London Hard Fork and the Consequences

by baaaawz

The London hard fork took place on August 5, 2021 on the 12,965,000th block of Ethereum (ETH). Vitalik Buterin explains the consequences of the London hard fork and why there is a conflict between the price and quantity of gas.

London Hard Fork: More Gas, Same Rates

Vitalik Buterin mentioned in a Reddit post he made on August 15, 2021 that Ethereum would have increased capacity by approximately 9% as a result of the London hard fork.

Moreover, the average amount of Ethereum used each day has increased from 92 billion units to over 100 billion after the London hard fork. However, there has been no reduction in gas prices, which remain high on Ethereum despite the increase in capacity.

The following paragraphs explain why Vitalik Buterin attributes Ethereum’s 9% increase in power to three distinct factors.

The London Hard Fork delayed the Ice Age

This term describes the gradual freezing of mining until block publishing time on the Ethereum network becomes so long that it almost fails. Mining complexity is artificially increased exponentially every 100,000 blocks by a complexity bomb.

In the period prior to the London update, the average block publishing time was around 13.5 seconds; after the London hard fork, it returned to about 13.1 seconds, its long-term average. These two block times differ by about 3%, which corresponds to a 3% increase in Ethereum’s total capacity.

Two Percent of the Blocks in London are Empty

The maximum amount of gas that a block could use before the London hard fork was 15 million. There was however a discrepancy in mining because miners did not exhaust the whole gas supply, i.e., there was simply not enough room to store a single transaction in the remaining space.

According to a study from April 2021, 2% of ETH blocks are empty. The unused space prior to London hard fork was estimated to be between 2-3%. After the upgrade, if the average amount of gas used, including empty gas, is below 15 million, “the base fee will be reduced until the average returns to 15 million.” As a result of this mechanism, grid capacity is increased by approximately 2 to 3 percent.

The Base Charge Adjustment is Flawed

Due to the complex relationship between arithmetic and geometric averages for block size and charge, the EIP-1559 formula for burning 50% gas charge lacks accuracy.

A block filled at 0% reduces the base charge by 12.5% (multiplies it by 7/8). A block filled at 100% increases the base charge by 12.5% (multiplied by 9/8). So what happens if a full block of 0% is followed by a full block of 100%? The base fee is multiplied by 63/64.

In order for the base fee to remain constant, the average block occupancy must be just below 50%. However, the data show that over the most recent observation period, blocks are filled at an average of 51.5%, i.e., 3% above the theoretical 50%.

Because of this, Ethereum 2.0’s gradual rollout may bring some surprises to the gas side. As planned, some of the ETH transaction fees were burned off.

According to a former Goldman Sachs executive, Ethereum is more interesting in terms of trading setups due to its deflationary nature as opposed to Bitcoin (BTC), the most market-capitalized cryptocurrency.

As we near the end of August 2021, it is hard not to see how Ethereum’s future is both technologically and economically promising. It’s a great time to get Ethereum before the price of Ethereum goes up and you miss the chance to make a profit. We have a guide on How to buy Ethereum on Binance to help you get started quickly.

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