Ethereum London Upgrade Imminent, ETH2.0 Progressing Steadily: Can the Full PoS Era Arrive as Scheduled?
On July 15, the Ethereum Foundation finally released the latest plan regarding the London upgrade. Given that all client teams currently have essentially no objection to the mainnet upgrade timeline, and in the absence of any major security issues, the Ethereum mainnet will undergo the London upgrade when the block height reaches 12,965,000. Based on the current Ethereum network's block production rate, the upgrade is estimated to officially begin after approximately 21:00 on August 4 (Hong Kong time).
What Impacts Might the Ethereum London Upgrade Bring?
First, let's review what the Ethereum London upgrade is. In the article "Ethereum London Upgrade to Deploy These 5 EIPs, Which One Are You Bullish On?" published on June 16, we provided a detailed introduction to its background and the five important proposals included in this upgrade—EIP-1559, EIP-3198, EIP-3554, EIP-3541, and EIP-3529—so we won't focus on them in this article. Next, we'll examine the historical stage of the London upgrade and its potential impacts from a higher perspective based on the four development stages of Ethereum's roadmap: Frontier, Homestead, Metropolis, and Serenity.
Looking back on the development history of blockchain technology, it's not difficult to see that although cryptography, distributed storage, consensus mechanisms, and other important underlying technologies that constitute blockchain have been studied in academia for decades, blockchain technology as an independent technical discipline is just over a decade old. It wasn't until Satoshi Nakamoto's genius-like perfect integration of the above multiple technologies through Bitcoin that people began to believe that there could indeed be such a method to build a distributed database. As an imitator and improver of Bitcoin, Ethereum's development history is much shorter. It wasn't until July 2015, after undergoing a total of 9 stress tests over several months, that the Ethereum mainnet finally went live, marking the beginning of the Frontier era. However, early Ethereum only supported developers to mine ETH , develop dApps, and some simple tools on it. At best, it could be considered a "usable" blockchain , still quite far from today's grand scale. Therefore, after "Frontier," the Ethereum development team successively completed the "Homestead" and "Metropolis" upgrades, driving continuous progress in Ethereum network performance and ecosystem. "Metropolis" was launched in two phases: Byzantium (October 2017) and Constantinople (January 2019). The primary purpose of these upgrades was to make Ethereum lighter, faster, and more secure.
Ethereum's major fork upgrades in recent years, source: internet
With the full completion of the Constantinople upgrade this February, Ethereum has arrived at the doorstep of "Serenity" (also known as ETH2.0). If everything goes according to plan, after a series of hard forks and phased upgrades, we should soon be able to see a brand-new Ethereum. From a historical perspective, the London upgrade scheduled for early next month and the Shanghai upgrade following it恰好 fall at this critical historical moment.
The core philosophy of the current Ethereum upgrade is actually consistent with the theme of "lighter, faster, and more secure" from the Constantinople upgrade, as evidenced by the five improvement proposals adopted in the London upgrade, especially EIP-1559. Therefore, when discussing the potential impacts of this Ethereum London upgrade, EIP-1559 is an unavoidable focal point.
EIP-1559 was first proposed in April 2019 by core developers including Vitalik Buterin. It's essentially a solution regarding Ethereum network transaction pricing mechanisms. It includes a fixed base fee per block (i.e., the base fee) that will be burned, meaning miners won't receive this fee. It also features a dynamic elastic block size design to handle instantaneous network congestion. Once EIP-1559 is deployed, it will produce at least the following three impacts: First, for most ordinary traders, on-chain transaction fees and congestion times during peak periods will likely both decrease.
Second, for Ethereum miners, their ETH fee income from mining will likely decrease in the short term, but if calculated from a long-term perspective, there may be different findings regarding miners' overall returns. We know that current Ethereum miner revenue comes from three main sources: block rewards, transaction fees, and MEV (Miner Extractable Value). The subtlety lies in MEV. According to statistics, since January 2020, cumulative MEV has approached $800 million, a very substantial figure. Driven by profit, many arbitrageurs or liquidators closely monitor opportunities in the network. For example, after a large transaction causes price slippage, a $10,000 arbitrage opportunity appears on Uniswap. At this point, arbitrage bots will notice this opportunity and submit a transaction to capture it, immediately submitting an arbitrage transaction to miners with a $10 transaction fee. At this time, whether or not other arbitrage bots compete with it, miners can ultimately reap a significant return. Moreover, based on current trends, the proportion of base fees may become increasingly smaller, while the MEV component may have good room for growth, which could be considered a case of losing one thing but gaining another.
Finally, regarding the impact on the Ethereum network, improvements to the transaction fee mechanism may to some extent alleviate network congestion during peak transaction periods and improve transaction efficiency. The most direct effect is that after EIP-1559 is activated, the burned portion of base fees will cause a reduction in Ethereum's circulating supply. If the amount of burned ETH is sufficient to completely offset daily new issuance, it would be enough to shift Ethereum into a deflationary economic model. However, based on previous transaction activity, this would require very high on-chain transaction activity. Even if we take a step back, if the burned base fees can offset part of the newly issued ETH , it would also reduce the inflation rate to some extent. From an economic perspective, this is favorable for ETH's long-term price outlook. From an underlying logic perspective, Ethereum at that time would be very similar to Bitcoin.
How Is ETH2.0 Progressing?
In the previous section, we mentioned that Ethereum's development roadmap plans for a total of four stages. An important task in entering the fourth stage "Serenity" is the full launch of the ETH2.0 upgrade, which will bring the long-awaited PoS consensus, using the Casper consensus algorithm. All these updates will help Ethereum scale, increase Ethereum transaction speeds, and reduce transaction fees. Since the launch of ETH2.0 Phase 0 in December 2020, nearly 9 months have passed. So how is ETH2.0 progressing now?
First, let's look at the total amount of ETH staked in ETH2.0. According to rules published by the Ethereum community, to become an ETH2.0 validator, one must stake at least 32 ETH. Therefore, this data can be seen as a key indicator measuring the strength of ETH2.0 consensus.
According to OK Link statistics, the current total ETH2.0 staking has reached 6.4185 million ETH, accounting for 5.5% of ETH's total circulating supply (117 million). Based on the latest ETH price on the OKX platform, the total staking value exceeds $15 billion.
ETH2.0 total staking changes, source: OK Link
Additionally, looking at the change in total ETH2.0 validators, even during three consecutive months of unfavorable market conditions, the number of participants in ETH2.0 staking validation has continued to increase, even showing a slightly accelerated upward trend. According to OK Link statistics, as of Hong Kong time July 25, 2021, the number of Ethereum 2.0 validators has exceeded 200,000, reaching 200,201.
ETH2.0 total validator changes, source: OK Link
After reviewing the data, let's return to ETH2.0 development progress. According to estimates from core members of the Ethereum community, after the next Shanghai hard fork is implemented, the merger of Ethereum 1.X and the Beacon Chain is expected to be achieved. Meanwhile, another important proposal in this London upgrade—EIP-3554—delays the difficulty bomb so it can be implemented when the Beacon Chain's PoS consensus mechanism is fully ready, to encourage miners to abandon the PoW chain.
The key information of the EIP-3554 proposal is to delay the difficulty bomb until December 2021. In other words, if everything goes smoothly, we could see Ethereum transition from the PoW era to the PoS era as early as the end of this year. Of course, if unexpected events occur during this period, such as security issues or major community disagreements, this timeline will likely be delayed. In Ethereum's development history, "unexpected events" seem to have been more common than "on-time" occurrences. But jokes aside, expectations for Ethereum 2.0 won't be diminished because of this.
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