July 16, 2021 |James Messi
Ethereum’s transaction fee model is the primary focus of the upcoming London Hard Fork. This upgrade aims to soften the potential blow of Ethereum’s Difficulty Time Bomb. After the fork, each block is taken into account when transaction fees are set with a base fee. This is shift away from the current practice which incorporates an auction model to determine network fees.
Developers are consciously delaying the Difficulty Time Bomb with consideration to the planned release of the highly anticipated Ethereum 2.0. The primary goal of restructuring the fee model is motivating miners to make the transition from Proof of Work to Proof of Stake.
What is the London Hard Fork?
The Ethereum London Hard Fork is a planned protocol upgrade that has stirred some controversy amongst the network’s miners. Why is that? The London Hard fork completely alters the process of determining how profitable Ethereum miners can be. With many certain that the upgrades will cut too deep into miner’s revenue. However, it is noted that these changes would be temporary until Ethereum 2.0 is fully implemented.
What Exactly is New With the Update?
The term “Hard Fork” refers to major changes or upgrades to a protocol that require consensus to be rebuilt on a new and improved blockchain. This brings us to EIPs, the proposed upgrades that are aptly referred to as Ethereum Improvement Proposals. Serenity, the designated name for Ethereum 2.0 is set to be released in 2022. At present, the migration to PoS is seeing a number of preparations prior to its launch. In accordance with the engineering of Serenity, there will be a slow down in the escalating difficulty of mining.
The process of collecting transaction fees, as already mentioned, is the focal point of the upcoming London Hard Fork. In addition to this, a new deflationary supply mechanism will be implemented. The current process requires users to bid on transaction confirmations by spending gas on the network. In this case, miners can prioritize transactions with higher fees to increase their profitability. After the London Hard Fork, network fee amounts will be fixed with a portion being burnt in order to reduce the circulating supply of ETH tokens.
What are EIPs?
An EIP is a set of proposals for improvements to the Ethereum blockchain. The proposals introduce new features that have been developed for the Ethereum ecosystem. The process is highly democratic as it also takes into account what the community suggests apart from what the authors of the proposals want to see implemented in the Ethereum environment. Worthy of note, anyone can create and submit an EIP through the necessary channels and advocate for adoption.
Am EIP should have the technical requirements of the feature and the logic behind the proposed feature or improvement. The writer of an EIP would be in charge of the unification of the community’s findings and possible further suggestions. And once enough participants in the ecosystem are happy with all the stipulations within the EIP, then the provisions could be implemented.
What Exactly is the EIP-1559?
Gas fees that are spent within the Ethereum network are the central consideration in EIP 1559. The proposal addresses the way by which users administer payments. This specific EIP had been created by Vitalik Buterin, founder of Ethereum, alongside a team of experts.
EIP-1559 puts forth a new pricing mechanism for transactions that will institute a base fee for each block. The fee is then burned by the blockchain which reduces the entire supply of the ETH token.
How is the base fee determined? Should a block reach over 50% of the total capacity of transactions, then the base fee will increase. This mechanism is being implemented so that each block has a high likelihood of not being full. This allows for additional space, in real-time, for those that would like to pay a higher fee for faster transaction confirmation.
While this is the case, Ethereum keeps the blocks at a 50% limit even if the additional gas being offered is not factored in. When there is close to 50% space remaining for a block, transactions can be sped up with smaller tips to the miners.
The Difficulty Time Bomb and the EIP-3238
The Difficulty Time Bomb that is fundamental to the Ethereum blockchain makes it rather difficult and expensive to mine Ethereum. Once this time bomb is reached, blocks would be unprofitable to mine and would take much more time to confirm.
But the reality is that the blockchain will inevitably reach this point if no changes are implemented. EIP-3238 has been proposed to delay the time bomb to assure that the Ethereum network can properly incentivize miners to switch from Proof of Work to Proof of Stake.
Should this effort fail, miners might still carry on using Ethereum 1.0. This would be a similar outcome from a previous hard fork that created Ethereum and Ethereum Classic.
What Ethereum Users are Thinking
There is no singular opinion or general sentiment about Ethereum’s London Hard Fork. Most of the opinions in the fold pertain to the network’s transaction fees. On one side are users and advocated of the Ethereum ecosystem that want cheaper and faster transactions to act as fuel for future growth. On the other hand, miners want to ensure that they can make a reasonable profit considering how much risk needs to be taken in order to secure the Ethereum network.
Stay tuned for future updates on Ethereum’s evolution to a Proof of Stake blockchain.