Ethereum: London calling, layer two scaling, and DeFi
According to a July 6th Github post by Tim Beiko, Ethereum core developers have proposed block 12,965,000 for the London Mainnet upgrade, corresponding to between 13:00 UTC and 17:00 UTC on August 4, 2021. On Friday July 9th the Ethereum Foundation will provide an update on the progress made by infrastructure and node operators in adopting mainnet compatible client releases. The London upgrade consists of five Ethereum Improvement Proposals, including EIP-1559 which are expected to make Ethereum network fees more predictable, reduce network congestion, and reduce or eliminate the Ether token’s inflation rate.
The London upgrade will change Ethereum’s protocol in such a way that miners no longer receive fees and newly created tokens, or block rewards, for facilitating transactions on the network, rather they will receive only block rewards and Ether paid for transactions will be “burned,” or permanently deleted. For this to happen, the volume of transactions on the Ethereum blockchain must increase enough so more Ether will be burned than is created with every block.
Transaction fees on the Ethereum network hit their lowest level since mid-2020. This decline in transaction fees can principally be attributed to the growing usage of Ethereum side chains and “layer two” chains, such as the Polygon network and Arbitrum, respectively. The low transaction fees appears to be boosting demand for large market cap DeFi projects such as Synthetix (SNX/USD), Aave (AAVE/USD), and Uniswap (UNI/USD) whose governance tokens rallied 44%, 24%, and 14% from July 1st – 7th.
Bitcoin: China Mining Ban, Low Hash Rates and the Long Road to Recovery
The Bitcoin hash rate fell by almost 50% in the past month as the Chinese authorities continued their crackdown on domestic Bitcoin mining. This decline in hashing power initially resulted in transaction times on the Bitcoin network taking far longer than usual. In recent days, however, the Bitcoin network difficulty level adjusted downward bringing transaction times closer to normal. This decrease in network difficulty (and removal of hashing competitors in China) is likely to increase the profitability of remaining Bitcoin miners outside of China.
When will hash rates recover to pre “China banning bitcoin” levels?
The Bitcoin network’s hash rates could remain lower into early next year. Ongoing global shortages in computing equipment (e.g. mining hardware) will make it difficult for existing miners to add any new hashing capacity to the network. As Chinese Bitcoin miners try to navigate these disruptions, many have sold (and may continue to sell) large portions of their bitcoin reserves to fund the potential relocation of mining operations or even investing in non-mining projects. In the long run, the dispersion of so much Bitcoin mining activity beyond China’s borders should further decentralize hashing-power and increase longer-term network resilience.