FMFW.io
Published in

FMFW.io

Ethereum’s London Upgrade

Over the weekend, we saw another cryptocurrency pump that brought the price of Bitcoin above $45,000 again, and other cryptocurrencies followed suit. However, some will argue that this time, the rally wasn’t led by the original cryptocurrency but by the enthusiasm surrounding the most recent Upgrade of Ethereum.

If the price movement was just a case of buying the rumor, sell the news remains to be seen. Regardless, there has been a lot of talk and a few myths surrounding the London Upgrade. In this blog post, we’ll give insights into what exactly the latest upgrade entails and what it means for users of Ethereum.

The name London for the upgrade was chosen, as London was the location for one of the biggest Ethereum Developer conferences. The latest Ethereum conference happened in Paris, so that we might see a Paris Upgrade one day.

The London Upgrade forms part of a more significant transition the Ethereum network is undergoing on its way to Ethereum 2.0. The current Ethereum network suffers from high energy consumption due to reliance on Proof-of-Work and a lack of scalability, often leading to transaction costs reaching unsustainable levels.

Ethereum 2.0

Once Ethereum upgrades to reach Ethereum 2.0, it will be more scalable, secure, and sustainable. The most significant change will be the switch from relying on Proof-of-Work to using Proof-of-Stake to verify transactions.

To address scalability further, the Ethereum developer team plans on introducing sharding. Sharding is a database scaling technique that involves splitting work across multiple servers that work on tasks simultaneously — similar to breaking a big group of people into smaller teams to work on assignments. This parallel processing will make verification faster and enable the blockchain to scale to 100,000 transactions per second.

Once shards are introduced, it’ll be easier for new participants to create their node even if they don’t have specialized equipment, increasing decentralization further, making the blockchain harder to hack and more resilient.

The main concern with Proof-of-Stake is often that there won’t be enough validators putting up the required amount of ETH to become a validator, reducing decentralization. Yet, Ethereum will require a minimum of 16,384 validators to launch Proof-of-Stake, which would make it one of the most distributed PoS networks existing.

The changes are significant; the transition will happen slowly and is currently being tested on the Beaconchain. The beaconchain keeps track of all validators and will later deploy ETH 2.0 and run along the main chain until they merge in 2022.

How does London fit into the picture of the more extensive changes happening on Ethereum?

The London Upgrade

London introduces various Improvement proposals, the most anticipated being EIP-1559. Alongside EIP-1559, London realized EIP-3198, EIP-3529, EIP-3541 and EIP-3554.

EIP — stands for Ethereum Improvement Proposal and is the format developers can propose changes to the Ethereum Network.

EIP-1559

As you might have guessed, EIP-1559 is the oldest among the proposals executed during the London Upgrade. It was first proposed by Vitalik Buterin and Eric Conner in 2019 and has been heavily debated for some time. Ultimately, the community decided to implement the change that adds a base fee in blocks on the network.

Before the upgrade, fees were determined through auctions. Users willing to pay more for their transactions would see their transactions verified faster as they could pay to skip the queue. When demand was high, gas fees have often spiked as users started biding more and more, occasionally to front-run others.

Those who didn’t bid enough would experience considerable delays in transactions being confirmed. A significant problem for users and service providers on Ethereum was that there was no way to know the “best” price for gas (transaction fees on Ethereum) ahead of time. When using the popular browser wallet Meta Mask, the wallet uses oracles to estimate gas fees. It proposes three different options to users, depending on how fast they want their transfer to happen. Before London, MetaMask and others had to balance picking an appropriate fee and not overcharging users.

Base Fee & Block Size

With EIP-1559, some control is introduced to make gas prices more predictable and efficiently use the network. Instead of just relying on auctions, each block will now contain a base fee that makes up a part of the fees users pay. The base fee depends on the current demand of the network. If the network utilization is low, base fees will decrease and bring more people into the network.

The base fee works in conjunction with a fixed block size limit of 15 million gas per block, which dictates how many transactions and operations can be included in a block. The block size is now allowed to double during high network activity to adjust to accommodate more transactions, while during low activity, blocks scale down, and the chain doesn’t overload with large blocks.

Traders looking to speed up their transaction can still skip the queue by defining a “miner tip” that works similarly to the previous model. If the maximum they defined is above what they end up paying, traders will receive a refund.

Yet, the part that excited the crypto trader community most about EIP-1559 was likely that base fees would be burned, reducing the ETH inflation rate.

Watchtheburn.com

EIP-3198

This is just a minor change that adds an opcode called BASEFEE to enable smart contracts to access the base fee's on-chain value easily. The opcode also helps with submitting fraud proofs and facilitates the creation of trustless gas price derivatives.

EIP-3529

EIP-3529 removes gas refunds from the SELFDESTRUCT code. This code is used to render a smart contract inoperable. The idea of giving developers refunds when rendering their smart contract was meant to incentivize them to clear the state when possible. However, the opposite happened as gas tokens were created to give users storage refunds, increasing the size of the state. Removing these refunds will prevent exploits and reduce yet another factor contributing to congestion.

EIP-3541

This improvement proposal adds another minor change that lays the groundwork for further improvements of the Ethereum Virtual machine. It will enable a new kind of smart contract to be deployed without affecting existing contracts.

EIP-3554

The last improvement added through London delays the end of mining to the 1st of December 2021. As explained under Ethereum 2.0, the network will move to Proof of Stake. As the merge can’t happen yet, with EIP-3554, the freezing of mining is delayed (again) until the end of this year.

All these changes will positively impact the user experience of DeFi users. However, they will not — as some have suggested — get rid of the issue of high gas fees. With the introduction of a base fee, gas fees will become more predictable, making it easier for traders and dApps to estimate the right fees for a smooth user experience. Anyone willing to pay more for the faster transaction can continue doing so, but overpaying is drastically reduced thanks to the refund.

The block size limit adjustment makes the whole market more efficient as fees increase as blocks fill up and go down when the network is less active to ensure fewer large blocks overload the chain.

More predictable fees and better user experience can consequently increase dApp adoption.

Lastly, the burning of the base fee introduces a deflationary element to Ethereum that currently mines two Eth whenever a new block is validated. Therefore, every new block has diluted existing holdings. The more the network is used, the more ETH is burned, which reduces the ETH entering circulation, increasing its scarcity. While some said this would render Ethereum deflationary, it remains to be seen how much ETH will be burned and if the burning can outpace the new issuance of ETH.

Despite fears that some nodes might decide not to support the latest hardfork, data from Ethernodes a few days after the upgrade shows that more than 98% of clients are already synced.

Anyone interested in tracking how much the basefee is, how much users tip miners, and what is burned, Watchtheburn.com provides all the data on the network activity of Ethereum.

--

--

--

FMFW.io the cryptoexchange on a mission to Free the Money, Free the World

Recommended from Medium

Polkadot vs. Cosmos vs. ContractLand — DEX Edition

ICYMI: Highlights of Gulf News Interview with Raj Bagadi

Why don’t you still have any crypto-coins in your wallet?

Polygon ecosystem — Dapps, utilities and future upgrades

Bitcoin-BTC.su

Bitcoin reaches ATH | Facebook’s Libra is ready to launch in 2021

The world’s first crypto ETF; Thailand’s regulatory advances; Kraken Ventures

SwapSpace review | Exchange your crypto instantly

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store
Naomi Oba

Naomi Oba

Social Media Manager @Minima — passionate about financial education, blockchain, books and food.

More from Medium

Why web3 shall rhyme with privacy.

January Progress & February Update!

Axelar Network Introduction

OnFinality provides API services to Nodle