Mastercard is integrating advanced technologies with major banking institutions to enhance cryptocurrency transactions and settlement systems. They are set to become a pivotal players in the evolving digital currency landscape.
Mastercard has teamed up with leading U.S. banks, including Citigroup, Visa, and JPMorgan, to explore a new way of handling settlements across different types of assets using a technology called a shared ledger.
This technology, known as the Regulated Settlement Network (RSN),allows for the tokenisation of assets like government bonds, high-quality debt, and bank-issued money, enabling them to be settled together on one platform.
Traditionally, these assets are handled through separate systems, but with RSN, they are converted into digital tokens and managed collectively on a single system.
This method aims to simplify the settlement process by using a distributed ledger—a type of database spread across several sites, countries, or institutions, ensuring secure and transparent transactions.
This initiative is part of a broader trial that began with a 12-week pilot in late 2022, initially focusing on cross-border and domestic dollar transactions between banks.
The first phase of Mastercard on a distributed ledger
The current phase is experimenting with simulating settlements in U.S. dollars to refine the process.
Mastercard’s recent announcement highlighted the potential benefits of this technology, such as enhanced efficiency in cross-border settlements and a reduction in errors and fraud risks.
Raj Dhamodharan, who leads Mastercard’s blockchain and digital assets efforts, emphasised that this approach could revolutionise market infrastructure by enabling around-the-clock, seamless settlements.
The RSN Proof of Concept (PoC) has been expanded with two notable additions: interbank tokenised deposit networks, featuring the USDF Consortium as a key participant and the Tassat Group as a contributor.
Additionally, the consulting giant Deloitte is providing advisory services. The Securities Industry and Financial Markets Association is overseeing the program.
There are ten major banking participants in the project: Citi, JPMorgan, Mastercard, Swift, TD Bank N.A., U.S. Bank, USDF, Wells Fargo, Visa, and Zions Bancorp.
Furthermore, six additional participants are contributing their specialized expertise, including the nonprofit MITRE Corporation, BNY Mellon, Broadridge, the DTCC, ISDA, and the Tassat Group.
Catalysing cryptocurrency adoption and utility
The collaboration between Visa and Transak, a Web3 infrastructure service, has garnered attention, particularly among crypto wallet users like those of MetaMask, Ledger, and Trust Wallet.
This partnership is significant as it simplifies the process of converting cryptocurrency into fiat currency.
Visa now allows crypto to be directly converted into local fiat at over 130 million merchant locations across 145 countries. This development is particularly notable because it supports around 40 types of cryptocurrencies.
The implications of this advancement extend beyond convenience for cryptocurrency users.
The involvement of Visa and Mastercard in the crypto sector signifies a crucial shift, potentially indicating a bullish trend for the market.
Despite previous hesitations, such as Visa’s reported step back from crypto partnerships last year, the current engagement suggests a strategic recalibration in response to positive market movements, such as rising Bitcoin prices and significant crypto events like Bitcoin halving.
Implications for Centralized and Decentralized Crypto Exchanges
This shift might pose a challenge to centralised crypto exchanges like Coinbase and Binance, as users now have the option to bypass these platforms for certain transactions.
However, the broader adoption of cryptocurrencies facilitated by Visa and Mastercard could benefit the entire industry, including decentralised finance (DeFi) and centralised exchanges (CEXs).
The role of CEXs remains crucial in ensuring the scalability, reliability, and security of crypto transactions.
The entry of major payment networks into crypto payments also addresses the ‘network effects’ barrier, where the utility of new forms of money increases as more people and merchants accept them.
By enabling real-time conversion of cryptocurrencies to fiat, Visa and similar entities are making cryptocurrencies a more practical medium of exchange.
However, this integration comes with trade-offs, particularly concerning the decentralisation and privacy aspects that are foundational to cryptocurrencies.
The involvement of traditional financial entities in crypto payments might dilute some of these core principles, although it could also lead to greater mainstream adoption and acceptance of cryptocurrencies as a part of everyday financial transactions.
The European Union’s research body delves into the possibilities of using the metaverse to enhance children’s health and education while also addressing the accompanying risks and challenges.
The European Parliamentary Research Service (EPRS), which is like a big brain for the European Union, recently wrote a letter talking about how kids can have good and bad things happen to them in the metaverse.
Maria Niestadt, who works at EPRS, says the metaverse can make kids more creative, help them learn, and maybe even make them feel better if they’re sick.
But there are also lots of problems to think about, like making sure kids don’t feel bad mentally or physically because of things like using special goggles or worrying about their privacy and safety.
What’s the metaverse?
The metaverse is like a big, virtual world where people can explore and do all sorts of things. It’s not just one place but a whole bunch of different digital spaces that connect to each other.
Imagine it like a huge playground where you can play games, chat with friends, go to school, or even work, all without leaving your computer or special goggles.
Advantages of the metaverse
Endless possibilities. In the metaverse, the only limit is your imagination. You can create and experience things that might not be possible in the real world, like flying through space or visiting ancient civilizations. Some metaverses even digital assets that can be seen as digital objects. They are called metaverse NFTs.
Connectivity. It brings people from all over the world together. You can meet new friends, attend events, or collaborate on projects, no matter where you are.
Accessibility. The metaverse is accessible to anyone with an internet connection, opening up opportunities for education, entertainment, and social interaction to a wider audience.
Innovation. Companies use the metaverse to develop new products and services, from virtual reality games to immersive training simulations for employees.
How to use the metaverse?
Socializing. People use the metaverse to hang out with friends, attend virtual parties, or join online communities based on shared interests.
Entertainment. Many use it for entertainment purposes, such as playing games, watching live performances, or exploring virtual museums and galleries.
Education. Schools and universities are increasingly using the metaverse for virtual classrooms, interactive learning experiences, and simulations that enhance traditional teaching methods.
Business. Companies utilize the metaverse for virtual meetings, conferences, and product demonstrations. It also serves as a platform for e-commerce, virtual advertising, and brand experiences.
The EPRS letter says there are lots of good things kids can do in the metaverse. It doesn’t say kids should always use special goggles, but it talks about some good ways they can use them.
Opportunities for children in the metaverse
The letter from EPRS talks about how the metaverse offers many opportunities for children.
While it doesn’t fully say that kids should always use virtual and mixed-reality headsets, it does highlight some positive ways they can be used.
According to EPRS, virtual worlds can help doctors find out and treat things like autism or ADHD in kids. They can also help kids exercise in a fun way and get over things like being scared of heights. Besides that, kids can learn about history and culture in virtual lessons and make friends in a safe way.
What are the challenges in the metaverse?
Although there are many opportunities in the metaverse, the EPRS also points out various challenges that need attention to keep EU children safe from the possible risks of metaverse technology.
Children often encounter similar risks in virtual worlds as adults do, but their vulnerability makes them more susceptible to harm. Reports, like the one from the Centre for Countering Digital Hate in 2023, show that minors are frequently subjected to different types of harassment, abuse, and content that isn’t suitable for their age in virtual environments.
The main concerns are about how being in digital worlds and using special equipment can affect kids’ minds and bodies. This includes things like feeling alone in real life, facing bullying or seeing things they shouldn’t do online, and even feeling sick or scared.
One big challenge is figuring out the right age for kids to use the metaverse. Right now, it’s up to the companies that make the special goggles. But sometimes, they lower the age limit. For example, in 2013, Meta made it okay for kids as young as 10 to use their Quest headsets, down from 13.
Overall, the metaverse in the European Union is changing a lot, and regulators are trying to find ways to make it safer. They’re counting on companies to follow the rules and make sure kids stay protected while using these technologies.
Metaverse opportunities
According to the letter, the metaverse is rife with opportunities for children. While it stops short of offering a full-throated endorsement for the use of virtual and mixed-reality headsets by children, the think tank lays out several claims for their positive use.
Per the EPRS:
“Virtual world technologies can be used to diagnose and treat various paediatric mental and physical health disorders (such as autism, attention-deficit/hyperactivity disorder). They can also be used to promote physical health through immersive fitness exercises, to help prepare children for psychological difficulties (such as the fear of heights) or to aid in their physical rehabilitation.”
Other opportunities include educational uses such as virtual immersion in lessons of historical and cultural significance and the potential for positive social interaction.
As Bitcoin goes through its 4th pivotal halving event, the landscape of cryptocurrency has transformed significantly. This new financial territory brings key changes and developments surrounding Bitcoin’s halving, from the unprecedented pre-halving price surges to the enhanced global decentralisation and security of its network
Bitcoin halving has catalysed a surge in crypto adoption
Since the Bitcoin halving event in May 2020, the number of people using cryptocurrencies worldwide has skyrocketed by at least 400%, growing from about 100 million to nearly 580 million users by the end of 2023.
This dramatic increase in user base is drawn from estimates by the Cambridge Centre for Alternative Finance and Crypto.com.
Although the rate at which new Bitcoins are generated has slowed down due to the halving process, global interest and adoption of cryptocurrencies have not decreased.
As of early 2024, data suggests that roughly 2.7% of the world’s population owns Bitcoin, amounting to about 219 million individuals.
This represents a significant rise—approximately 208%—from the 71 million Bitcoin users estimated four years earlier. It’s important to note, however, that these figures are estimates; accurately gauging the exact number of Bitcoin or other cryptocurrency users is challenging.
Factors like the inability of on-chain transaction analysis to distinguish between active users, long-term holders, and lost coins make precise counts difficult.
The 2024 pre-halving period has shown unprecedented growth in Bitcoin’s price, marking a distinct difference from the previous three halving events.
Historically, significant price surges in Bitcoin occurred after the halving, with new all-time highs typically forming about a year later.
For instance, before the 2020 halving, Bitcoin did not surpass its previous peak of $20,000. It only exceeded this mark 10 months post-halving.
However, the scenario has dramatically changed in the current cycle.
Bitcoin achieved a new all-time high just before the upcoming halving, hitting a record price of $73,600 on March 13, 2024. This kind of price action prior to a halving is unprecedented and has been noted by several analysts.
How Bitcoin miners are better positioned ahead of the 2024 halving
This time around, the unprecedented surge in Bitcoin’s price before the halving may have bolstered the mining industry, granting miners greater control over their operational costs.
Miners seem to be in better financial standing compared to previous halving cycles, with reduced debt levels and improved cost management, particularly in electricity expenses.
Moreover, the price appreciation preceding the halving is a novel occurrence in Bitcoin’s history, providing an additional boon to miners.
Since the third halving in May 2020, Bitcoin’s mining energy consumption has notably risen, reaching 99 Terawatt hours (Twh) by April 18, 2024. Despite this increase, there’s a positive trend in the utilisation of renewable energy sources for Bitcoin mining, accounting for 54.5% of the network’s energy consumption as of January 2024, up from 39% in September 2020, according to Bitcoin ESG Forecast and CCAF data, respectively.
The first Bitcoin halving with active spot ETFs in the U.S.
The 2024 Bitcoin halving stands out as the first to occur alongside active spot Bitcoin ETFs (exchange-traded funds) in the United States, marking a significant evolution in Bitcoin investment accessibility.
These ETFs, which began trading in January 2024, have opened the doors for institutional investors to engage more directly with Bitcoin.
Bloomberg’s ETF analyst, Eric Balchunas, reported that these spot Bitcoin ETFs have achieved “blockbuster success,” indicating a sharp rise in Bitcoin demand. Since their inception, the combined holdings of all ten spot Bitcoin ETFs have increased by at least 220,000 BTC, valued at approximately $14 billion.
Missed this earlier but looks like BlackRock and Pimco have filed for mutual fund to ETF conversions, joining about 70 funds so far with $100b to convert. MF cos looking to exploit all three roads to ETFville: clones, conversions and classes = bullish https://t.co/fqzMCG8cj5
Among these, BlackRock’s spot Bitcoin ETF has seen the most substantial inflows, with its holdings skyrocketing more than 10,000% from an initial 2,621 BTC to 273,140 BTC as of April 18.
As for the broader market dynamics, while the halving is significant, it should be viewed as part of a larger narrative that includes ETFs, quantitative easing, and other factors shaping the market’s future.
Bitcoin’s global decentralisation and enhanced security
Bitcoin’s network has seen substantial improvements in security and decentralisation over the past few years.
Previously concentrated primarily in mainland China, where nearly 80% of the mining activity took place as of 2020, the Bitcoin mining landscape has now become significantly more global.
As of February 2024, the United States leads with 40% of the total mining hash rate, followed by China and Russia, which contribute 15% and 12%, respectively, according to Hashlab Mining.
This shift toward geographic decentralisation continues as miners explore regions like Africa and Latin America, which are attracted by lower electricity costs.
Moreover, the security of the Bitcoin blockchain has dramatically increased; its hash rate has quintupled since the last halving, making the network much more robust against attacks.
Now, it requires five times more computing power and associated resources such as electricity, infrastructure, and hardware to pose a threat to the network.
Explore the intricate interplay between Bitcoin’s price movements, economic indicators, and trader behaviors in this detailed analysis.
As the cryptocurrency market approaches a pivotal moment with the upcoming Bitcoin halving, understand the factors influencing price trends, including leverage risks, regulatory impacts, and broader economic conditions.
Gain insights from expert predictions and strategies to better understand how global financial trends and internal crypto dynamics could shape the future of Bitcoin’s valuation.
Exploring the Link Between Bitcoin, S&P 500, and Economic Indicators
The relationship between Bitcoin‘s price movements, the S&P 500 index, and broader economic indicators is a complex interplay that reflects broader market sentiment and investor behaviour. This connection can be understood through several key dynamics:
Market sentiment and risk appetite
Bitcoin and the S&P 500 often react similarly to changes in global market sentiment.
During times of economic optimism, both markets tend to rise as investors are more willing to take on riskier assets. Conversely, economic downturns or market uncertainties often lead investors to pull back from both equities and cryptocurrencies, which are considered risk assets.
For example, significant drops in the S&P 500 due to economic fears or poor corporate earnings often coincide with declines in Bitcoin’s value as investors seek safer holdings.
Inflation and Monetary Policy
Bitcoin has been characterised by some investors as a “digital gold,” akin to a hedge against inflation.
The cryptocurrency’s limited supply contrasts with fiat currencies that can be printed without limit. When inflation fears rise, as indicated by economic indicators like CPI (Consumer Price Index), or when the Federal Reserve signals tighter monetary policy by raising interest rates, both the S&P 500 and Bitcoin can be affected. Stocks generally react negatively to high inflation and higher rates, which can also increase the appeal of Bitcoin as an alternative investment.
Liquidity and market dynamics
The Federal Reserve’s monetary policy also impacts liquidity in financial markets. Lower interest rates and quantitative easing generally increase market liquidity, making funds available for investment in both stocks and cryptocurrencies, leading to potential price increases in both markets.
Conversely, quantitative tightening reduces liquidity, which can lead to lower prices. Bitcoin’s reaction to these policies can be swift, mirroring or even exaggerating the movements seen in the S&P 500.
Investor behaviour and technological adoption
The increasing adoption of blockchain technology and the integration of cryptocurrencies into traditional finance (like Bitcoin ETFs and futures) further intertwine the performance of Bitcoin with traditional stock markets.
As institutional investors enter the crypto space, their investment behaviours — often driven by the same factors influencing their stock market investments — can lead to correlated movements between Bitcoin and the S&P 500.
Geopolitical and economic uncertainties
Global events such as geopolitical tensions, trade wars, or pandemics can influence both the stock market and Bitcoin prices.
For instance, during times of heightened uncertainty, there may be an increase in Bitcoin buying as a hedge against global instability, even as stock markets might falter due to risk aversion among traditional investors.
Understanding the nuanced relationship between Bitcoin, the S&P 500, and economic indicators not only helps in assessing the risk and opportunities inherent in both markets but also in strategizing investments that can withstand or capitalize on the interconnected volatility of these asset classes.
Trading crypto during this turbulent period
During this turbulent period in the crypto market, traders are expressing a mix of caution and strategic optimism. Here’s a snapshot of the prevailing sentiments and strategies among traders:
Caution over leverage. The recent liquidations of leveraged positions have served as a stark reminder of the risks involved. Traders are advising against over-leveraging and are emphasising the importance of risk management to withstand sudden price swings.
Don’t use leverage – at least not without a stop loss.
Using leverage is the only way to send your portfolio to 0, and to then miss out on the rest of the bull market.
If you are trading spot you’re down. So what. If you get liquidated you’re out of the game entirely.…
Market volatility. The unpredictable movements make it essential for traders to stay very active and responsive, adjusting their positions as the market changes.
Strategic patience. Experienced traders are advocating for a more cautious approach, suggesting that sitting out the high volatility might be wise. They believe that waiting for clearer signs or more stable conditions could prevent losses and lead to better opportunities in the future.
Market will go through a big shakeout.
Majority of alts are already down 40%-45% from their recent highs.
They'll most likely get to 50%-70% retracements across the board by the time we're done.
Optimism for post-halving gains. There is a strong sense of optimism regarding the upcoming Bitcoin halving. Some traders, like Andrew Kang of Mechanism Capital, predict that the reduced supply of Bitcoin resulting from the halving will lead to significant price increases, potentially reaching new all-time highs.
Diversification. With the current uncertainties, some traders are looking at diversifying their investments beyond just Bitcoin and Ethereum. They are exploring other cryptocurrencies and blockchain projects that might offer better stability or growth potential in the current environment.
Economic indicators. Traders are closely monitoring broader economic indicators, especially inflation rates and actions by the Federal Reserve, as these factors are seen as key drivers for both the stock market and cryptocurrency prices. Their strategies often involve adapting quickly to economic news that could affect market sentiment.
The second scenario, the impulsive wave: is that we roll over here and we are in the midst of a 5 wave impulsive move down, either way there's so much liquidity being formulated below is would seem pretty unlikely to me that we would not unlock all that liquidity from stop losses… pic.twitter.com/UCQr9iuNUh
As we navigate through a period of significant volatility and anticipation in the crypto market, various traders and analysts have shared their expectations for Bitcoin’s future. These insights combine optimism with caution, reflecting the complex factors influencing the market.
Post-halving surge
The upcoming Bitcoin halving is a focal point of discussion. Andrew Kang of Mechanism Capital is notably optimistic, predicting that Bitcoin’s price could ascend to new all-time highs, potentially reaching $80,000 by May. This optimism is grounded in Bitcoin’s historical performance following previous halvings, where reduced supply typically led to price increases due to the heightened scarcity of available coins.
Whale activities and market impact
The activity of Bitcoin whales—large holders capable of influencing market dynamics through substantial transactions—is also a key indicator to watch. Recent data suggest that whales are accumulating Bitcoin, possibly in anticipation of price increases post-halving. This trend could provide upward pressure on prices if it continues, signaling strong demand overcoming the reduced supply.
Economic indicators and external influences
Economic announcements, particularly regarding inflation and Federal Reserve policies, have recently impacted Bitcoin’s price.
Traders should continue to monitor these indicators as they provide a critical context for Bitcoin’s behaviour in relation to broader financial markets.
For instance, if inflation remains high, Bitcoin may increasingly be viewed as a hedge, similar to gold, which could boost its price further.
Volatility and trader behaviour
Despite the optimistic projections, seasoned traders like Honeybadger express a more cautious stance, suggesting potential price volatility could lead to unexpected market movements. This sentiment is echoed by others who advise against over-leverage and recommend waiting for more stable market conditions to avoid the risks of sudden price reversals.
Long-term trends
Looking further ahead, the integration of blockchain technology and broader financial acceptance of cryptocurrencies may bolster Bitcoin’s position as a mainstream asset. This could lead to greater stability and less susceptibility to sharp market movements compared to the current landscape.
Solana is showing signs of potentially surpassing Ethereum in terms of consumer decentralized applications (DApps), as noted by Solana Foundation’s former head of growth. Despite current market challenges, Solana’s unique features could lead to increased developer activity and user adoption.
Matty Taylor, co-founder of Colosseum and previously part of the Solana Foundation, shared that he believes the Solana blockchain is going to become more popular than Ethereum, especially for regular users.
He said that Solana has been doing better than Ethereum in attracting user-friendly apps that fit with the modern web, thanks to its ability to handle transactions quickly and efficiently.
Currently, according to DappRadar, Ethereum has about 4,520 decentralized applications (Dapps), which is considerably more than the ones on Solana (240).
But even so, Solana has kept its nickname over the years, as it is often mentioned as a potential “Ethereum-killer.” This is because Solana can process transactions faster and more efficiently than Ethereum.
The collapse of FTX and the subsequent market downturn were major challenges for Solana, but according to Matty Taylor, these events actually brought more developers to the platform, even as the value of Solana’s SOL token dropped.
Taylor pointed out that every major blockchain network, including Bitcoin with its Mt Gox incident and the 2020 market downturn, has faced tough times. He believes that Solana has emerged from these challenges stronger and with a growing number of developers.
Despite these advancements, Ethereum still leads significantly in the crypto space.
As of March 2024, according to DefiLlama data, the total value locked (TVL) on Ethereum is $50.5 billion, more than 11 times Solana’s TVL of $4.34 billion.
Additionally, Solana faced technical issues when its blockchain stopped producing blocks for over five hours on February 6, forcing a network restart by its validators. This was not the first time; Solana has experienced several notable disruptions since January 2022.
Matty Taylor explained that while network problems are usually bad for any system, blockchains trying to expand their capabilities will naturally face some challenges. He mentioned that it’s better for these issues to occur now rather than later, especially before large, critical funds like pensions begin to rely on blockchain technology. He admitted that while it’s not ideal, these challenges are part of the innovation process.
Ethereum vs Solana dApps
There is no doubt that Solana is becoming a serious competitor to the already established Ethereum blockchain.
According to DappRadar, the top 10 Dapps are divided between Ethereum and Solana. Three of these are native to Solana, six are Ethereum-based, and one (Magic Eden NFT marketplace) supports both blockchains.
However, it’s worth pointing out that the UAW (Unique Active Wallets) interacting with these apps seems to be increasing on the Solana-based Dapps.
Raydium, the Solana-based DEX, has taken the lead with over 1.15 million unique addresses in the last 30 days. This is almost double that of the most popular DEX in the crypto space, Uniswap. However, the top from DappRadar counts Uniswap V3, V2 and the NFT aggregator as separate Dapps, but there’s no way of knowing if those aren’t the same addresses on both Uniswap V3 and V2.
According to CoinMarketCap, Solana (SOL) registered a price surge of over 78% during the last month, reaching a trading price of about $185 at the end of March 2024.
This sharp increase, together with its latest tech developments, played a pivotal role in last month’s TVL increase for its top protocols. Here’s a screenshot from DefiLlama of the top protocols on Solana, sorted by their TVL (total value locked).
Stablecoin dominance
Stablecoins are another way to measure how relevant a blockchain really is. Investors and day traders will often use stables, such as USDT and USDC to safeguard their trading profits from the market’s volatility.
While Ethereum still maintains its sovereignty, being responsible for over 52% of all stablecoin transactions, Solana ranks as the 4th blockchain for stablecoin trading, with a 1.86% dominance of the total market share.
Source: DefiLlama, Total Stablecoins Market Cap Dominance
Here is a breakdown for each of the top blockchains for trading stables.
Solana is gradually growing in volume and market capitalization, experiencing more than a 4% increase over the last week. It appears that Solana is steadily outpacing Ethereum. If this trend continues, it will not be a matter of if but rather a question of when.
The Ethereum Dencun upgrade, combining Deneb and Cancun updates, introduces significant changes to enhance scalability and reduce fees. This upgrade, crucial for Ethereum’s future growth, facilitates cheaper transaction storage off-chain.
What is Ethereum Cancun-Deneb (Dencun) upgrade?
Dencun combines two updates called Deneb and Cancun into one big change for Ethereum, touching both the part of Ethereum that reaches agreements (consensus layer) and the part that handles transactions (execution layer).
The Dencun upgrade also brings a feature called Proto-Danksharding through EIP-4844, aiming to lower the costs for layer 2 (L2) storage solutions. It introduces a new kind of temporary data storage called “blobs,” which helps in making storage cheaper for rollup providers.
Proto-danksharding is an early step towards full danksharding. It allows layer-2 solutions on Ethereum to keep large transaction data off the main network, similar to using a temporary storage space. This helps reduce costs for users of layer-2 solutions by keeping the main Ethereum network less cluttered and reserved for crucial transactions.
These blobs stay available on the network for about 18 days, or 4096 epochs, after which they are removed. However, even after removal, the validity of the data can still be checked with certain proofs.
This is a major system update in blockchain, and it started at a specific time in Ethereum’s history, rolling out completely in 15 minutes. This update aims to cut down fees for certain transactions and enable Ethereum to handle more activity.
Deneb focuses on improving the agreement part of Ethereum, making sure everyone on the network agrees on what’s happening.
Cancun upgrades how transactions are done, making them smoother and more efficient.
This addition is expected to significantly lower rollup costs, control the size of the blockchain, and accommodate more users while keeping the network secure and decentralized.
This big change comes after another important update last year, which let people take their Ethereum out if they had put it into the network before.
What will happen after the Ethereum Dencun upgrade?
Lower fees from rollups
This feature started on March 13, 2024, at 1:55 PM UTC, from epoch 269568.
Major rollup providers like Arbitrum and Optimism have announced they will start using the new blob feature right after the upgrade.
However, the exact time when each rollup will start showing lower fees might differ because each provider needs to update their systems to use the new blob space.
Off-chain transactions to keep the network costs low
The Dencun upgrade makes Ethereum better by allowing it to handle more users and transactions without raising costs too much. It also keeps the network spread out and not controlled by just a few.
Ethereum is focusing on improving “layer 2 rollups.” These are systems that help handle more users safely.
Rollups work by doing transactions separately and then sending a summary or proof back to the main network. This process costs money, which was high before because every network user had to keep the information forever.
The Dencun upgrade introduces Proto-Danksharding, making it cheaper to store these summaries. Now, they only need to be kept for about 18 days, reducing costs. Since rollups need about 7 days to handle withdrawals, the new 18-day limit is more than enough, keeping everything secure without needing more computer storage.
Impact all Ethereum consensus and validator clients
The Proto-Danksharding update (EIP-4844) requires changes to both the systems that carry out transactions and the ones that help agree on the network’s state.
All the main programs used by Ethereum have been updated to reflect this change.
People running these programs need to make sure they’re using the latest version to stay connected with Ethereum after the update.
Remember, this info can get outdated, so always look for the latest updates. Also, the software used by validators, who help keep Ethereum secure, has been updated for this new change.
Layer 2 (L2) transactions can be stored in 2 ways
Transactions on Ethereum’s Layer 2 can now be stored in two ways:
in new, cheaper temporary blob space or
in the older, more costly permanent smart contract calldata.
Blob space saves money by offering short-term storage, enough for all needed security checks. The permanent calldata, though more secure for long-term, costs more.
The choice between using blob space or calldata is usually up to the rollup providers, who decide based on how much blob space is available.
If lots of people want to use blob space, they might have to use calldata to make sure transactions go through quickly.
Even though users might technically pick which storage they prefer, rollup providers typically make this decision to keep things simpler and costs lower. For more details on how this works, you should look at the information given by the rollup providers.
Enhanced security with EIP-4788 and EIP-6780
The Dencun upgrade wasn’t mainly about security, but it did bring in some improvements to make Ethereum safer.
Part of the update, EIP-4788, helps the parts of Ethereum that check transactions and the parts that carry out transactions talk to each other better. This could make it harder for attackers to find and exploit weak spots.
Another change, EIP-6780, is about altering the way smart contracts can end themselves through the “SELFDESTRUCT” function. By tweaking how this works, it’s harder for bad actors to misuse this function, which could lead to better overall security for Ethereum smart contracts.
Lower costs on Layer-2 solutions
The Dencun update has introduced a new method for Ethereum’s Layer-2 scaling solutions that lowers the cost of transactions.
These Layer-2 networks group many transactions together to save money before sending them to the main Ethereum network.
The key feature of Dencun, called proto-danksharding and introduced in EIP-4844, reduces Layer-2 costs by allowing these networks to store certain transaction information outside the main blockchain.
Will the 4844 update lower the cost of gas on Layer 1 (L1)?
Not really.
The update brings in a new way to charge for something called blob space, used mainly by rollup providers. Moving rollup data to blobs might lower fees on L1 a bit, but the main goal is to cut costs on Layer 2 (L2). Any decrease in L1 fees would be a small, indirect result.
The lessening of L1 gas costs depends on how much the rollup providers use the new blob data. But since L1 is used for lots of other things too, its costs might stay competitive.
If rollups start using blob space, they will use less L1 gas, which could help reduce L1 gas prices for a while.
However, blob space has its limits; if it gets too full, rollups will need to use the old, more expensive storage, which could make gas prices go up again for both L1 and L2.
How do you get old blob data?
Regular Ethereum nodes keep the latest network information, but they can throw away old blob data after about 18 days. Before getting rid of it, Ethereum makes sure everyone who might need it has a chance to:
Grab and save the data if they want.
Finish any dispute periods for rollups.
Complete the transactions for rollups.
People might want old blob data for different reasons, and there are a few ways to get it:
The Graph uses a network of node operators paid in cryptocurrency to keep this data.
BitTorrent lets volunteers store and share the data.
Ethereum’s portal network is working to let people access all Ethereum data through a network similar to BitTorrent.
Individuals can also keep their own copies of any data they find important.
Rollup services might keep the data to make their services better.
Block explorers use special nodes to collect and keep all this information, making it easy to look up past data on the web.
When getting old data back, you just need one reliable source to check it against the current network state.
How does this upgrade fit into the larger plan for Ethereum?
Proto-Danksharding is a preparatory step towards fully adopting Danksharding.
Danksharding aims to spread out the storage of transaction data among different network participants, so no single one has to store everything.
This method will allow more data to be included in each block, helping Ethereum grow to support more users and transactions.
Such growth is key for Ethereum to serve billions of people affordably and run more complex applications while keeping the network spread out and not controlled by just a few.
Without these updates, the equipment needed to run the network would become too costly, possibly leaving only a few large players in charge, which would conflict with Ethereum’s goal of being decentralized.
