Delay in Ethereum Cancun Upgrade, Will ETH Price Be Affected and Fall?

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On July 26th, Ethereum (ETH) anonymous developers confirmed that the highly anticipated Cancun upgrade would not take place before 2023. They stated that consensus issues had arisen in the ten developer networks (Devnets) that were testing the upgrade, causing a lack of progress.

However, what is the Cancun upgrade? What is its purpose? Why are people eagerly anticipating it, and will it impact the volatility of Ethereum (ETH) price?

Cancun Upgrade: EIP-4844 Proposal as the Core

Cancun is a coastal city in Mexico where Ethereum developers' conference was held, hence the name "Cancun-Deneb" or Cancun upgrade. Ethereum upgrades are often named after the meeting locations, such as Constantinople, Berlin, London, and Shanghai.

The Cancun upgrade encompasses several improvements, with the core proposal being EIP-4844, addressing unresolved issues from the Shanghai upgrade. Here are the details:

Proposal Number	Content/Effect
EIP-4844	Enables off-chain data temporary storage and retrieval through nodes to meet DApp data needs.
EIP-1153	Reduce data storage costs and expand block space usage.
EIP-4788	Strengthen the architecture of cross-chain bridges and pledge pools to improve interoperability.
EIP-5656	If the code in the Ethereum Virtual Machine (EVM) is subtle, the network will be streamlined.
EIP-6780	Removes code that could terminate smart contracts, enhancing network security.
EIP-7514	Converts exponential track (validator growth rate) to linear track, setting limits on historical cycles.

Content of the Cancun Upgrade, Source: Compiled by Mitrade.

What Benefits Does the Cancun Upgrade Bring in the Long Run?

The Cancun upgrade primarily aims to increase Ethereum's mainnet capacity, enhance network scalability and security, improve TPS (transactions per second), and lower gas fees. In simple terms, it optimizes the Ethereum mainnet, which is a significant advantage for its native token, ETH.

Additionally, Ethereum's scalability is approached through Layer-2 solutions like Rollups (including Optimism and ZKRollup) and the mainnet sharding. ZKS is likely one of the proposed solutions.

Furthermore, the EIP-4844 proposal aims to reduce transaction fees on Layer-2 by 10-100 times. Once implemented, Layer-2 projects such as Optimism and Arbitrum would benefit, making their tokens more popular.

Will the Delay in the Cancun Upgrade Affect an Increase in ETH Price?

On October 23rd, positive news regarding BlackRock and Grayscale Bitcoin Spot ETFs stimulated a continuous rise in BTC price, reaching new highs for this year and boosting the entire cryptocurrency market.

Bitcoin (blue), Crypto Market Cap (red) Trend, Source: MacroMicro.

However, as the second-largest cryptocurrency by market capitalization, Ethereum (ETH) did not keep pace with BTC's rally. While it experienced some increases, it did not reach previous highs or set new records.

Bitcoin, Ethereum Price Trend from January 2023 to October 2023, Source: CoinMarketCap.

With the cancellation of the anticipated Cancun upgrade, market expectations of an ETH price increase have diminished. Without positive news to support it, there is a lack of buying pressure. As a result, even during overall market rallies, ETH has displayed weakness in its upward movement, with a long upper shadow indicating selling pressure.

Ethereum Price Trend from June 2022 to October 2023, Source: TradingView.

In the absence of upward momentum, if the market experiences a correction, ETH is prone to significant declines. Therefore, caution should be exercised when trading ETH due to these potential risks.