The Merge Continuation
A few months ago, we discussed the most important changes that the Ethereum Merge would bring and in fact delivered to the users. With this change, as you know, the most significant change was that the "old" Proof of Work was replaced by the Proof of Stake Protocol.
These are basically the most important changes that are possible now thanks to the Merge.
- Improved energy efficiency: PoS uses less energy compared to PoW, which is expected to significantly reduce Ethereum's carbon footprint.
- Increased scalability: The merge made the Ethereum network more scalable, as PoS can process more transactions per second compared to PoW.
- Enhanced security: PoS is designed to prevent 51% attacks, which are a significant concern with PoW consensus mechanisms.
- Changes to the mining ecosystem: The merge eliminated the need for miners, as PoS relies on validators who stake their ETH to secure the network.
- EIP-1559 integration: The upgrade included integration of EIP-1559, which introduced a new fee structure for Ethereum transactions, making the network more user-friendly.
From London to…
However, these changed had not been possible without the fork that occurred the year before. Back in 2021, this network change, also known as the London upgrade, made the following modifications in the Ethereum network.
- EIP-1559: This change introduced a new transaction pricing mechanism that aims to improve the predictability and transparency of Ethereum gas fees, which can often be unpredictable and volatile. It also burned a portion of the fees collected, which reduces the overall supply of Ethereum, potentially increasing its value.
- EIP-3198: This change reduces the gas cost of certain types of transactions, making them cheaper for users.
- EIP-3529: This change increased the difficulty of certain types of DDOS attacks that can slow down or crash the Ethereum network.
- EIP-3541: This change prepared the network for the upcoming Ethereum 2.0 upgrade, seen above, by removing certain features that will no longer be needed.
These implementations caused them to make the network more energy-efficient, secure, and scalable, while also changing the mining ecosystem and introducing new fee structures. However, as also announced in the Merge, this is not over, and the Ethereum Foundation never stops with the continuous improvements.
Having listed it several EIP, it may seem that there are no enhancements left for do in the Ethereum. Nonetheless, this is quite far from reality and if you to the Ethereum Improvement Proposals website you will see more and more suggestions.
Shanghai
So now, with all the background and knowing the most important changes occurred in the last 2 years explained, let's focus on the Shanghai upgrade.
5 New EIP Coming
Even if the Merge was the big upgrade, there are 5 EIP expected to come in a few weeks from now. When? It's expected that these changes may pop up around mid-March. However, based on the experience with previous integrations, it will not be surprising that this fork in the network is slightly delayed.
The upgrade of Ethereum, also known as the Ethereum Shanghai fork, will implement five Ethereum Improvement Proposals (EIPs), and compared to the previous forks, there are several changes related to the fees.
EIP-4895
Out of these five proposals, EIP-4895 is expected to receive the most attention. The upgrade will allow Ethereum investors to withdraw their staked ETH for the first time since December 2020. This lock was needed in order to use this as validation mechanism and protect the network.
Some of the fears that this had raised is that there may be a lot of withdrawals when this change becomes effective. However, because of some withdrawal caps and other rewards- higher staking -, it's unlikely that we will see massive withdrawals.
Link: https://eips.ethereum.org/EIPS/eip-4895
EIP-3855
At the moment, the EVM does not have a PUSH0 instruction, and the goal will be to reduce the gas consumption by introduction this instruction in the virtual machine.
Link: https://eips.ethereum.org/EIPS/eip-3855
EIP-3860
EIP-3860 is an extension of the old EIP-170 and seeks to lower transaction costs for developers when interacting with smart contracts.
Link: https://eips.ethereum.org/EIPS/eip-3860
EIP-3651
To execute transactions in the network, it is necessary to interact with the Coinbase machine – nothing to do with the Exchange - several times. The initial interaction requires a higher fee as the software needs to "warm up," but as interactions increase, fees decrease.
This proposal will ensure that the Coinbase software remains "warm", resulting in a reduced gas fee to access it.
Link: https://eips.ethereum.org/EIPS/eip-3651
EIP-6049
EIP-6049 is a notification mechanism to developers regarding code known as "SELFDESTRUCT that aims to reduce gas fees.
Link: https://eips.ethereum.org/EIPS/eip-6049
What after Shanghai?
These upgrades should improve network usage in DeFi and NFTs. Even the initiator of them, some detractors complained that high gas fees and slow transactions affected some of these ecosystems.
With these improvements, old and new projects may consider Ethereum more favorably, which was losing momentum to newer and chains with lower fees.
Greater flexibility in staking, better performance, and an increase in stakeholders could amplify the resulting network effect sand benefit all stakeholders (users, investors, etc.) in the long run.
The objective of these changes is not just to continue improving the Ethereum performance, but also try to reduce the churn of some DeFi or NFT projects to more affordable networks such as Polygon or Solana, like we have seen in marketplaces like OpenSea or other applications in the last years.
As consequences of part Blockchain Trilemma, Ethereum has been plagued with sluggish transactions and high fees, which became more evident during the decentralized finance boom a few years ago.
Furthermore, the popularity of non-fungible tokens (NFTs) and the trend of minting them in 2021 and early 2022 added to poor user experiences and high gas fees. These EIPs are mainly focused on this topic. Their aim to help mitigate these problems and convince users that Ethereum is the best network for the different projects and dApps.
As we have seen, this will not be the end, and this is just the follow-up to get a more scalable network. This will be achieved when features such sharding are included in the chain in a few months from now.
Achieving sharding will be crucial for enhancing transaction throughput on the chain by enabling "parallel processing." The implementation of sharding is expected to occur in two stages in 2023 and 2024.
Although small change compared to the PoW – PoS migration occurred in 2022, this upgrade makes sure that Ethereum, one of the oldest blockchains, keeps up good progress and for sure will convince old and new users of the chain.