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As Ethereum price continues to make significant gains over the $4K threshold, the London hard fork moved the whole ecosystem into a step closer to the ETH 2.0 alongside a positive Ethereum community reaction, either the Ethereum miners, hodlers or developers. Today 5th November 2021, marking 3 months since the deployment of the London Upgrade, I believe it is safe enough to make a review of what we know so far after taking into consideration a relevant article on Cointelegraph by ANIRUDH TIWARI with title "Ethereum’s London hard fork sets ETH on a more deflationary path
London hard fork (Upgrade) of Ethereum got triggered EXACTLY at 12:33 pm UTC on 5th August 2021 at the block height of 12,965,000 reaching a new benchmark towards the transition to Ethereum 2.0 that aims a complete proof-of-stake (PoS) blockchain operation for the Ethereum ecosystem. In fact, the London upgrade is the penultimate main step on the way to the final transition to PoS scheduled sometime in early 2022 and along with the highly anticipated Ethereum Improvement Proposal (EIP-1559, the London Upgrade brings four more EIPs to the network, EIP-3554, EIP-3541, EIP-3198 and EIP-3529. However, apart from being a step forward to Ethereum 2.0, the upgrade brought into discussion 2 main features; The Ethereum Burning Mechanism and the The Gas Price Reduction Fiasco.
The Ethereum Burning Mechanism & the Deflationary character of Ethereum
At the beginning of its deployment and according to the Ethereum white paper, the Ethereum ecosystem was a PoW blockchain with unlimited circulation supply contrary to the limited circulation supply of bitcoin in 21 million and as a result it received numerous criticism from investors for an inflationary character. As a result, the transaction fees would have been sent directly to the ethereum miners as a mining reward with bidding characteristics for operating ethereum transaction verification nodes.
EIP-1559 was formally proposed by Ethereum co-creator Vitalik Buterin, EthHub co-founder Eric Conner, and a some Ethereum core developers in April 2019 stating that a management of the transaction fees on the blockchain through a burning mechanism similar to the one of Binance’s BNB token in the BINANCE Smart Chain ecosystem would have been essential to keep the maximum circulation supply controlled in specific levels shifting to a more deflationary characterisation of the ethereum blockchain.
Therefore in the London Upgrade, the initial Ethereum PoW pricing mechanism has been replaces by a "burning" mechanism that introduced a fixed-per-block network fee that is destined to be burned instead, providing a zero revenue from transaction fees for the miners as a compensation for operating Ethereum nodes marking an attempt for the Ethereum ecosystem to move to a more deflationary character. However, in order to compensate the burning mechanism as a loss of revenue for the miners, The EIP-1559 also added the concept of a “tip” to the transaction pricing mechanism which can be anticipated as a priority fee so that applications and users can choose to pay a little bit extra if they want their transaction to be prioritized by the network incentivising miners to retain their Ethereum mining operation instead of discontinuing their nodes.
Initially miners reacted negatively on the introduction of the burning mechanism by denying complying with the upgrade. However, soon they realised that their defiance would have only a negative effect on their mining operations. When i first checked ethernodes.org/london during the first days after the London Upgrade deployment, 40% of the Ethereum nodes haven't upgraded and there were fears that the upgrade would have lead to a new blockchain but when I started writing this article during mid-October only 10 nodes (0.9%) kept resisting and deny to sync with the London upgrade. Among those, there were 1/553 geth, 2/2 besu and 1/1 bor nodes.
- Percentage of London Upgrade nodes on mid-October
Surprisingly, exactly 3 months after the introduction of the London upgrade, only 2 (0.2%) nethermind nodes have been left resisting the London Upgrade.
- Percentage of London Upgrade nodes on 5th November
Kent Barton, head of research and development of SHAPESHIFT discussed the impact of EIP-1559 on the dynamics of the mining community with Cointelegraph as follows:
“The reduced miner profitability of 1559 led to some initial opposition from that part of the Ethereum ecosystem. However, there was no realistic alternative, 1559 had wide support from the rest of the community. The miners decided to abandon their opposing stance, as a contentious hard fork. In addition to being an unpopular reaction, it would have also triggered a pullback for the price of ETH, ultimately going against their own interests. In fact, in response to the reduction in direct revenue miners earn, several mining pools have begun to resort to Miner Extractable Value (MEV) solutions to push their net revenues."
On the following charts from https://etherchain.org/charts that show the daily fee mining reward, the evolution of the total daily mining reward, and the number of distinct miners per day, the sharp fall of the mining rewards of Ethereum miners is very characteristic although the number of distinct miners per day remain stable since 2017 but under the 100 miners per day.
Interestingly, since the deployment of the London Upgrade, there is a sharp decrease on the average utilization of Ethereum blocks from 100% to 50% but the evolution of the daily block mining reward shows to remain almost stable since 2019!
According to ethernodes.org/burn, the current amount of Ethereum reward burned until today 5th November 2021 and 3 months since the introduction of the London Upgrade, is 769516.0 ETH$3,514,756,412,22, which on a burning rate of 8.59 eth/min over 24 hours, providing a more “deflationary asset” characterisation for the Ethereum’s native token.
However according to Justin Drake of the Ethereum Foundation, the London Upgrade doesn’t really make ethereum a deflationary asset at all as in fact it simply reduces the rate it is being currently inflating and he believes that ethereum will still remain inflationary even when the transition to Ethereum 2.0 will be completed! The above opinion has been shaped after he performed a model estimation dated on 29th August 2021, providing that as a “best guess,” there will be 1,000 ETH issued per day and 6,000 ETH burned in the same period. His model assumes that if more validators join and the staking annual percentage returns is 6% (APR)/yield, the annual decrease in supply will be 1.6 million Ether tokens and therefore the annual supply rate for the asset will be reduced to 1.4%. This model confirms that the token would still be an inflationary asset, but with higher deflationary pressure on it.
As an evidence of Justin Drake hypothesis, the following chart from https://etherchain.org/charts, that shows the evolution of Total Ether Supply provides that the total ether supply is being indeed increasing even after the activation of the burning mechanism on 5th August 2021!
The Gas Price Reduction Fiasco
Apart from the introduction of the burning mechanism in an attempt to provide a deflationary character to Ethereum ecosystem, the main aim of the London upgrade through EIP-1559 was to curb the issue of high gas fees that had plagued the network since Q4 2020 and most of 2021 due to the significant rise of the demand of transactions executed and the wider Ethereum-based Non-Fungible-Tokens interest, so miners decided to raise the gas fees in order to prioritise the execution of the transactions to the higher bidders. According to https://etherscan.io/chart/avg-txfee-usd, the lowest average transaction fee of $0.00072 took place on Wednesday, October 21, 2015 and the highest average transaction fee of on Tuesday, May 11, 2021. In my previous article back on May 2021, with title My FORTH Tokens Claiming Adventure, I expressed my agony on the high gas fees that prevented me to claim my airdropped FORTH tokens and my anticipation towards the Ethereum London Upgrade hoping it will result in a significant reduction of Ethereum gas fees.
However, what has been obvious anymore, 3 months after the introduction of the Ethereum London Upgrade is that the main mechanism of reducing the high gas fees is at no means a "discount" mechanism but according to https://legacy.ethgasstation.info/blog/eip-1559/ a much more controlled prediction of the transaction gas fees price mitigating the previously existing uncertainly around gas fees and Ethereum transaction times by allowing blocks to become 200% full i.e. being filled up with transaction contracts unconditionally the current ethereum gas limit. This extra flexibility it is believed to have provided to Ethereum blockchain a better capacity to support transaction demand, leading to shorter transaction wait times and much clearer gas price estimations.
Nevertheless, although the crypto world were expecting a significant immediate reduce of gas fees and a huge enthusiasm was initially spread into the Ethereum users, since the London upgrade was triggered, the gas fees have also shown a spike upwards instead, with the gas prices initially risen 44% from the pre-upgrade levels of 45.77 Gwei on 4th Aug. 2021 to 65.22 Gwei on 10th Aug. 2021 according to the above chart from https://etherscan.io/chart/gasprice that shows the average gas price since thge deployment of the Ethereum MainNet.
And in fact, this particular initial spike in gas fees and the consequent spikes in the following months and possibly even after the deployment of the ETH 2.0, have been justified by the ethereum community as the result of an increased network congestion that the price action of the asset and the upgrade itself attracted and certainly they are much lower than the gas fees the Ethereum network have been charging back in May 2021 when it was the last time ETH traded at its current price range and so far they have been remained under 200 Gwei. For some Ethereum whale users and applications, this is an acceptable threshold, however for the majority of ordinary ethereum micro-users who are transacting small amounts of Ethereum and Ethereum-based tokens on Ethereum ecosystem such as the DeFi and Ethereum-based applications and games, the threshold of 200 Gwei is still not affordable and they prefer to transact on the Binance Smart Chain where gas fees are still kept in low levels. ? have described my agony about the gas fees price on my article "How I invested my #SwapSpaceExplained reward" and even PUBLISH0X faced a similar problem with the on-chain payments on 6th September 2021 due to high gas fees although the London Upgrade had been already implemented.
Eventually, on 13th October 2021, Justin Drake of the Ethereum Foundation tweeted the estimations of the thresholds of base gas price distribution to an average gas price of 77 Gwei and an "ultra sound barrier" of 27 Gwei which appeared to be more affordable for micro Ethereum users.
As it is shown on the following chart from https://ethereumprice.org/gas/, a more recent spike also took place on November 2nd rising the gas fees temporarily over 350 gwei before it was again normalized under 150 gwei, much higher than the 77 gwei that Justin Drake promised but significantly lower than the pre London upgrade period. However, from my point of view as an ordinary micro-hodler and Ethereum DeFi user and taking into account the current price of Ethereum over $4K, the only difference between the pre London Upgrade period and the post London Upgrade period is that these increased gas fees are now burned instead of going to the miners, leading to a more deflationary ecosystem as mentioned (On Part 1) above and no significant reduce of the gas fees comparable to the levels of the Binance Smart Chain low gas fees can be foreseen on the future even after the full deployment of Ethereum 2.0. And the main question that has remained unanswered is this: How often are we going to experience spikes like these?
The Ethereum 2.0 Roadmap
Almost one year since the initial Deposit Contract was deployed on 14th October 2020 and the launch of the Beacon Chain on 1st December 2020, the next step after the London Upgrade for Ethereum Blockchain would be the final merge to the proof-of-stake mechanism which according to the official roadmap will take sometime between the late 2021 and the early 2022 depending the success of the London Upgrade deployment.
Ben Edgington aka benjaminion.eth, Lead Product Owner of the ConsenSys Quorum Protocol Engineering commented on Cointelegraph:
“likely to happen in early 2022 and some analysts are expecting the staking payouts will be more than double to $20 billion soon and they will be double again to hit $40 billion by 2025."
The Great Greek "London Upgrade" debate
The Crypto community would have expected that the celebration for the deployment of the London Upgrade would have taken place in London and possibly somewhere on the International Financial & Banking borough of Canary Wharf and etherstake actually launched an online streaming party on youtube.
Yet, a recent tweet from Ben Edgington aka benjaminion.eth, Lead Product Owner of the ConsenSys Quorum Protocol Engineering that has been also retweeted from the Ethereum Foundation official twitter account, revealed some Greek Easter Eggs for the location of the celebration of Ethereum 2.0 merge Interop devnet that took place on 8th October 2021. The photos are actually showing deployment of the first Ethereum 2.0 merge Interop devnet blocks and Vitalik Buterin with a classical Russian smile on his face celebrating among Ethereum developers and even possibly Satoshi Nakamoto.
The same pictures were also uploaded by Elizabeth Mathew, Executive director of Consensys on Linkedin. Personally I don't really believe that the REAL Vitalik Buterin was present in the workshop because from the following tweet-photo it is obvious that he had been photoshopped and only his virtual avatar was present in the photo or the photo was taken with a 1 GigaPixel camera.
However, after a relevant post by Jon Vlachogiannis self-introduced on Linkedin as Angel Investor, Entrepreneur and King of the Metaverse, a huge debate emerged in the Greek Crypto Community on Linkedin whether the celebration took actually place in Greece in the lobby of a Grecotel hotel due to the brand of the Greek mineral water KORPI and the logo "Grecotel" on the cup coasters that were revealed on the Ben Edgington's photo demonstrating their Greek Proud for the hosting of the event.
Another Greek Easter Egg, is found on the official Ethereum Foundation blog as the on the article with title "Amphora: A Major Merge Milestone" where Tim Beiko narrates While Rayonism proved that this was a sound architecture, there were still several things left to design, implement and test, including the actual proof of work (PoW) to proof of stake (PoS) transition. To do so, client teams met face to face last week (analogous to the Eth2 Interop from 2019) for a workshop named Amphora. In fact the header of the article shows Acropole on the background within the ETH 2.0 ecosystem providing the the workshop took place in Athens, Greece!
Disclaimer: All information found on this article is for informational purposes only. I do not provide any personal investment advice so please make your own research before proceeding to any investment/trading actions
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