Controversially owned and much-hyped “london” hard fork just got activated, and no, it isn't the Decepticons. This is the well-known cryptocurrency Ethereum. Till the time we are writing this, the surge surrounding the fact is 3.9%. The news has been thought of as goliath gravity because the software update could possibly mean a paradigm shift in terms of codes that run the second largest cryptocurrency on the planet.
The past few months for Ethereum users have been tough. The credit goes to two things. First, the high transaction costs annoy even the biggest enthusiasts, and the second issue is just a consequence of the internet becoming a world of non-fungible tokens. These tokens are largely based on the ethereum blockchain. The world is also seeing an explosion in the growth of the Defi systems. Defi, or decentralized finance, also works on the Ethereum Blockchain.
The changes that the code underwent on Thursday and the changes which sarcastically have no relation to London are rumoured to fix these issues by destroying the coins and also changing the fundamentals of the blockchain work ethic. If it is thought of as a highway, then London is making the tools work more efficiently and adding a few extra lanes at the same to manage traffic in a better way. “It adds a lot of complexity to the fee logic, but it's an interesting approach that could potentially stabilize the fee dynamics,” stated Nick Carter, the co-founder of Coin Metrics.
Making fees more predictable:
The “hard fork” has five proposals for the betterment of Ethereum called the EIPs. Each of these EIPs changes some part of the code. This is a well-known fact that the Ethereum blockchain gets good updates from time to time, but the London upgrade is thought to be a game-changer, according to experts. The one that everyone thinks is going to happen is the EIP 1559:Before the update, it was essential for the users to be a part of the First place auction—a Place where they had to place a bid with the miner. A closed bid would further lead to a blind shot and that too in the dark when the talks would come to the gas prices. Gas prices are the transaction fees. Simply speaking, the number that would guarantee their place in the next block of transactions. There were users that wanted their transaction to complete the fastest, and hence, they would bid the maximum. Sometimes so much that they would get a transaction in the present block itself.
“1559 is really meant to create an ecosystem that encourages lower gas fees,” said Auston Bunsen, The CTO and Co-Founder of QuickNode. The firm is known to provide blockchain infra to different companies and developers.
“Somtimes people are willing to pay a lot to get into a block. 1559 seeks to remediate this issue by creating a base fee,” further said Bunsen.
What the update will do, is that it will not hold a blind auction at every block to decide the gas price. Instead, it will Decide with the help of an algorithm what the transaction fees should be, based on the total demand that the network has.
This should, in return, help in relieving the pressure volatility has on the users. This nowhere means that it will be cheap for buyers to buy now. It is just a hedge against something unfortunate that might happen out of the blue.
This is not even the biggest change that the update has. From now on, each block size is doubled. This would, in theory, mean that the number of transactions is just doubled. Also, the update will still use half of each block capacity because the remaining space will help in easing the price demands even more. This can be easily understood by a simple example.
If the ferry operators have kept the fees very low, then they might want to add a few seats to compete for the space that would be taken by people who are standing and still want to sit at the base fare.
“But the price ratchets up very quickly, and algorithmically, to the point where you should get to a clearing price that allows the block to be at its target of half full, and certainly that allows all the transactions that want to go through to be processed,” Hougan explained.
What stabilizes the base fee, in the end, is the fact that the block size is dynamic, and it can respond properly to the fluctuations in demand.
“It sounds pretty simple, but it's a really elegant design solution to a problem that has plagued ethereum since its inception,” he said.
Houston, is there a problem?
The elephant in the room that does not need to be addressed because it is quite visible is the fact that this upgrade will also redirect a portion of the miner income to the pre-existing token holders.
The Coin that would have been with the miner will now be destroyed. This will sort of permanently delete that particular Coin which otherwise, would have recycled itself back to circulation.
Some people have also argued that the update will create an inflation-opposite pressure on the cryptocurrency. This is due to the fact that a reduction in supply can lead to an increased price. But there are also some assumptions that have to be addressed with this reasoning.
“It only creates deflationary pressure under the condition that burned fees actually exceed new issuance,” said Carter. “That's only the case at times of extreme fee intensity.”
This update is still not getting the hype that EIP 3554 holds. This change, when it happens, will make way for Ethereum 2.0. This update has been in the works for years.
Ethereum 2.0 is known to have a network switch. It is rumoured to shift from proof of work to proof of stake. The first one requires the miners to solve math equations to get a coin, while the second just asks for an existing cache of ether as a means to verify the transactions and create new tokens. This is something that not just ethereum but the whole crypto community is looking forward to.
