The implications of the upcoming ethereum “London” upgrade for us

The explosive growth of the cryptocurrency market over the past year would not have been possible without the ethereum network.

Remember the “Berlin” upgrade of Ether on April 15? After the “Berlin” upgrade was successfully carried out, Gas fees on the ethereum chain began to drop to manageable levels, which led to a surge in trading volumes on top decentralized exchanges such as Uniswap and SushiSwap, and increased activity on DeFi applications, which also led to ethereum prices breaking new highs.

According to previous reports, the main Ethernet network will be upgraded on July 14, including EIP-1559, EIP-3198, EIP-3529, EIP-3541 and EIP-3554.

So what changes will this “London” upgrade bring?

First of all, we need to know that EIP means “Ethernet Improvement Proposal”, and the above-mentioned EIPs are all improvement proposals of the Ethernet model.

These “Berlin” and “London” upgrades are actually hard forks.

The Ethernet “London” upgrade will be completed with the following proposals.

EIP-1559: Transaction fee market reform for ETH 1.0 chain

EIP-3198: BASEFEE opcode

EIP-3529: Reducing gas refunds

EIP-3541: Rejection of new contracts starting with 0xEF bytecode

EIP-3554: Difficulty Bomb Postponed to December 1, 2021

I. EIP-1559 – reform of transaction fees

EIP-1559, the most notable of the London upgrades and the proposal that miners have been boycotting, has been widely controversial. eip-1559 is essentially a “market reform of transaction fees for the ETH 1.0 chain”, or rather, an attempt to change the commission model of the ethereum network.

Today’s blockchain world is actually very much like the early Internet. In particular, we are getting slower and slower to use the ethereum network and are keeping the average user away from DeFi due to high transaction fees. for example, in February this year, Uniswap, the top decentralized exchange on the ethereum public chain, had transaction fees of over $100 at one point.

As we are expecting the upgrade of Ether 2.0, the consensus mechanism will be converted from Proof of Work (PoW) to Proof of Stake (PoS), which is commonly known as “mining” to “holding” of Ether, and the Ether network will be fragmented into 64 independent “pieces”, thus the speed of the whole Ether network will be improved by leaps and bounds, and the volume of transactions per second will be increased from 15 to 100,000. With 100,000 transactions per second, the Ethernet network will no longer be congested and the high transaction fees will be solved. However, for now, Ether 2.0 is still a rosy vision, and according to the self-reported statement of V-God, the founder of Ether, Ether is currently a parallel chain relationship from 1.0 and 2.0, while the transition from PoW to PoS has some technical problems and is not expected to be completed until some stage in 2022.

In the meantime, Ether developers are still working tirelessly to reduce transaction congestion on the chain and improve the user experience.EIP-1559 was first proposed by V God, the founder of Ether, in 2018 to reduce transaction fees by creating a more efficient fee marketplace and simplifying the payment process for gas fees for clients and applications by introducing fixed fees and a destruction mechanism, while easing transaction congestion.

So how does the EIP-1559 proposal work in order to moderate the spike in Gas fees?

It can be roughly divided into two changes: Base Fee and increasing the maximum Gas of the block.

  1. Base Fee

Base Fee (Basic Fee) is the most controversial and innovative practice, representing the lowest cost that a transaction can be included in a block.

(i) The fee for a transaction will be determined by the current market price and will rise or fall depending on network usage (congestion), with the cost of the base fee increasing if network usage exceeds 50%, and decreasing if network usage is below 50%.

(ii) The user can provide “miner tips”, the higher the tip, the faster the transaction will be.

(iii) In addition, users can set a fee cap so that transactions can only be made at the Base Fee they want. This means that when transactions are congested and busy, transactions with a lower Base Fee set will also be queued in an orderly fashion, instead of the current situation where transactions will be rejected.

④ All the Base Fee is burned, which means that all the fees are destroyed, not fully received by the miners as it is now. This will prevent miners from manipulating the Gas Fee and making more from the user.

  1. Increase the maximum Gas of the block

Note: Gas is the unit used to measure workload. Like our normal transfer and use of smart contracts all need to consume a certain amount of Gas, so it is common for domestic people to understand Gas as a processing fee.

Each transaction on the Ethernet chain carries a Gas cost and there is a Gas limit in each block to limit the number of transactions. Currently, the Gas limit is 12.5 million, while EIP-1559 proposes to increase the limit to 25 million at network utilization levels above 50%.

This means a simple implementation of “scaling” on the Ether 1.0 chain, with the flexibility to set the block size.

Comparison of current Ether after the implementation of EIP-1559

The current commission model of the Ethernet network is a “subasta del mejor precio de gas propuesto”, an auction of the best proposed gas price, i.e. an auction bidding mechanism. As a simple example.

If there are 3 users, each with transactions of 70, 200 and 100 Gweis. (This is the price of Gas that the user is willing to pay for each transaction), the miner always wants to steal the transaction from the user who paid the highest Gas, and the higher the Gas price of the transaction, the more likely the miner will validate the transaction.

But there is also a problem: when the network is congested, it can be very difficult for the person who sent the 70 Gwei transaction to be brought to the chain, because if the Gas price starts to rise due to the congestion in the network, the transaction with the higher Gweis price will be placed in the miner’s block. So in the next block, the new transactions that are included will be those with higher Gas prices, while keeping those with lower Gas prices.

And with the introduction of EIP-1559, transaction costs become more predictable depending on how congested the network is (this does not mean that costs will go down, but they will be more controllable, homogeneous and predictable). It reduces the delay in transaction confirmation time (which allows the decision to execute a transaction or not) and improves the user experience by automating the gotta-gas price auction system.

The implications of the upcoming ethereum "London" upgrade for us

The impact of EIP-1559 on miners

As mentioned before, Ether 2.0 will realize the network consensus mechanism from PoW to PoS, so it also means that miners will no longer be able to use miners for ETH mining after Ether 2.0 is completed. Ethernet miners originally could not only get block rewards, but also network-wide Gas fees, while when the EIP-1559 proposal is implemented, miners can only get block rewards and user tips.

Foreign by miners flirting: “One more exploitation before ETH 2.0 is fired”

In the words of a domestic internet sensation, “I’m going to be even worse off if I’m already poor.”

Impact on DeFi users

Some people may say that the reduction in fees will make DeFi more affordable to the average user and will make DeFi more prosperous. But I am not too optimistic about the future. First of all, Base Fee (processing fee) is burned and all of it is destroyed instead of flowing into the market, and scarcity can lead to the creation of value, which may lead to a surge of ETH price. Instead, it may not be a boon for DeFi users who pay the fee with ETH.

Here is not to give investment advice, after all, the big market is falling, no one can predict the future, we need to have independent thinking.

Second, EIP-3198

EIP-3198 is a companion proposal to EIP-1559. This proposal only adds the BASEFEE opcode. This opcode will return the value of Base Fee (basic fee) of the block it is in.

The purpose of this is to enable smart contracts to access this value on the Ethernet network, which will help improve the implementation of fraud proofs and also create price futures for Gas on top of this, which is more accurate than the current GasToken (token).

Note from Whitezer.

GasToken pass-throughs the Gas fee into an ERC20 token that allows users to buy and sell directly, or as an upfront payment for future Gas use. GasToken allows for arbitrage, minting or buying Gas fee tokens when Gas fees are cheap, such as CHI from GST and 1inch, and then destroying these tokens when Gas fees fluctuate. The token can then be destroyed when the gas fee fluctuates.

III. EIP-3529

The EIP-3529 proposal was suggested by V-God in the “London” upgrade.

Initially, Gas refunds (SELFDESTRUCT and SSTOR opcodes) were introduced in the Ethernet network to incentivize application developers, so that when a developer no longer needs to use a smart contract, deleting the contract can clean up the block storage, and the developer can get a Gas refund accordingly.

Specifically, when the price of Gas is low, Gas tokens encourage users to create or mint Gas tokens in the contract, which will use the funds provided by the user to store data or create contracts at a lower cost. When the price of Gas spikes, users can use or consume Gas tokens, which can then be used to maximize the benefits of consuming Gas at a lower price by deleting data or contracts (aka SELFDESTRUCT) and receiving network rewards or Gas refunds.

Of course, the use of Gas tokens has many benefits for users, such as buying and storing Gas in advance when it is low. When a running arbitrage bot spends thousands of dollars worth of Ether transaction fees per day, they can save a lot of money over time by using Gas tokens to save on fees.

Some argue that the existence of Gas tokens has led to considerable state inflation, as a lot of “meaningless” contracts were injected into Ether nodes when Gas tokens were still cheap. By increasing the state bloat, the rate of uncle blocks may increase.

This EIP-3529 proposal mainly focuses on SELFDESTRUCT opcodes, which will remove the Gas refund for SELFDESTRUCT opcodes and reduce the Gas refund for SSTORE to a minimum, Gas can still be refunded, but the refund mechanism will not continue to be “exploited”.

After the implementation of EIP-3529, Gas tokens will become worthless. And thanks to the overall upgrade of “London”, Gas fee is also controlled, and users have no reason to create Gas tokens.

IV. EIP-3541

EIP 3541 is a simple change that lays the foundation for the proposed EVM improvements to EIP 3540. Once EIP 3541 is implemented, new contracts starting with the 0xEF bytecode will not be deployed. Existing contracts will not be affected. When the “London” upgrade is initiated, deployments of contracts whose shortest bytecode sequence starts with 0xEF but does not match the starting sequence of existing contracts will be rolled back to identify contracts that are compatible with EIP-3540 semantics. Please note: EIP 3540 requires a separate network upgrade deployment. Also note that if EIP 3540 is not deployed, EIP 3541 can also be used to reserve starting bytes for other scenarios.

V. EIP-3554

In brief, EIP-3554 delays the “difficulty bomb” until December 1.

The “difficulty bomb” is a mechanism introduced by the Ethernet network to “freeze” mining during the current transition from Ether 1.0 (PoW) to Ether 2.0 (PoS), and since Ether is not ready to transition to 2.0 yet, the “difficulty bomb” will continue to be delayed.

While it has been delayed several times before, the core developers are only delaying the difficulty bomb until December 2021. By that time, the Ethernet network will either have successfully transitioned to Ether 2.0 (PoS) or will have undergone another upgrade.

However, as V-God recently stated that the transition to Ether 2.0 is not expected to be completed until sometime in 2022, so the “difficulty bomb” is not something we need to consider for now this year.

Conclusion.

The “London Upgrade” of Ether, or the implementation of the EIP-1559 proposal, has actually brought some positive changes to the way fees are set and allocated on the Ether network. The fees for trading on Ether are now prohibitive for many people. The best gas fees are almost unpredictable, and there are also delays in transaction confirmation times. In fact, the main reason for these effects is that the ethereum network currently utilizes an auction bidding mechanism, which is a mechanism where you can’t know the price others are bidding when trading and it’s the highest bidder, so you’ll find that often the one who bids first will break his thigh because he’s very much higher than the second place bid.

Then this time EIP-1599 is like a savior to save Ether, its implementation eases the transaction blockage in the Ether network and stabilizes its block reward part. This increased efficiency will lead to more transactions occurring, with a subsequent increase in fee revenue, and a successive increase in pos pledge revenue, attracting a larger group of miners to pledge ETH, and ultimately reducing the amount of ETH in circulation in the market.

Users, miners and developers, no matter who eventually becomes the biggest winner in the “London” upgrade, I believe it will be a qualitative leap for the overall operating environment of the Ethernet network.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/the-implications-of-the-upcoming-ethereum-london-upgrade-for-us/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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