Due to the delay of the difficulty bomb, London forks into the Ethereum testnet

The Ethereum network witnessed Deploy the London upgrade on the Ropsten testnet June 24. This upgrade includes the highly anticipated Ethereum Improvement Proposal (EIP) 1559.

After launching on the Ropsten testnet, the London upgrade will be deployed weekly on Ethereum’s Goerli, Rinkeby and Kovan testnets.This is one of the important steps in the whole process route map Implement Proof of Stake (PoS) consensus on the Ethereum network (also known as Ethereum 2.0).

The London upgrade brought five EIPs to be deployed on the testnet-EIP-1559, EIP-3198, EIP-3529, EIP-3541 and EIP-3554.Hotly discussed EIP-1559 The proposal is a transaction pricing mechanism that consists of a fixed network fee for each block, which is destroyed and allows the block size to dynamically expand and contract to solve the congestion problem.

Through this mechanism, there will be a discrete basic fee for transactions that will be included in the next block. For applications and users who want to prioritize transactions on the network, a reminder called “priority fee” can be added to incentivize miners to join faster. When the miner pockets this tip, the basic transaction fee will be burned. This means that before the transition to the PoS model is completed, in addition to 2 Ether (Ethereum) For each block received by miners, they will also receive a priority transaction reminder.

James Beck, director of communications and content at ConsenSys, a blockchain technology company that supports the Ethereum infrastructure, discussed with Cointelegraph the impact of burning basic fees on the network:

“Burning basic fees should put deflationary pressure on the issuance of ETH, although it is difficult to accurately model the degree of deflation, because you have to predict variables such as expected transactions, and even more difficult to predict expected network congestion In theory, the more transactions that occur, the greater the deflationary pressure on the entire Ethereum supply from the burning of basic fees.”

However, Marie Tatibouet, chief marketing officer of the cryptocurrency exchange Gate.io, talked to Cointelegraph about the possibility that this change in transaction fees would adversely affect the network.

She pointed out that people can still tip miners, and that the larger the tip, the faster the transaction processing speed, adding, “Now, as the network becomes larger and Ethereum continues to become the main smart contract platform, this is not Will trigger another’fee war’ between users who are willing to pay additional fees to speed up transactions?

Difficulty bomb delay

Another key part of this upgrade that affects daily users is EIP-3554The EIP delayed the “difficulty bomb” from the first week of December 2021 to become effective. In essence, the explosion of the difficulty bomb means that for miners, mining a new block will become extremely infeasible and difficult, thereby forcing the transition to the PoS beacon chain.

Kosala Hemachandra, the founder and CEO of Ethereum-based wallet platform MyEtherWallet, told Cointelegraph that EIP has always existed since the establishment of Ethereum to ensure that the network migrates to PoS and Eth2 on time. He further added:

“This value is responsible for making the block difficulty increase exponentially after a certain number of blocks, so that miners cannot mine new blocks. They must transfer to the Eth2 network. However, due to development delays, this time bomb has been delayed, and At the London fork, it will be postponed for the last time.”

The official document of the EIP stated that the network “targets to upgrade and/or merge Shanghai by December 2021.” However, it also added that the bomb could be readjusted or completely removed at that time, indicating The first week is not a hard deadline for the bomb or merger to happen eventually, and it can even be delayed from then on.

Tatibouet also mentioned that until Ethereum 1.0 merged with PoS Beacon chain — A mechanism for coordinating shards and stakeholders on the network — A transaction speed solution built on the existing network, or a second-layer solution, seems to be the most viable option.

She continued to add: “The first and second layer solutions need not be mutually exclusive. This is why Ethereum 2.0 uses a combination of the first layer (sharding, PoS) and the second layer (aggregation) to achieve true scalability Sexual reasons.”

Related: London Tour Guide: EIP-1559 Hard Fork’s Commitment to Ethereum

Coincidentally, according to data From CryptoQuant, on the same day that the upgrade was deployed on the Ropsten testnet, more than 100,000 ETH is pledged to the Eth2 deposit contract, Based on the current value of ETH at approximately US$2,000, the nominal value is US$210 million. Such a high level of interest may highly indicate the Ethereum community’s expectations for this upgrade, especially due to the widely discussed impact of EIP-1559.

Hemachandra also mentioned how the proposal supports second-tier solutions. He added: “EIP-1559 introduces a dynamic block gas limit. Essentially, the number of transactions that can now be included in a block can be dynamically adjusted based on congestion.” He further added, “So it can Reduce congestion-this is another good solution above L2.”

The bets and consequences of “merger”

It should be noted that after the extra 100,000 ETH pledged on the day the London upgrade was deployed on the testnet, the total proportion of ETH pledged on the Beacon Chain exceeded 5% for the first time.The current amount of pledged ETH is More than 6 million tokens, valued at 12.76 billion U.S. dollars.

Compared with other PoS networks and coins, the 5% ETH pledge ratio is not high.For example, Cardano currently has Nearly 72% of ADA is pledged on the network. However, there are many reasons for this situation. Hemachandra explained the core reason and why this is a positive sign for the network:

“Unlike most other PoS tokens, the whole purpose of ETH is not just to bet and earn interest. This is a good sign that ETH is used as a utility. For example, if 80% of ETH is pledged, then in Ethereum With only 20% of ETH left to do anything, I don’t think this is an ideal situation.”

according to data From EthHub.io co-founder Anthony Sassano (Anthony Sassano), 23% of all ETH mined is stored in smart contracts. This ratio is equivalent to more than 23.45 million ETH tokens, worth nearly 50 billion U.S. dollars. Of the 23.45 million ETH, more than 6 million ETH were pledged in the Eth2 deposit contract, and 9 million ETH were pledged in various decentralized finance (DeFi) protocols, because this network is the most widely used DeFi network.

The remaining ETH in the smart contract is distributed to various stakeholders, such as Gemini, Gnosis Safe multi-signature wallet, Polygon Bridge, and Vitalik Buterin’s cold wallet.

After the “merger”, Ethereum 1.0 and Ethereum 2.0 will be merged, marking the end of the Ethereum proof-of-work consensus mechanism. ETH miners Will face difficult choices.

As their mining hardware becomes obsolete, they must either sell their rigs and switch to ETH, or-at least for miners using GPUs-switch to other altcoins.

An analysis by Justin Drake of the Ethereum Foundation estimates that 1,000 ETH will be issued every day and 6,000 ETH will be destroyed to make ETH a more deflationary asset.

His analysis further found that assuming that the increase in validators and the annual percentage rate of staking is 6.7%, then the annual supply change will reach -1.6 million ETH, thereby reducing the annual supply rate by 1.4%.

This shift will make ETH a deflationary asset. Over time, the supply rate will decline, putting upward pressure on the dynamics of supply and demand, which will determine its price in the market.