Ethereum Blockchain Forked – What Happened?

Ethereum “London hard fork” activated on August 5, making it one of the major changes to the Blockchain over the past five years. The upgrade was to correct the volatile gas fees during transactions and to add other features to its mining. This is also to usher in the new PoS consensus model and phase off the PoW model. The London hard fork is the biggest phase for the Ethereum 2.0 update. The upgrade drove the price of the native token ETH to a new ATH.

Takeaway points

  • Ethereum hard fork activated introduces priority fees.
  • The hard fork is a major change to the blockchain.
  • Some gas fees will be burned and not rewarded to miners.
  • The EIPS implementations to usher in Ethereum 2.0.

Ethereum Scalability Problem- Why the Upgrade was Needed

Ethereum has faced scalability problems over the years. The most common issues range from high gas fees, slow processing transactions, to difficulty in implementing upgrades. A Gas fee is the core of the Ethereum project since it is the fee required for miners to run a transaction. Users pay them when interacting or executing a transaction on the Ethereum blockchain. High network congestions relative to the demand of a product skyrocket the network fees. According to Ethereum, transaction gas fees have outrageously risen as high as 5 ETH, and sometimes more than 10 ETH.

“On Ethereum, minimum fees are typically around 2 gwei (10^9 gwei = 1 ETH), but sometimes go up to 20-50 gwei and have even on one occasion gone up to over 200 gwei”

Ethereum as the first to integrate smart contracts to the blockchain network became a platform for the other enterprises to exchange value in the Blockchain. Smart contracts extended the possibilities of p2p interactions. With the smart contract, transactions happen automatically. However, this smart contract feature brought in an unprecedented surge in the use-case of the Ethereum blockchain, testing the strength of its capabilities.

Although Ethereum did not anticipate the high traffic, it has worked hard to implement an upgrade to the system. Last year, there was a massive exodus by Defi projects due to the high cost of processing gas fees. These created the necessities that underline the hard fork. A hard fork is an upgrade initiated in a blockchain to improve its scalability and transaction speed.

The EIPS

The Ethereum improvement proposals (EIPS) which is the hard fork in summary is “A transaction pricing mechanism that includes fixed-per-block network fee that is burned and dynamically expands/contracts block sizes to deal with transient congestion”

The old mining model gets miners bidding to process transactions like an auction. What the EIPS is offering is a base gas fee that is attached to the transaction flow and burned later. This is to correct the economics of inefficient mismatch of gas fees due to high volatility. In this model, mining fees will not go to Miners anymore, but a priority fee which is more like a tip from the user to the miner relative to the urgency of the transaction.

Why is it Important for Ethereum?

The survival of the Ethereum ecosystem and the DeFi projects launched on it depends on this upgrade. Furthermore, this upgrade is important for Ethereum because the high volatility of the gas fees is denying users the benefits of the network and needs to be solved. According to the EIPS report,

“An important aspect of this fee system is that miners only get to keep the priority fee. The base fee is always burned (i.e. it is destroyed by the protocol). This ensures that only ETH can ever be used to pay for transactions on Ethereum, cementing the economic value of ETH within the Ethereum platform and reducing risks associated with miner extractable value (MEV)”

Moreover, the competition is getting fierce. There are newer projects in the industry tackling the problem of the scalability of blockchains with hybrid solutions. Solutions combining both Proof-of-stake (PoS) and proof-of-History (PoH) consensus model. Blockchain networks like Solana and Cardano are making these innovations possible.

What Happens Now?

It is still uncertain if the gas fees will get cheaper. Since the upgrade also focuses on transaction speed and solving network congestion issues. The argument of the EIP in terms of gas fees is to make prices securely measurable, to prevent miners from exploiting the system. Not necessarily to make priority fees or gas fees cheaper. But this also spells a probable end of Ethereum mining if the 2.0 model becomes fully functional.

It is very obvious a boom is coming. This is because burning the gas fees protocol will increase the value of Ethereum’s native token ETH and will see a surge in users purchasing more for fear of missing out on the next biggest bull run after Bitcoin.

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