Will the Ethereum London hard fork upgrade be about to land tonight? Will deflation come?
On August 5th, Beijing time, the Ethereum mainnet will soon implement the London hard fork upgrade when the block height reaches 12,965,000 (approximately 8 p.m.). This is also the biggest update of the Ethereum core protocol in many years.
This upgrade incorporates five major Ethereum improvement proposals. Among them, the EIP-1559 proposal has attracted widespread attention from the crypto community in recent months. It constitutes a major change in the Ethereum (ETH) economy and will affect Ethereum All aspects of ecology have a wide-ranging impact.
Therefore, in this article we will focus on this EIP-1559 proposal.
Ethereum’s upgrade path
Ethereum is currently the second largest cryptocurrency by market value, but it is not just a digital currency. Since its creation in 2015, Ethereum has begun to promote a series of applications, from decentralized finance (DeFi) to stablecoins (such as USDC) and then to NFT.
Unlike its predecessor Bitcoin (a more pure digital currency), Ethereum is a highly flexible platform for smart contract applications. One way to think about the Ethereum network is to imagine a huge global computer composed of thousands of computers all over the world, and each computer runs a copy of the Ethereum software.
In this case, the Ethereum software is the operating system—just like the operating system on your phone or computer, it will also be upgraded from time to time. Some upgrades are minor adjustments, while others introduce major new elements.
Unlike your mobile phone, Ethereum is decentralized, which means that there is no central developer to send upgrades. In contrast, changing the core Ethereum software requires a “hard fork.”
As long as most members of the Ethereum community (usually including users, miners, developers, and investors) agree to change the core rules of the management software and the underlying blockchain, the hard fork upgrade can proceed smoothly. In this London hard fork upgrade, the core and most controversial protocol change proposal is EIP-1559.
So, what does EIP-1559 do?
ETH has played a key role in the Ethereum network for a long time, and users need to pay “gas” fees with ETH when making transactions. And miners engaged in transaction verification and blockchain update work have been paid in the form of ETH.
In 2018, EIP-1559, proposed by Ethereum co-founder Vitalik Buterin and others, aims to change this system. The user will pay a simplified fee (now called the “base fee”, which is usually set automatically by your wallet), as well as a “tip” that can be used to speed up the transaction.
However, this base fee is not paid to the miners who verify the transaction. On the contrary, it will be “burned” by the network-which means it will be permanently removed from circulation, and some potential effects include:
1. In the long run, EIP-1559 will not reduce gas costs because it is not a capacity expansion improvement, but due to a better cost estimation process, it can help users not to pay more for transactions. In addition, due to the variable block size, it can also smooth the gas price between blocks.
2. Burning ETH will naturally make many people feel excited, but this does not mean that ETH will immediately become a deflationary asset. To achieve this goal, burning ETH must be more than newly issued ETH rewards.
3. Under the current proof-of-work (PoW) model, the annual issuance of ETH is relatively high (about 4% of the total supply of ETH). After the implementation of EIP-1559, it must be burned to offset the new For the issued ETH, we need to keep the gas price above about 150 gwei. We have encountered this situation before, but the duration will not be very long.
4. But when Ethereum turns to the Proof of Stake (PoS) consensus mechanism, the situation will change dramatically, which will cause the ETH issuance rate to drop significantly to about 0.4% per year, so the ETH issuance will drop by 90%, which is equivalent Yu experienced 3 halvings.
In the future PoS model, we only need to maintain a gas fee of about 20 gwei to offset the issuance of ETH.
Is anyone in the Ethereum community opposed?
Of course, this is why the London hard fork upgrade took so long to be adopted. Miners have done a lot of heavy work for the network, and some people worry that their income will fall due to the implementation of EIP-1559. This may result in a contentious fork or a reduction in miner activity, and may even result in two competing Ethereum chains (similar to what happened when ETC was created in 2016).
What will happen next?
The London hard fork is just one of Ethereum’s many upgrade plans, and the subsequent merger and upgrade (expected early next year) will make Ethereum completely separate from PoW mining.
After the upgrade of Ethereum to the PoS consensus mechanism, the issuance of ETH is equivalent to three “halvings”. In this case, EIP-1559 will truly make ETH a deflationary asset.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/will-the-ethereum-london-hard-fork-upgrade-be-about-to-land-tonight-will-deflation-come/
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