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Since its launch in July 2015, Ethereum has grown exponentially to be the second leading cryptocurrency in market value after Bitcoin. The platform’s growth has primarily been attributed to its smart contract feature, which powers the deployment of a wide range of applications, including oracles, decentralized finance (DeFi), decentralized exchanges (DApps), marketplaces, crypto-collectibles (NFTs), and developer tools.
Despite its growth, Ethereum faces numerous challenges that hinder its usability. The scalability challenge is one of the biggest ones that Ethereum faces. The current state makes increases transaction fees and creates lengthy transaction delays. Ethereum’s scalability problem has worsened in recent months owing to a surge in NFTs and the explosive growth of DeFi platforms on the Ethereum platform.
To solve the challenges facing Ethereum, the community has proposed several changes to the network. These proposals are Ethereum Improvement Proposals (EIPs) and can be created by anyone within the Ethereum community, following a set of guidelines. The London Fork consists of five EIPs, and it is the latest upgrade on the Ethereum blockchain. More so, it aims to solve the scalability issue by simplifying payments of transaction fees.
Part of the upgrade, which occurred on 5th August 2021, involves burning the ETH transaction fees. This should remove them from the circulating supply and, subsequently lower the network’s inflation rate. Here’s a look at how much Ether has burned so far following the upgrade!
The London Fork Upgrade
Ethereum has a long-standing scalability problem, which has worsened in recent months. That’s due to the exponential growth of applications built on the platform. As the scalability problem becomes more intense, estimating the optimal gas fees becomes more difficult. Users have to put up with unexpected delays as well as high transaction fees.
Before the EIP-1559 upgrade, Ethereum was using a simple auction mechanism to estimate transaction fees. In this system, users must bid for how much gas they were willing to pay miners to add their transactions to the next block. Usually, miners would select transactions with higher gas prices and leave transactions with low gas prices pending. This auction mechanism caused some users to overpay by up to 5x to have their transactions confirmed.
The simple auction price mechanism failed to offer proper cost pricing. Additionally, it caused a considerable divergence of transaction fees that different users paid in a single block. It assumed that the optimal level of usage was the same regardless of ETH demand.
EIP-1559 in a Nutshell
Vitalik Buterin proposed the EIP-1559 in 2018 to solve how the open auction mechanism determines the gas price. The EIP-1559 proposal focuses on designing a BASEFEE that the protocol can adjust in case of network congestion. The network capacity should increase to 16 million gas to accommodate this model. This way, the 50% network utilization matches the 8 million gas limit. When the network is above 50% capacity, the BASEFEE increases slightly and decreases below 50%. Since the network increments are finite, the maximum difference in BASEFEE from block to block is predictable.
In this system, complex algorithms determine the fee by analyzing the network demand. In addition to the BASEFEE amount, users can tip miners with a small amount. A user can include more extensive information during high network usage to ensure fast transaction confirmation. The London fork consisted of EIP-1559 and four other Ethereum Improvement Proposals.
Changes Fomented by the London Fork
The London Fork brings several changes to the Ethereum ecosystem. To begin with, the Fork eliminated the open auction mechanism to determine gas fees, i.e., Gwei. Following the upgrade, the Ethereum network ceased holding a blind auction on every block to determine the gas price. Instead, Ethereuem’s protocol algorithmically defines the transaction fee (BASEFEE) depending on the overall demand on the platform.
Having the network decide on a uniform gas price using an automated bidding system goes at extraordinary lengths. It would prevent discrepancies in transaction fees and the exploitation of users. However, it doesn’t necessarily mean that the gas fee prices will decrease. The BASE FEE system ensures accurate and fair gas fee predictions by automating the fee bidding system.
The London Fork also doubled the block size, meaning each block can now perform twice the number of transactions. The upgrade helped stabilize gas fees by rooting out sudden spikes in demand by doubling the block size.
Another change that the London Fork brought is the burning of a part of every. The Fork consists of five Ethereum Improvements Proposals (EIPs), including EIP-1559 and EIP-3554.
These proposals bring several changes to the Ethereum ecosystem. Notably, the transaction fee. This should reduce the supply of ETH and possibly enhance its price.
Burning is sort of a deflationary mechanism to reduce the supply of Ether and increase its value. However, experts claim that the London Fork won’t make Ether deflationary. That’s because the number of transaction fees burnt would never outdo network inflation. Nonetheless, removing the coins from the circulating supply would significantly help reduce the network’s inflation rate.
How Many ETH Coins are expected to be burned after the London Fork?
Currently, 273438.4 ETH at a value of $908,434,898.34 has been burned-according the block explorer Etherchain’s burn tracker. The current burn rate is at 3.82 ETH/min, equivalent to $12 749.32/min. There’s no definite answer to this regarding the number of ETH coins that should burn following the London Fork. This depends on the burn rate.
At the current burn rate of 3.82 ETH/min, roughly 5 500 ETH should burn every day. Note that the burn rate isn’t permanent. Also, it is likely to decrease once the blocks become smaller. The burn rate is also dependent on the network demand.
The London Fork is one of the most significant upgrades in Ethereum’s history. The automation of the gas fee bidding system brings the possibility of tipping miners. Also, it enables burning a part of the transaction fee to decrease the supply of Ether and enhance its value.
Following the Fork on 6th August 2021, 273438.4 ETH ($908,434,898.34) burned, causing the value of Ether to increase by 9%. The Ethereum network has also become more scalable and efficient with faster transaction speeds and lower gas fee volatility.
The London Fork is just one of the upcoming improvements on the Ethereum ecosystem. The network plans to migrate from the Proof of Work (PoW) model to the PoS (PoS) consensus mechanism, i.e., Ethereum 2.0, in early 2022. Take note that the London hard Fork changes are all temporary until the permanent Ethereum 2.0 update.