The Ethereum Improvement Protocol (EIP) 1559 of London fork went Live Thursday. It has brought a host of changes like fixed gas, burning Ether, and flexible block size.
The long-awaited Ethereum Improvement Protocol (EIP) 1559 of London Mainnet upgrade, a major step towards the transition to Proof of Stake from Proof of Work consensus protocol, went Live on August 5 at 12:34 UTC on the block 12,965,000.
In the following two hours, Ether’s price touched $2800.
The upgrade is a Hard Fork of the Ethereum 1.0.
A “Hard Fork” is software jargon for a backward-incompatible upgrade. The nodes of the newest version of a blockchain no longer accept the older version(s), which creates a permanent divergence from the previous version of the blockchain. All nodes are required to upgrade.
It means that post-London activation, to stay connected to the Ethereum network, miners need to download the London upgrade.
London Mainnet upgrade is the most important change since 2015. It aims at making transactions and their costs fixed and predictable. Also, the flexible block sizes will make transactions efficient and the burning of Ether will slow its supply.
This fork is “proof that the Ethereum ecosystem is able to make significant changes,” Vitalik Buterin told Bloomberg.
“Now it gets much easier to send a transaction that will get included in the next block and that’s very important to user experience,” he added further.
What is EIP?
Ethereum Improvement Proposals are standards specifying potential new features or processes for Ethereum, basically proposals for upgrading the network.
EIPs contain technical specifications for the proposed changes and act as the “source of truth” for the community; for a layman, it could be seen as a rulebook/compendium of guidelines.
Network upgrades and application standards for Ethereum are discussed and developed through the EIP process.
What is the “London” in London Mainnet upgrade?
London is the all-encompassing title of 5 EIPs of which EIP 1559 is a part. The 5 EIPs are:
- EIP-1559: Fee market change for ETH 1.0 chain
- EIP-3198: BASEFEE opcode
- EIP-3529: Reduction in refunds
- EIP-3541: Reject new contracts starting with the 0xEF byte
- EIP-3554: Difficulty Bomb Delay to December 1st 2021
So, EIP London will be complete with the rollout of all these EIPs.
What is in the London EIP 1559 upgrade?
The official website defines it as, “A transaction pricing mechanism that includes fixed-per-block network fee that is burned and dynamically expands/contracts block sizes to deal with transient congestion.”
Some salient features of the upgrade
- The upgrade aims to change the fee market for the Ethereum 1.0 chain. It has replaced the gas fee auctions with a base fee which is fixed for a given block. The base fee is algorithmically determined depending upon how busy the network is. A big relief for users is that they will be able to see this fee upfront.
London isn’t going to make Ethereum affordable to use, it aims at making the cost of using Ethereum predictable.
- Block size has become elastic and will change as per the state of the network; size will dynamically expand/contract to deal with transient congestion.
- Another major change under EIP-1559 is that part of every transaction fee is burned, or removed from circulation, which will begin to reduce the supply of Ether and make it deflationary.
- Miners only get to keep the priority fee and block subsidy. The base fee is always burned (i.e., it is destroyed by the protocol). Priority fee is paid by the users to have their transactions prioritized by the miners; it is optional.
- The base fee can only be paid in the native cryptocurrency of Ethereum, Ether.
Implications of the upgrade
Technology in its nascent stage may not always have desired outcomes. That’s why we can look at both the pros and cons of this fork.
- Mandatory use of Ether to interact with decentralized applications (DApps).
The exclusive use of Ether for paying gas will make it mandatory for any user and developer to use Ethereum’s resources. It could drive the price of Ether up.
- Reduced transaction times and removal of transaction fee uncertainty can drive developer and user adoption of DApps.
The flexible block sizes and fee estimation will make the experience smoother and predictable. Moreover, network congestion could be dealt with in a better way. DApps will be greatly benefitted from this change.
- A bitcoin-like cap on Ether supply .
Since Ether is going to be burned, its supply will be limited in the network. The limited circulation could make it a challenger for the “digital gold” status exclusively enjoyed by bitcoin as it would become a deflationary asset.
- Risk of miner rebellion due to the reduction in transaction fees paid to miners
Miners will only receive an optional “priority fee,” paid electively by users seeking priority for their transactions. The block subsidy which is the network reward will remain the same.
- Technological risk in the form of unexpected bugs, hacks
Any new upgrade or technology is not perfect when it comes. A slew of bugs might be observed in the coming weeks or even months. That’s why Ethereum has bug bounties for anyone who finds and reports a vulnerability.
- Adoption inconvenience and failure to deliver the expected results
A blockchain upgrade requires everyone to get onboarded onto the new network causing little inconvenience for a while. If the upgrade fails to deliver the touted benefits, the community might get disappointed.
Learning new things is hard, so is improving technology which may sometimes not be foolproof. Ethereum Foundation itself has identified some of the potential security lapses mentioned below.
Increased Max Block Size/Complexity
An increase in block size increases complexity. If miners are unable to process a block fast enough, it will force them to mine an empty block. It is expected that some clients may handle short-term size bursts poorly and run into an error(s) (such as out of memory or similar).
Transaction order now depends on individual client or miners’ internal implementation defining how they store the transactions in memory. It is recommended that transactions with the same priority fee be sorted by the time a specific transaction was received to protect the network from spam attacks where the attacker throws a bunch of transactions into the pending pool to ensure that at least one lands in a favorable position.
Miners Mining Empty Blocks
Malicious miners or cartels can mine empty blocks until the base fee is very low and then proceed to mine half full blocks finally reverting to sort transactions by the priority fee and raking in the rewards. The only feasible way to execute this attack would be to control 50% or more of hashing power.
ETH Burn Precludes Fixed Supply
By burning the base fee, a fixed supply of Ether is no longer guaranteed. If more Ether is burned on base fee than is generated in mining rewards then ETH will be deflationary and if more is generated in mining rewards than is burned then ETH will be inflationary.
It is said change is hard at first, messy in the middle, gorgeous at the end. Technology is ever-evolving. Some of the technological advancements may cause some inconvenience in the short term, but with the constant evolution, they become favorable in the long term.