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On July 15, the Ethereum Foundation released an official announcement on the London upgrade, announcing that after the successful deployment of the test network, the London upgrade is fully ready to be activated on the Ethereum mainnet and will be launched at block 12965000, with an estimated time of August 5.
Ethereum London upgrade is approaching, what important updates are included?
Previously, all three Ethereum testnets have successfully activated the London upgrade. Ethereum testnet Ropsten was the first to successfully activate the London upgrade at block height 10499401 at 10:03 on June 24; followed by Goerli at block height 5062605 at 11:19 on July 1; and Rinkeby at block height 8897988 at 1:27 on July 8. Testnet Kovan will be upgraded after the Ethereum mainnet is upgraded.
The official also reminded that in order to be compatible with the London upgrade, node operators need to upgrade the client version they run. After the London upgrade, the OpenEthereum client will be deprecated and the way target Gas limits are handled on the network will be changed. What is the significance of London's upgrade?
As the most important network upgrade before the advent of Ethereum 2.0, the London upgrade has attracted much attention and controversy because of EIP-1559. The London upgrade includes 5 EIPs, EIP-1559, EIP-3198, EIP-3529, EIP-3541 and EIP-3554. Each EIP contains code changes designed to optimize and improve Ethereum. The London upgrade is mainly aimed at optimizing and improving Ethereum's network performance, reducing high Gas fees, reducing network congestion, improving network stability, and improving user experience, bringing new opportunities and new horizons to the currently booming DeFi ecosystem on Ethereum.
What updates are included in the London Upgrade?
EIP-1559: Transforming the Ethereum 1.0 Fee Market Among all the EIPs upgraded in London, EIP-1559 has become the most controversial EIP due to its redesign of the Ethereum network fee market. For a comprehensive interpretation of EIP-1559, you can review the previous article of Ostrich Blockchain "Why does EIP-1559 make the market so excited? A comprehensive review and decryption".
The controversial existence and code change project, previously Ethereum community members also broke the news that EIP-1559 may be postponed to 2022, because most Ethereum core developers reported that there are still a lot of unresolved issues. However, it has been debunked, EIP-1559 does have BUGs, but it is indeed unstoppable.
Ethereum’s historical use of a simple auction mechanism to price transaction fees is causing Ethereum to be inefficient. The mismatch between the volatility of transaction fee levels and the social cost of transactions, unnecessary delays for users, the inefficiency of first-price auctions, and the instability of blockchains without block rewards are all urging fee market reform.
After EIP-1559 is activated, miners can only keep tips, and the base fee is directly destroyed, which ensures that only ETH can be used to pay for transactions on Ethereum, consolidates the economic value of ETH within the Ethereum platform, and reduces the risks associated with miner extractable value (MEV). In addition, this destruction mechanism offsets Ethereum's inflation while still providing miners with block rewards and priority fees.
This destruction mechanism is similar to the introduction of a supply cap for ETH, which suppresses the growth of the total supply by removing a variable amount of ETH from circulation for destruction each time a transaction is executed.
Simulations as of June 8th show that activating EIP-1559 over the past year would destroy a total of 2,967,937 ETH, a net reduction of 76% in ETH supply growth during this period.
The attitude towards EIP-1559 is split into two levels. The reason for opposition is that EIP-1559 will reduce the income of Ethereum miners. Previously, all transaction income belonged to miners. After EIP-1559 is activated, miners' income is split into basic fees and tips. This split itself will not affect Ethereum's ability to process blocks or calculations, but it may face a variety of unfavorable conditions, such as miners leaving, destroying the network, or starting competing chains. If a large number of Ethereum miners leave or destroy, then the block time and network security will be affected.
At the same time, for users and developers, the advantages of EIP-1559 may not be as significant in practice as they are in theory. Failure to deliver on the promised fee market efficiency may lead to user and developer disillusionment, and if this happens, Ethereum's market share is likely to be seized by other competitors. In essence, EIP-1559 aims to reduce the volatility and predictability of transaction fees on Ethereum, but the code change will inevitably bring potential risks and rewards to Ethereum, which also needs to be taken into account after activation.
EIP-3198: Add BASEFEE opcode
EIP-3198 is known as the sister proposal of EIP-1559. EIP-3198 adds the BASEFEE opcode to return the base fee of the current block, extending the user experience improvements of EIP-1559 to smart contracts. At the same time, transactions using smart contracts will no longer be charged extra fees.
EIP-3529: Reduce Gas Refunds
Although the EIP-3529 proposal is not mentioned much, its impact on the Ethereum network cannot be ignored. Gas refunds have produced many adverse consequences. Refunds generate GasTokens and increase the difference in block size. EIP-3529 cancels the original Gas Tokens mechanism, making the network more stable. At the same time, the original Gas Tokens on Ethereum will become invalid. For the original Gas Tokens holders, the Gas Tokens in their hands need to be consumed before the upgrade, otherwise after the upgrade, the Gas Tokens in their hands will not be usable and will no longer have hype value.
EIP-3541: Reject new addresses starting with 0xEF bytes
EIP-3541 is mainly for developers, rejecting new addresses starting with 0xEF bytes, but the original addresses are not affected. It lays the foundation for future updates of Ethereum, prepares for subsequent EVM upgrades, and ensures that subsequent upgrades are compatible with existing contracts.
EIP-3554: Postponing the difficulty bomb until December 2021
EIP-3554 mainly involves postponing the difficulty bomb time, which is tentatively postponed to December 1, 2021. The purpose of setting the difficulty bomb is to increase the difficulty of mining, making it more and more difficult for PoW to produce blocks, and then transfer the consensus to the PoS chain. The postponement also means that Ethereum miners can continue to mine.
The inclusion of the difficulty bomb means that Ethereum is ready to transform from PoW to PoS. After the inclusion of the difficulty bomb, the difficulty of Ethereum PoW mining will gradually increase. As the difficulty of subsequent PoW chain mining increases, miners will gradually give up mining due to high costs and low returns, and the PoW chain will eventually be abandoned, thus completing the smooth transition of Ethereum from PoW to PoS. What do users/miners need to do?
If you only use exchanges or wallets, you do not need to do anything unless you are notified by the exchange or wallet to take additional steps. If you run your own Ethereum node, you will need to upgrade the node.
As a miner, you first need to update the Ethereum client and manually change the Gas limit target to twice the current one, because once the London upgrade is completed, the block size will double, and EIP-1559 will keep the block at about 50% capacity. This can be done via JSON-RPC on all clients that provide mainnet compatible mining without restarting the node.
If miners or node operators do not update their Ethereum clients to the latest version, then once the London upgrade is complete, their clients will sync to the pre-forked blockchain and will be stuck on an incompatible chain according to the old rules and will not be able to send ETH or operate on the upgraded Ethereum network.
The upgrade is imminent, what is the situation on the chain?
As the London upgrade approaches, the attention to both the price of ETH and the relevant data on the Ethereum chain is increasing. The price of ETH has been rising for nearly a week, but this does not seem to be stimulated by the positive impact of the London upgrade, but more to follow the trend of the market. There is still a week left, and perhaps ETH will be affected by the London upgrade and go out of its own market, but it may be more difficult to lead the overall market trend in a positive direction.
The on-chain data seems to be more positive. According to Glassnode data, ETH holders are actively transferring their tokens from centralized exchanges, and the amount of ETH locked in smart contracts is increasing. This means that holders will not sell ETH in the short term. According to OKEx Chain Master data, as of July 27, the Ethereum 2.0 deposit contract address has received 6.4216 million ETH. Based on the current circulation of 116 million Ethereum, the number of pledged Ethereum accounts for 5.53% of the total supply, and 65,984 ETH has been newly pledged in the past week.
The bull market driven by DeFi will be upgraded in London and after the activation of EIP-1559, the changes in the fee market will inevitably lead to turbulence in the DeFi ecosystem. Whether it can become the next rising point of the market, the market will soon give an answer.
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