Ethereum Burns 36% of New Coin Issuance Over 2 Days
Since the activation of Ethereum Improvement Proposal (EIP) 1559, the network has removed from circulation, or “burned,” over 5,000 ETH, worth roughly $14 million. This represents 36% of total new coin issuance over the same time period.
Average fees on Ethereum have increased slightly since the upgrade went live on Thursday at 12:33 (UTC), rising from 0.003 ETH to 0.005 ETH. In addition block sizes, measured on Ethereum in units of gas, have been trending as anticipated toward the block gas target of 15 million gas.
At first glance, EIP 1559 seems to be working effectively, burning fees and pricing block space on Ethereum dynamically so that block sizes on average hit a healthy target. However, upon closer examination, there is evidence that EIP 1559 may not be so effective in its main aim to make fees on the network more predictable for users.
Block size variation
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Under EIP 1559, blocks being mined on Ethereum oscillate dramatically from being 100% full to empty. The reason for this, according to Tim Beiko, thechair of the bi-weekly All Core Developers meeting, is because the pool of transactions eligible to be included in a block gets smaller and larger depending on the minimum fee, or “base fee,” decided by the network.
“Say you have a block that raises the base fee because it’s full,” said Beiko in an interview with CoinDesk. “It’s possible that by the time the next block shows up, there’s just not been that many new transactions who are willing to pay this higher price.”
Pseudonymous Ethereum user “Face Shaver” called this a “misalignment of incentives” that can lead to a number of problems, first and foremost being a lack of fee predictability and stability for the average user.
“It’s not that easy for the average user to predict what the fee will be for the next one or two minutes,” said Shaver in an interview with CoinDesk. “If you are [trying] to get in, either in this block or the next block, the most [fee] volatility you face is ⅛ of the current base fee, but if you think of the average user as someone who is price sensitive, and so is willing to wait one, or even something like three minutes for their transaction to go through … then you have to consider what happens to the fee in next three minutes.”
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Anticipating what the optimal transaction fee on Ethereum will be in three minutes or more is just as difficult with EIP 1559 as it was before EIP 1559, according to Shaver and Beiko. EIP 1559 helps price transactions for users in the moment, but it does not help users predict or anticipate what fees will be in the next moment because the supply and demand dynamics for block space fluctuate with each block.
According to Beiko, such oscillations impacting block sizes and base fees were always expected from EIP 1559. However, Beiko argues the average user can still benefit from knowing the optimized base fee of sending a transaction on Ethereum in the moment, without having to guess or anticipate fees of future blocks.
Incentivizing volatility and Ethereum burns
Savvy users will be careful not to spend more in fees than absolutely necessary.
If users are confident that fees will increase during the next block, there is a financial incentive to include more transactions in the current block than the next. However, if users are confident that fees will decrease during the next block, there is a financial incentive to include more transactions in the next block than the current one.
These natural oscillations between heavy and light blocks, according to Mojtaba Tefagh, assistant professor at Sharif University of Technology, may mean the amount of gas used in each block will trend over the long term above the block gas target, which can create difficulties for network node operators responsible for propagating and maintaining transaction data.
“If the variability in block size is high, people can send more transactions, on average. So if you just adapt the extreme oscillation of alternating between a full block and also an empty block, you can spend much more gas than the target and still the [base fee] would not go up,” said Tefagh in an interview with CoinDesk. “We are incentivizing people to create volatility and as they create volatility, we let them spend more gas.”
For now, both developers and researchers like Moj are taking a wait-and-see approach to assess the full impacts of EIP 1559 on the usability of Ethereum for users and dapps.
According to blockchain analytics firm Dune Analytics, over 90% of transactions on Ethereum have not leveraged the benefits of EIP 1559 two days into the upgrade’s activation.
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Ethereum just activated a major change called the ‘London hard fork’ — here’s why it’s a big deal
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Ethereum’s much-hyped and somewhat controversial “London” hard fork has just activated. So far, news of the successful upgrade has coincided with a runup in the price of ether, the native token of ethereum’s blockchain. The cryptocurrency is at $2,620, up 3.9% in the last 24 hours. A big part of the enthusiasm has to do with the fact that the software upgrade means a few big — and necessary — changes are coming to the code underpinning the world’s second-biggest cryptocurrency. It has always been a tough go for ethereum users. The blockchain has a long-standing problem with scaling, and its highly unpredictable and sometimes exorbitant transaction fees can annoy even its biggest fans. The problem has become worse in recent months thanks to a surge in interest in nonfungible tokens, which are mostly built on ethereum’s blockchain, as well as an explosive growth in the world of decentralized finance, or DeFi, which also largely uses the ethereum blockchain. Thursday’s changes to the code, which has little to do with the city of London, are designed to fix many of these issues by destroying or “burning” ether coins and changing the way transaction fees work so that they are more predictable. If you think of ethereum like a highway, London is adding a few lanes to tamp down traffic and is standardizing toll prices. “It adds a lot of complexity to the fee logic, but it’s an interesting approach that could potentially stabilize the fee dynamics,” said Nic Carter, Castle Island Ventures general partner and Coin Metrics co-founder.
Making fees more predictable
Even though the ethereum blockchain gets makeovers all the time — for those keeping track, this marks hard fork #11 — the “London” upgrade is a game changer, according to experts. The hard fork itself consists of five Ethereum Improvement Proposals. They are called EIPs for short, and each puts forth a set of changes to the code. The one that everyone is latching onto is EIP-1559. Before the upgrade, users would essentially participate in an open auction every block, where they would have to place a bid with a miner in something referred to as a “first-price auction.” The closed-bid setting meant that users were often taking a stab in the dark when proposing transaction fees (known as “gas prices”), picking a number that they felt would guarantee their inclusion in the next block of transactions.
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Some users who felt the need to prioritize their transaction would offer to pay a premium above their bid to try to gain preferred status within the block itself. “Fifteen-fifty-nine is really meant to create an ecosystem that encourages lower gas fees,” said Auston Bunsen, co-founder and CTO of QuikNode, which provides blockchain infrastructure to developers and companies. “Sometimes people are willing to pay a lot to get into a block. Fifteen-fifty-nine seeks to remediate this issue by creating a base fee,” continued Bunsen. Rather than holding a blind auction every block to determine the gas price, ethereum’s protocol will algorithmically decide the transaction fee based upon overall demand on the network.
Having the protocol decide a uniform gas price should prevent major spikes in prices, although that doesn’t necessarily mean it will be cheaper for buyers. It is, in essence, one big hedge against the market falling totally out of whack. However, the upgrade will still allow for users to jump the queue by tipping. But a bigger change fomented by EIP-1559 is a doubling of the block size. While in theory, this means that twice the number of transactions can happen in each block, the upgrade has actually been designed so that the protocol only wants the block to be half full. This is meant to help smooth out spikes in demand, helping gas fees to stay stable. Matt Hougan, Bitwise Asset Management’s chief investment officer, uses the metaphor of a ferry boat to explain the design logic.
If the ferry operators have set the price of a ticket too low, they may need all that extra seat capacity to accommodate the passengers standing on the dock who want to hop on board at the base ticket fee. “But the price ratchets up very quickly, and algorithmically, to the point where you should get to a clearing price that allows the block to be at its target of half full, and certainly that allows all the transactions that want to go through to be processed,” Hougan explained. Making the block size dynamic so that it can accommodate fluctuations in demand is what ultimately stabilizes the base fee. “It sounds pretty simple, but it’s a really elegant design solution to a problem that has plagued ethereum since its inception,” he said.
The ticking time bomb
Binance Smart Chain Beats Ethereum by Some Metrics Thanks to Latest ‘GameFi’ Craze
It wasn’t long ago when every public blockchain attempted to challenge Ethereum’s dominance in the sizzling decentralized finance (DeFi) sector. After Ethereum-based video game “Axie Infinity” became an instant success, blockchains have blossomed in the $100 billion gaming industry.
In the latest episode of the blockchain competition – just like what happened with DeFi – Binance Smart Chain, the public blockchain supported by Binance, the world’s biggest centralized crypto exchange by trading volume, surpassed the Ethereum blockchain in daily transactions, again.
BSC previously flipped Ethereum on the number of transactions because of the success of PancakeSwap, a decentralized exchange on BSC in the midst of a DeFi craze. This time, however, Binance’s success came thanks to a relatively little known game on BSC called “CryptoBlades.”
Related: Ethereum Burns 36% of New Coin Issuance Over 2 Days
Data from DeFi data tracking firm DappRadar shows that more than 621,000 users were on “CryptoBlades” in the past 30 days, while that number for “Axie Infinity” is a little above 271,000.
On July 31, Binance CEO Changpeng “CZ” Zhao tweeted: “#BinanceSmartChain handled 10M+ transactions yesterday. #Ethereum handled 1.2M.”
“#DeFi and #GameFi are growing,” he wrote in a second tweet. And in response to a question whether BSC is ready to handle 20 million transactions per day, Zhao wrote: “Not an expert. But I think we will find out soon enough.”
The series of tweets reflected Zhao’s excitement about crypto gaming’s growth on BSC, as someone who has rarely acknowledged BSC’s ambition to challenge Ethereum.
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But what is “GameFi” and why are blockchains rushing to the sector?
“GameFi,” which combines gaming and DeFi into one word, is the gamification of financial mechanisms where users can earn profits by playing games. Another popular term for this sector is the “play-to-earn” model.
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On the surface, the keyword is “gaming,” but at the core, “finance” is what matters the most for blockchains.
Both BNB, the utility token for Binance and BSC, and BUSD, a U.S. dollar-pegged stablecoin powered by Binance play an important role in crypto games on BSC.
For example, to buy “CryptoBlades’” native SKILL token, gamers must buy BNB first and swap their BNB for SKILL on ApeSwap, a decentralized exchange on BSC. That is a huge boost for BNB demand as well as for liquidity on ApeSwap.
Any transactions made on “CryptoBlades,” such as trading game characters and weapons, will require gamers to pay a certain amount of gas fee with BNB.
In an interview with CoinDesk, Samsul Karim, ecosystem coordinator at Binance Smart Chain, said that BNB is used in many crypto games on BSC, but he also emphasized that game developers need to understand that users should be able to choose between different assets – whether it is BNB or BUSD.
Rather than adding financial value to BSC, Karim said that crypto gaming is bringing BSC “culture value.”
“Similar to how you would value an artwork, for example, like that piece of artwork, what is the economic output that it’s contributing towards society or any particular economy?” Karim said. “It can’t be compared in the same way as a DeFi lending protocol or a bank or something like that. it is producing cultural value.”
An executive from Polygon, a layer 2 product protocol for Ethereum, also appeared to minimize the economic value that gaming brings to Polygon. The India-based product recently launched a unit called Polygon Studios to focus on blockchain gaming and non-fungible tokens (NFTs).
Shreyansh Singh, head of gaming and NFTs at Polygon Studios, said that the usage of MATIC token, the governance token of Polygon, on NFT and gaming powered by Polygon is not intentional; instead, it comes naturally as gamers in Ethereum-based games seek faster, less costly alternatives.
Binance and Polygon are not the only two eyeing the huge potential of a blockchain-based gaming industry.. Other crypto companies and blockchains are also taking big steps in this direction.
Crypto exchange FTX recently announced several NFT gaming-related investments, including a sponsorship deal with decentralized gaming startup Yield Guild Games (YGG).
A perfect match
But to most people in crypto, the combination of gaming and crypto seems like a perfect marriage.
“Crypto has been looking for a mass market use case,” Andrew Tu, an executive at quantitative trading firm Efficient Frontier, told CoinDesk. “Gaming is a sector that people have been hyping up for a long time. It’s the first area of crypto where the average Joe without a huge understanding of crypto or blockchain can participate.”
Indeed, “Axie Infinity,” the popular crypto gaming platform on Ethereum, has generated more than $220 million revenue in the past 30 days, making it the top revenue generator among all DeFi protocols and blockchains, Ethereum included, according to data from Token Terminal.
“’Axie Infinity’ also demonstrates a working use case for blockchain-based games, which paves the way for new entrants into the space,” Justin Barlow, a research analyst at digital asset data analysis firm The Tie, said. “With ‘Axie’s’ success it is likely we see major gaming conglomerates like Activision Blizzard or EA (Electronic Arts) entering the space in the coming years, bringing blockchain gaming to the masses.”
There are also risks for the hot GameFi industry, given how rapidly it has grown.
“With Yield Guild Games (YGG) token sale netting $12.5 million in 30 seconds, [it] shows that market participants will not hesitate to switch from one hot toy to another, no different to yield farming craze earlier in the year,” Denis Vinokourov, head of research at Synergia Capital, told CoinDesk, adding that the market is still too “nascent” to make any conclusions.
Read More: Gone in 30 Seconds: Yield Guild Games’ $12.5M Token Sale Sells Out Fast
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