Ethereum 2.0 This Year?

By July 27, 2021Ethereum
Click here to view original web page at medium.com

Reddit announced that they have chosen Arbitrum to help them launch their layer 2 scaling solution for their Ethereum-based community points system.

For those unfamiliar, Reddit’s community point system seeks to incentivize quality discussion on its various subreddits by rewarding users with ERC20 tokens belonging to that subreddits community.

The feature was initially rolled out last May in a limited format with community points only being available on r/cryptocurrency and r/FortNiteBR.

These community points can of course be traded on decentralized exchanges, but claiming, transferring and trading tokens can cost quite a bit of gas because of Ethereum.

Like Ethereum’s Optimism Arbitrum uses optimistic roll-ups to batch multiple Ethereum transactions into one to increase transaction speeds and save on gas fees.

Also like Optimism, Arbitrum currently does not have a token though this is sort of irrelevant given that Reddit is building its own custom layer 2 with the help of off-chain labs, the company behind the Arbitrum blockchain.

Reddit’s layer 2 is already in its testing stage, meaning we should see it go live sometime in August. It wouldn’t surprise me at all if it just so happened to overlap with Ethereum’s EIP-1559 upgrade scheduled for August 4th.

Now on that note, Ethereum’s development team recently revealed the next Ethereum improvement proposal numbered 3675 on Ethereum’s GitHub page.

EIP-3675 concerns Ethereum’s transition from Proof of Work to Proof of Stake something which was originally scheduled to take place at the tail end of the Ethereum 2.0 roadmap.

According to Ethereum’s top devs, this roadmap reordering happened because there have been quote no safety nor liveness features detected since ETH 2.0 staking began in December last year. In plain English, everything is going smoothly.

Now, if Ethereum’s proof of stake stability continues we could theoretically see Ethereum transition to Proof of Stake by December. Though Ethereum founder Vitalik Buterin believes this is very unlikely.

Now, if you want to get my most recent Ethereum analysis you can find it on my recent Medium post below.

Ethereum Gas Fees

One of the huge changes coming in EIP 1559 is the way that fees are paid. Right now, you can see the gas fees are payments made by users to compensate for the computing energy required to process and validate transactions on Ethereum.

Essentially, if you want to send money, then you have to pay to do that. Any of us that have used DeFi and Ethereum DeFi in the past know that fees on Ethereum or a thorny issue.

“During periods of very high demand the blockchain for several reasons, just cannot cope with this and so you essentially have to bid a lot more for your fees. Currently, demand is down a little and you can see that fees are actually fairly competitive 44 cents, which isn’t expensive. However, these fees can go up to 10, 20, 50, even $100. If you want to trade five hundred dollars and pay $100 in fees, this is completely unacceptable.

What is going to be a game-changer for Ethereum users? And also investors who love certainty is the EIP 1559 would replace Ethereum’s auction system of users bidding for a block space and change that into the protocol itself actually deciding what the gas price should be.”

“EIP 1559 will introduce a base fee. This is dynamic and it will change based on the network usage. But the protocol itself will decide this and let users know how much they need to pay rather than users just simply blindly bidding for their transaction to go through, randomly guessing an amount they have to pay based on useful websites like Etherscan, and make fees much more reliable and transparent.

Instead of users bidding and hoping that their transaction goes through, the Ethereum blockchain itself will now change how much computing power can go into a block aiming for around 15 million gas per block. But that may go down or up depending on network usage.”

Given each increase or decrease, the protocol will either increase or decrease the amount of gas by about 12.5%.

There is something also called an inclusion fee. So, if users do want to get their transaction performed before other people, they can do this and we can think of the inclusion fee essentially as a tip to the miner to put their transaction before other people.

“Crucially, however, EIP 1559 doesn’t change the scaling of the network and so fees can potentially continue to be extremely high during periods of high demand. On Etherscan we can see the history of its Ethereun gas fees. And you can see that when there are periods of extremely high demand, the gas fee will go up accordingly. When usage drops, so does the gas fee and the less we pay for transactions.

What does this all mean for users and investors though? Having a network without reliable and predictable fees is just simply not a long-term solution. They will be reduced over time given other upgrades to the network such as scaling, zk Roll-Ups so that is coming, but this is an extremely important first step.

Next, we have the burn mechanism that will now be included as an upgrade as well.”

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