Ethereum Killers, Layer2 Solutions, and Ethereum Dencun Upgrade: Who Will Benefit?

Using the Ethereum blockchain has become really expensive recently, with fees for sending Ethereum from one wallet to another reaching up to $2 and fees for swapping tokens within the network surging to over $50 when the network is congested. The problems of surging gas fees and scalability were solved in two ways:

• By developing Layer-2 solutions for the Ethereum network

• By launching projects that would offer the same functionality but without the most hurting problems.

  
  

Now, there are over 45 L solutions for the Ethereum blockchain, and over 35 such solutions are in development. The Dencun upgrade allowed for a reduction in the Ethereum fees and resolved the issue of network congestion by allowing L2 solutions to keep some transactions off-chain and bundle transactions before sending them to the Ethereum mainnet. And only the most important transactions would be processed on the Ethereum blockchain. Ephemeral data blobs are also introduced, which are the storage units where intermediate results during transaction processing are stored.

With these solutions, the problems of scalability and high fees will be resolved.

Let’s see whether it really worked.

Soon after the upgrade, the fees on the layer-2 solutions dropped drastically. Here, you can have a look at the changes in fees for the main L2 networks.

The first part, the one with fees, has worked out. It is still not completely clear whether the second part has developed as expected, but we will learn about it soon.

So, with it, it is expected that these developments will allow Layer2 solutions and the main network to benefit in the long term.

However, some experts warn that the introduction of blobs may have impacted the fees positively for a short time. In the long term, when Layer2 networks start competing for blobs, fees may rise again. Only the time will show how correct these forecasts are.

But what about the so-called Ethereum killers? How will this upgrade impact them?

Ethereum Killers: How Do They Work and How the Dencun Upgrade Will Impact Them

Ethereum killers - this is the name for projects that compete with Ethereum. While offering the same or similar functionality as Ethereum, all those projects use different technologies that allow them to overcome Ethereum’s shortcomings.

Let’s start with some history.

Earlier, Ethereum killers bragged about using a more environmentally friendly proof-of-stake consensus mechanism and its variations. But after the Merge upgrade on September 15, 2022, the Ethereum network moved to the proof-of-stake consensus mechanism, which reduced energy consumption by more than 99%.

Many people expected that this would end with at least some of the “Ethereum killers” - at least with those who couldn’t offer anything but their environmentally-friendly approach. However, reducing energy consumption didn’t solve the issues of scalability and high gas fees. On the contrary, gas fees surged. Thus, eventually, none of the so-called Ethereum killers was impacted seriously.

Now, let’s return to the recent upgrade.

The Dencun upgrade solved two main problems that the Ethereum network used to face: high gas fees and scalability issues.

This means that those Ethereum killers who relied only on faster transaction processing speed and low gas fees could indeed be impacted heavily. I doubt that projects running on such Ethereum killer blockchains will switch to the Ethereum network, but in the future, developers will prefer an established network, which Ethereum is, rather than networks that used to be competitors but lost their competitive advantage.

However, some networks offer something completely different along with Ethereum’s set. Here they are, and this is why they will survive.

Polkadot

Polkadot is focused on something that is very important for Web3 - interoperability. It allows for the connecting of several blockchains and interchanging data between them without compromising security. Interoperability is essential for the future of Web3, and thus, the demand for Polkadot will be growing.

Solana

It is cheap, fast, and backed by some major financial players such as JPMorgan and a venture capital firm, Andreessen Horowitz. The first two benefits of the Dencun upgrade have been added, and the last ones are raising concerns about the network’s centralization. Even though thanks to the financial support and already high adoption level, Solana may stay around for a while, I believe its importance will decline over time.

Cardano

It is a nice project with a lot of developer activity. However, its competitive benefits, such as eco-friendliness, low fees, and fast transactions, are not there anymore. Although many people love it, and thus it may survive just because many developers pick it based on personal preferences.

Bottom Line

The Dencun upgrade is an important milestone not only for the Ethereum network but also for the entire world of crypto and blockchain. Its impact is still to be assessed, but for sure, many changes are coming.