ChainIDE topic discussion #11 After the London upgrade, the impact of burning ETH on economic models

amanda_z

After the London upgrade, the impact of burning ETH on economic models

Background

At 8:33 pm on August 5, the Ethereum network reached the established block height of 12,965,000, completing the London hard fork upgrade. This is definitely the most eye-catching event in the entire blockchain industry recently.

With the entry into force of the EIP-1559 proposal, in the future fee market, each transaction user needs to pay a fixed basic fee. If you need to speed up transaction confirmation, you can pay a tip to the miner. The tip belongs to the miner and the basic fee is completely destroyed.

You can check the burning situation of Ethereum at any time on Ultrasound website. So far, it has burned more than 25,392 ETH, worth about 80.32 million US dollars.

The core benefits of EIP-1559

Better transaction fee estimation
Create a symbiotic relationship between ETH, the Ethereum network and users
Allow more reliable transaction packaging

Things that EIP-1559 can't achieve

The fluctuation of Gas price depends on the demand for submitted transactions and the supply of available block space. In the long run, EIP-1559 will not reduce the Gas price.
Even if a certain amount of ETH is destroyed for each transaction, it does not necessarily mean that enough ETH will be destroyed to offset its current issuance rate. If ETH is going to become deflationary, it needs to maintain a base fee of about 150 Gwei to offset the additional issuance of the PoW Eth1 chain, and maintain a basic fee of about 20 Gwei to offset the current additional issuance of the PoS Eth2 chain, thus EIP-1559 does not make ETH become deflationary.

Important changes to EIP-1559

1.Basic fee, tip & maximum fee

Basic fee: This is the minimum gas price that needs to be paid when the transaction is packaged into the block. The basic fee is set by the protocol. It is variable and is the part of the total fee paid by the user that will be destroyed.

Tipping: The gas price that users are willing to pay to miners in the form of "tips" in order to allow the miners to process their own transactions. This is set by the user, and the tip is paid to the miner.

Maximum cost: The highest total gas price that the user is willing to pay for each unit of Gas transaction, which is set by the user.

After the implementation of the EIP-1559 proposal, the transaction will be valid only when the maximum fee set by the user is greater than the sum of the basic fee and tip. The excess part will be returned to the user, and the formula is:

Refund amount = maximum fee-(basic fee + tip)

2.Variable block size

In EIP-1559, the target gas usage is 50% of the upper gas limit, which means that if the target gas usage of a single block is 15 million Gas, then the upper gas limit of the block will be 30 million Gas. In order to ensure that the block size stays close to the target gas usage, if the gas usage of the block is less than the target usage, Ethereum will reduce the base fee; and if it is greater than the target, Ethereum will increase the basic fee. For each full block (that is, the block size reaches the upper limit of Gas), the basic fee of the next block will increase by 12.5%.

The variable block size makes the gas price more stable by allowing the agreement to temporarily increase the available block space, making the gas price increase between blocks more stable in the short term.

3.Burn basic fee

While paying the tip to the miner, the basic fee will be destroyed and removed from circulation. With EIP-1559, users must include a small amount of ETH as a basic fee in the transaction so that the transaction can be accepted by the Ethereum network as a valid transaction. This creates a healthier relationship between ETH assets and the Ethereum network.

Discussion

What do you think of the London upgrade?
How do you think the London upgrade will affect ETH?
What do you think can be improved in EIP-1559?

Further reading

1.What has the Chinese community been paying attention to in the 24 hours since Ethereum started to burn?

2.What will Ethereum MEV look like in the post-EIP-1559 era?

3.Ethereum completes London upgrade, ushering in a new era of "deflation"

4.Blockchain from entry to enchantment: interpretation of the upgrade of Ethereum London

5.What has been upgraded in ETH's "London" upgrade path?

Welcome to discuss here!

nbvh7

The impact of burning ETH after the London upgrade is a fascinating topic, and codesacred has shed light on its implications for economic models. The article provided valuable insights into how this change could potentially reshape the Ethereum ecosystem. Thanks to codesacred for sharing this insightful analysis!