Ethereum London Hard Fork: Change Will Come to ETH Economic Model


Once the miner hits block #1296500, Ethereum will be forked. The block will be approximately arrived on August 05, 2021, while it is at block height 12,957,734 on August 04.

AEX will let you know: Which innovations make this hard fork different from others?

Why Does Ethereum Need to Hard Fork?

The Ethereum blockchain was founded by Vitalick Buterin and Charles Hoskinson in July 2015. It leaped to second in the digital currency market value after eight months of its launch, with an investment return rate of over 8100 fold, which has not been beyond by other chains so far. In public chain project, Ethereum chain asset has the most abundant categories and the richest DApp, aggregating out large ecosystem user group.

Nevertheless, there still remain multiple challenges to the thrones of the Ethereum public chain. Within the chain, crowded network and high Gas fees cause users with poor experience; Outside the chain, because of the impact of DAp ecological construction of EOS, NEO, Boca, and HECO, the new finance model represented by DeFi and NFT are held to higher standards of decentration expansibility of the public chain. Ethereum seeks a double breakthrough in technology evolution and economy model, and implement high-level iteration in ETH 2.0 version.

What Is Ethereum London Hard Fork

In 2021, Ethereum will have three hard forks, there is “Berlin” in April, “London” of this time, and “Shanghai” expected in October respectively. It’s important to point out that the hard fork caused by pure technology will not create new digital assets.

The aim of the London hard fork is to change Ethereum supply and demand as well as the existing return model of PoW miner. London hard fork mainly includes EIP-1559、EIP-3198 and EIP-3238. Among others, EIP-1559, the most attention, will change the entire Ethereum economy model.

The Change That EIP-1559 Will Take to Ethereum

The miner can make a profit from ming rewards and trading Gas fees at present. The scheme of Gas fees is an auction mechanism — “The more payment, The faster trading”, which causes users to need to exceed to estimate for a good experience.

EIP-1559 proposal, first advanced by Vitalik in 2018, changes dramatically the calculating formula of trading fees, forcing Ethereum miners to convert into supporting PoS. EIP-1559 proposal solve this question by carrying out the same fee rate for all trades as far as possible. The main strategies are as follows:

1.Base fee + inclusion fee, predictable charge fee

EIP-1559 will introduce a new concept — base fee. The base fee is dynamic and fluctuates based on the internet, but protocol puts a price on the base fee. So users know the fee in every transaction, rather than bidding without a destination for the trading, which makes transaction fees more reasonable and transparent.

In addition, another section of the new charge fee mechanism is the inclusion fee. If users hope to finish trading as far as possible. they can place their trading prior to others by spending an inclusion fee.

2.The Introduction of a destruction mechanism transforms ETH into deflation currency

In the EIP-1559 proposal, the transaction fees will no longer pay to miners but destruct immediately once payment. In this model, multiple Ethereum will be permanently vanished in every trading, with the circulation currency becoming fewer and more valuable. According to Coindesk, if EIP-1559 is upgraded, the transaction fee will consume away about 4% of the annual supply increment of Ethereum.

3.Block capacity mechanism cuts network congestion

EIP-1559 imports a target block capacity mechanism, which can stretch block based on the demand to cut Ethereum congestion. It includes: EIP-1559 adjust computing power in every block to keep block size within about 15 million Gas. If the network crowds, it will increase block capacity, on the contrary, reduce them, with every adjustment be 12.5%.

Which impacts will Ethereum bring?

Now, Exchanges including AEX have ready for the “London hard fork”. We will guarantee users’ asset safety.

With the innovation of the economic model, the entire Ethereum miners will be lowered yield in the short term, but the revenue in another model will be increased(such as AEX Saving, DeFi pool). In the long term, users can get the revenue through pledging, with an increasing number participating in chain Defi projects.

The certainty and predictability of transaction fees lower the cost that users participate in Ethereum DApp eco-application, which provides a favorable position for ETH. At the same time, the scarcity of deflation and DeFi lock-up could increase ETH value again.

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