background
background
Among the several topics that have been hotly discussed in the Crypto circle recently, apart from NFT and metaverse, another thing is Ethereum London upgrade. As an important step towards easier use of Ethereum, the London hard fork The essence is to adjust the EIP-1559 upgrade of the Ethereum network gas fee to cope with the increasing miner fees in user usage (the goal is this).
Lets not talk about whether the current cost of using the Ethereum network has been reduced, but we can see something more interesting from another set of data, that is, since the upgrade of Ethereum EIP-1559, as of this writing, Ethereum has burned more than 25,000 coins ETH (data from ultrasound.money).
According to the current burning rate, it is estimated that 800,000 to 2.4 million ETHs will be burned in 2021, and nearly 2.5 ETHs will be burned every minute. This sounds like an exciting number. After all, every ETH burned is It means that there is one less ETH in circulation in the market. Because of this, some fans began to shout, ETH TO THE MOON.
Literally, we judge that such a statement is supported. After all, the principle of supply and demand in economics is really easy to understand, but as a calm observer, we have to return to an objective perspective to look at the possible impact of the London upgrade.
secondary title
What is the Ethereum London upgrade?
As the start of smart contracts, Ethereum, which laid the foundation for the emergence of DeFi and NFT, is booming with the application of blockchain technology. However, everything is changing dynamically. If it is a pool of stagnant water without waves, it will be abandoned by the times.
Based on this, Ethereum has also carried out rounds of upgrades to optimize its performance to make it more in line with the needs of the times. Every Ethereum upgrade will have a major impact on the entire encryption field, and this London upgrade, which has attracted much attention from the outside world, is no exception.
This upgrade can be described as full of twists and turns. First, the joint demonstrations of the miners and the implementation of the loopholes discovered two weeks ago made this London upgrade seem a bit hasty. In fact, the Ethereum London upgrade has been prepared for three years (referred to as EIP- 1559 as a starting point).
The trend of history will not be reversed, Ethereum is one step closer to the era of ETH2.0, and the era of Ethereum PoS is coming.
So what exactly did the London upgrade do this time? Although this London upgrade is also a hard fork upgrade, it does not generate new tokens, and the update is only for Ethereum nodes and clients.
It mainly includes five important community proposals: (1) Handling fee improvement plan EIP-1559; (2) Is BASEFEE operating EIP-3198; (3) EIP-3529 for reducing gas fee refunds; EIP-3541 for new contracts starting with 0xEF bytes; (5) EIP-3554 to delay the difficulty bomb to December 1, 2021.
Below we will disassemble them one by one.
EIP-1559
After the implementation of EIP-1559, the Gas fee will be sent to the network itself as a base fee (Base Fee) and destroyed. Users only need to pay a certain amount of tips to the miners. This proposal cancels the Gas fee auction system, thus Changed the trading model of the entire ecosystem.
The basic fee will be dynamically adjusted according to the current usage rate of the network, and this part will be directly destroyed. The basic logic is that when the block usage rate of Ethereum exceeds 50%, the base fee will increase; when the block usage rate is lower than 50%, the base fee will decrease, and the base fee will fluctuate within a small range.
EIP-1559 clarifies three things:
(1) Explicitly link Ethereum fees to the decentralized application protocol itself;
(2) Eliminate the uncertainty of the free market Gas fee and reduce the transaction waiting time.
(3) Add a finite supply statement similar to Bitcoin.
Specifically, the existing Ethereum is too difficult to use, because the gas fee required for each transfer is based on the sealed one-price auction mode with high price priority. For users using the Ethereum network, they often encounter The estimated Gas Price is not allowed, so the transfer initiated by him has been in the pending state (pending). If you don’t cancel the transaction, you can only wait. It takes a lot of time and energy to go back and forth, and you will pay more gas fees. The entire network often has high gas fees. One of the reasons is the existing gas fee mechanism. The problem. There may even be a situation where a sky-high gas fee has been paid due to improper operation (the transfer amount and the gas fee were wrongly written, and the amount transferred was only 0.01ETH, but the gas fee was paid 10ETH).
Therefore, the core purpose of EIP-1559 is to improve this situation, greatly improve transaction efficiency, and make users experience better. When the user transfers money again, there is a basic rate as a reference price, and then they can add tips (Tips) as appropriate to complete the transaction, saving money and worry. On the other hand, users don’t have to worry about incurring sky-high gas fees. They only need to set the maximum amount they are willing to pay to get the transaction included and packaged.
A simple understanding is that the EIP-1559 proposal optimizes the composition of transaction fees, which is beneficial to a wide range of ordinary users and developers. But to some extent, it hurts the interests of miners. Because Gas fees are an important part of miners income, only tips remain after the London upgrade.
what does that mean? Although Ethereum has not expanded due to this, the gas fee is still dynamic. When the network is congested, Gas may still be high, but its actual cost is reliable and predictable, which provides a better development environment for Layer 2.
At the same time, it is well known that every time a new block is created, two new Ethereum tokens will be generated, which will bring a certain degree of inflation, and this has also caused investors to worry, because behind the high inflation rate is Increased financing risk.
We mentioned in the introduction above that after the implementation of the EIP-1559 proposal, the Base Fee (base fee) in the Gas paid by the user will be sent to the network itself for destruction, and will be permanently removed from the total circulation effect of Ether. In other words, it will offset most of the inflation and ensure that miners will not artificially clog the network in order to obtain more incentives.
The implementation of EIP-1559 can make the inflation rate of Ethereum and Bitcoin basically equal. And this has encouraged more individual and institutional investors to join the Ethereum ecosystem.
In the short term, EIP-1559 does harm the interests of miners, but in the long run, EIP-1559 is conducive to the long-term development of the Ethereum ecosystem.
EIP-3198
So what is EIP-3198?
We can simply think that EIP-3198 is designed for EIP-1559. By adding a Base Fee operation code, it returns the basic fee when the exchange executes the transaction in the block. The smart contract can check this value on the chain. access.
This ensures the reliability of the Base Fee and facilitates the verification of fraud proofs. At the same time, due to its accessible features, it provides conditions for the emergence of decentralized gas fee derivatives, further enriching the DeFi ecosystem. EIP-3198 is an important part of reducing the vulnerability of EIP-1559.
EIP-3529
However, EIP-3529 cancels the gas return of the opcode selfdestruct, and reduces the gas return of the opcode sstore, that is, reduces the gas refund of Ethereum. How do we understand this?
First of all, the original intention of Gas return is to motivate developers to clear the state when possible. However, in fact, this has led developers to create Gas Token in order to obtain more incentives, resulting in an increase in the state size.
At the same time, EIP-1559 brings additional block size differences, and the gas return is reduced from 50% to 20%, which can be partially offset. It reduces the network transmission pressure on nodes and stabilizes their decentralization capabilities and security.
EIP-3541
Unlike EIP-1559, EIP-3198, and EIP-3529, which are improved for gas fees, EIP-3541s rejection of new addresses starting with 0xEF bytes seems to be a simple change, but in fact EIP-3541 also has important significance.
This proposal will make new contracts starting with 0xEF bytes undeployable without affecting existing contracts, laying the foundation for future EIP-3540 broader EVM improvement proposals.
EIP-3540 introduces a scalable, versioned, and verified mode for EVM that can better separate code and data, shortens the time for client-side verification, and verifies Layer 2 code. , multi-byte opcodes and many other aspects are of great significance.
However, EIP-3540 does not match contracts starting with 0xEF bytes, and contracts starting with 0xEF bytes can only be reserved as a way to be recognized by smart contracts that match the semantics of EIP-3540. Therefore, rejecting new contracts that start with 0xEF bytes is of positive significance to the overall optimization of the EVM.
The implementation of the EIP-3541 proposal also allows users to see the dawn of EVM improvement.
EIP-3554
As we all know, the difficulty bomb is a mechanism introduced by Ethereum, that is, as the mining difficulty increases, the time required to mine a new block on the Ethereum blockchain will increase accordingly. This artificially slows down the issuance speed of Ethereum, which is designed for the transformation of Ethereum to the PoS proof-of-stake mechanism algorithm.
When Ethereum changes from PoW to PoS, the behavior of miners will be frozen. However, because such a transition is not ready, Ethereum has chosen to delay it.
secondary title
What impact will the Ethereum London upgrade have?
It is rare for us to see such a well-known project as Ethereum modifying the economic model. In fact, it is not the first time to modify the economic model, because EIP-1559 was first proposed a few years ago, and the problems solved by EIP-1559 are indeed many. The project also has to face problems: low transaction efficiency and miner fraud.
Therefore, around October last year, Filecoin also made minor adjustments based on ETHs EIP-1559, and finally incorporated EIP-1559 into Filecoin.
It has been about ten months since Filecoin launched EIP-1559. What effect EIP-1559 has brought to Filecoin, we can use it as a reference to see what effect Ethereum London may achieve after the upgrade.
First of all, it will indeed bring about fluctuations in the handling fee rate, and with the basic fee rate as a guide, all participants will have more confidence in how much transfer fees they spend when making transfers. Juan, the founder of Filecoin, also wrote an article EIP-1559 in Filecoin to express the operation effect of EIP-1559 on Filecoin.
EIP-1559 has many laudable features consistent with Filecoins design considerations:
efficiency. EIP-1559 outlines a more efficient Gas setting and accounting model.
user experience. Estimating and setting fees is relatively straightforward compared to running a first-price auction.
Throughput of critical messages. WindowPost messages in Filecoin are time-crunching and must be handled in a way with strong support that can handle congestion. EIP-1559 provides higher reliability and throughput for such messages.
Incentive transaction network. The entire network bears the cost of processing transactions and should be compensated accordingly.
secondary title
So what effect will the actual ETH have?
This is a picture taken by a well-known industry V, Shenyu, which shows that the ETH burned in a single block has reached 4 or 5, which exceeds the issuance speed of 2-3 ETH generated by a single block. Therefore, from Numerically, there will indeed be a deflationary effect.
There is another point worth paying attention to in this picture, that is, the Base Fee, which is the base fee, has also reached 200-300GWei. Therefore, from the actual situation, this London upgrade of ETH cannot fundamentally solve the high gas fee Case. When there is a peak demand, such as during the intensive issuance of NFT, or during the boom of DeFi, the gas fee will still be affected by supply and demand, and the basic fee will also be pushed up.
Of course, when the demand is not strong, the ETH burned does not exceed the circulation, and the basic fee is not particularly high.
Therefore, in summary, this upgrade of Ethereum cannot fundamentally solve the problem of high gas fees, but on the other hand, considering that the existing Ethereum is still a PoW consensus mechanism, after switching to the PoS consensus mechanism, Ethereum The inflation rate of Ethereum will be further reduced. Combined with the burning effect of EIP-1559, the deflation of Ethereum will be expected to happen.
Therefore, because of the deflation of Ethereum, many well-known people in the industry have begun to pay attention to one point, whether the market value of Ethereum will surpass Bitcoin. For example, Arthur Hayes, the founder of BitMEX, wrote an article discussing the possibility of Ethereum’s market value surpassing Bitcoin. Goldman Sachs released a report in May, saying that Ethereum is the blockchain with the most practical use potential, and its market value is expected to surpass Bitcoin. Dan Morehead, founder of Pantera Capital, said in an interview that the upcoming London upgrade It will help Ethereum catch up with Bitcoin and make Ethereum more like a fixed asset.
secondary title
What impact will this Ethereum upgrade have on the Polkadot ecosystem?
According to the London upgrade of Ethereum this time, we have seen the game between different stakeholders and the final effect, which also has many implications for the development of Polkadot and its ecology. In addition, we can also dig out aspects that are beneficial to Polkadots ecology to summarize and absorb by understanding its causes and consequences.
Ethereums Upgrade Doesnt Solve the Fundamental Problem
In the upgrade of Ethereum London, EIP-1559 is the most dazzling, but the starting point of EIP-1559 itself is not to really solve the problem of high gas fees. At the same time, the actual situation also shows that it cannot really solve the problem of high gas fees. question. Because although the pricing mechanism of Gas fees has been revised, its level is still linked to the relationship between supply and demand in the market. With the continued popularity of NFT and DeFi, Gas fees will still remain high.
The real way to solve this problem is to expand the capacity, which still has to wait until ETH switches from the PoW consensus mechanism to PoS to fundamentally solve this problem.
Therefore, although this is a major upgrade, ETH still has not solved the fundamental problem. On the other hand, Polkadot itself is an NPoS consensus mechanism. At present, it naturally does not have the problems of performance and high gas fees. However, the idea of adjusting the economic model of Ethereum can still be used for reference.
Witness the power of governance
In fact, logically speaking, the upgrade of Ethereum has a sense of forced implementation, because it is an upgrade on the premise of harming the interests of miners, and the most important economic model is changed, but in in order to make Ethereum become Under the banner of better, this major revision was finally passed in the form of governance.
This also allows us to witness the power of governance, which means that when some projects have difficulties, governance can be used to promote the development of the project even if it damages the important interests of some people.
How do you understand it? In the case of Polkadot, although Polkadot is a new city construction compared to Ethereums old city transformation, it has avoided many of Ethereums existing problems at the beginning of its design. However, it is impossible for us to think of everything perfectly, and Polkadot will definitely find some important problems or defects during its operation.
Therefore, if such a situation really happens, don’t be too nervous to say that Polkadot is not good, because the parameters of Polkadot can be adjusted through governance, or new functions can be added to continuously improve. After all, Ethereum will change even the most important economic model and consensus mechanism. Therefore, when there is a problem with Polkadot, it is enough to evolve through governance, not to mention Polkadot also has Runtime (no need for hard fork upgrades) ).
Inflation is indeed a problem, but...
From the Ethereum London upgrade, the EIP-1559 proposal is designed to burn the basic fee, which can bring deflationary properties to Ethereum. Combined with the actual data, deflation can indeed be achieved theoretically. Many big Vs in the industry have also praised Ethereum after it changed from inflation to deflation, and are very optimistic about its prospects.
In fact, there are still some small discussions about the method of burning the basic fee in this upgrade of Ethereum. One of the discussions is to return this part of the basic fee to DApp developers, which can further encourage practitioners to participate in the construction of Ethereum middle. And this kind of thinking, in fact, there are already projects in the Polkadot ecosystem that have considered this way.
Astar (formerly Plasm) is positioned as the center of a DApp, and its economic model is designed to allocate part of the transfer fee to the participants of the DApp, allowing all DApp developers to build and share with Astar and enjoy the dividends of the entire ecological development.
Regarding the use of part of Gas fees for ecological construction, Polkadot has already practiced it for a long time, because Dr. Gavin, the founder of Polkadot, knows that the construction of an ecology is driven by time and funds, and ecological construction must require financial support. Polkadot’s ecology cannot be supported only by raised funds, so it cleverly designs the funds needed for an ecological development into Polkadot’s own economic model, which is Polkadot’s financial treasury or treasury ( Treasury) mechanism.
Of course, Polkadot is the consensus mechanism of NPoS, and it will inflate about 10% every year, but this part of the inflation funds will not be fully given to those who participate in Staking, and the remaining part will be part of the transaction fees and node penalties. The funds are pooled together as Polkadots treasury (Treasury).
Due to the design of the mechanism, as long as Polkadot operates normally, the funds in the Polkadot treasury will continue to accumulate. Polkadot’s treasury is managed by Polkadot’s parliament, and the funds held in it can decide whether to spend through the formulation of expenditure proposals through governance, so as to provide financial support for projects or organizations that contribute to Polkadot’s ecology . The treasury has a budget period every 24 days, and if the treasury ends a budget period without spending all of its funds, a portion of its funds are burned - creating deflationary pressure, the percentage is currently 1 on Polkadot %.
Therefore, Polkadot is already ahead of Ethereum in terms of mechanism, not only considering the collection of funds to stimulate the ecology, but also considering that burning a part will cause a certain deflation, but some people say that Polkadot’s 10% inflation Too high, but conversely burning only 1% doesnt help at all.
In fact, inflation is not all harmful but not beneficial. Appropriate inflation is also conducive to the development of the economy. Now countries with rapid development will have moderate inflation. On the other hand, taking a 10,000-step back, if Polkadot really arouses relatively large emotions in terms of inflation in the future, you can also adjust parameters through governance, such as reducing the inflation rate or increasing the burning rate. This is like the central bank raising interest rates Like interest rate cuts, moderate adjustments are made to meet the needs of ecological development. A static framework + dynamic fine-tuning is a more reasonable way of ecological development.
postscript
postscript
When we finished writing this article, Ethereum has burned thousands of ETH, reaching 30,000. This kind of data is like smelling meat on an empty stomach. This kind of imagination, and this is probably the so-called power of value, after all, we need to survive this fasting period.
But on the other hand, we have to face up to a problem. We don’t know what kind of difficulties and disputes there will be on the road of upgrading Ethereum to ETH2.0. After all, in the matter of old city renovation, Ethereum There is still a long way to go for the workshop, and of course, we will follow along with our best wishes.
As for the new city construction project like Polkadot, we still have more hopes, at least there is no hard fork (before the upgrade of London, people were still worried about the hard fork of Ethereum). This point is already gratifying. As for Ecological development, we believe that it does not happen overnight, and it needs to go through a period of incubation like Ethereum. As observers of the Polkadot ecology, we are also accompanying us and witnessing this long road together...
In view of the endless emergence of Polkadot ecological projects, but the inferior projects and scam projects are full of them, it is worthy of vigilance. On the other hand, it is difficult for groups only on the Polkadot project side to understand the whole picture of the entire ecological development of Polkadot, and miss many opportunities. Therefore, we decided to establish a Polkadot ecological group, which can openly discuss all Polkadot ecological projects. Everyone can objectively share their views on each project, understand the development of each Polkadot project, and exchange information to seize opportunities together.
*The information provided by the Polkadot Ecological Research Institute does not represent any investment hints. The published articles only represent personal opinions and are for reference only. Since there are no policies and regulations related to digital assets in China, users in mainland China are requested to pay close attention to the development of Crypto.
In view of the endless emergence of Polkadot ecological projects, but the inferior projects and scam projects are full of them, it is worthy of vigilance. On the other hand, it is difficult for groups only on the Polkadot project side to understand the whole picture of the entire ecological development of Polkadot, and miss many opportunities. Therefore, we decided to establish a Polkadot ecological group, which can openly discuss all Polkadot ecological projects. Everyone can objectively share their views on each project, understand the development of each Polkadot project, and exchange information to seize opportunities together.
