
“Even if we see the gas price drop as Layer 2s use blobspace, there is no real concern that Ethereum will become significantly inflationary. “The goal of the Dencun update is to lower gas fees for users who trade using roll-up and bring users back to the network due to lower transaction fees, so more activity means more gas usage overall.”
According to Nolan, mainnet activation of the Dencun update could occur as early as March this year:
“Ethereum core developers expect the mainnet activation of the Dencun upgrade to be released at least a month after Holesky. So at least in March or probably later. “It’s hard to give an exact time as testnet bugs pop up and change the timeline.”
*This is not investment advice.
Continue Reading: Significant Claim for Ethereum’s Major Update Dencun: ETH Supply Could Be Impacted – Here’s the Expected Date