A scheduled upgrade to the Ethereum blockchain, referred to as the Berlin upgrade, has been deployed.
The upgrade was executed at 12:07 on 15 April and brought four major updates to the Ethereum protocol.
Among the updates were changes expected to offer some much-needed relief for Ethereum users by reducing the unaffordably high transaction fees brought on by the explosion in transaction volumes on the Ethereum network.
These changes to the inner workings of Ethereum are called Ethereum Improvement Proposals, or EIPs.
Of the four EIPs that were rolled out with the Berlin upgrade, three had a direct impact on the cost of transactions on the Ethereum network.
Berlin upgrade Ethereum Improvement Proposals
EIP-2565 reduced the fee of a particular operation on the Ethereum blockchain called ModExp, which is short for modular exponentiation.
Modular exponentiation is a foundational arithmetic operation for many cryptographic functions. Reducing ModExp’s fee will therefore help reduce the costs of many applications that rely on the operation.
EIP-2929 increased the cost of certain operations when they are used for the first time in a transaction.
The affected operations were often seen in denial of service attacks against the Ethereum network and Increasing their was intended to dissuade attackers.
Denial of service attacks have been used before to exploit weaknesses in certain smart contracts on the Ethereum blockchain and allow thieves to steal people’s money.
Counter-intuitively, although this proposal might seem like it would cause an increase in transaction fees, it is expected to help reduce them.
This is because Ethereum transaction fees are a factor of the base cost of the operations used in a transaction, and the current transaction volume.
Ethereum users essentially bid on how much they are willing to pay to execute a transaction. When transaction volumes are high, fees are bid higher by users desperately trying to get their transactions through.
By reducing denial of service attacks on the network, this proposal will hopefully not only prevent the theft of funds, but also reduce transactions fees by reducing malicious traffic on the network.
In addition, EIP-2930, which is also part of the Berlin upgrade, introduced optional access lists to mitigate some of the base transaction cost increases caused by EIP-2929.
Finally, EIP-2718 introduced a new transaction type that provides an envelope for future transaction types. This is intended to make it easier to add or update Ethereum transaction types in future.
Lower Ethereum transaction fees
Following the roll-out of the Berlin upgrade, Ethereum transaction fees were trending lower.
Trackers such as EthereumPrice.org showed that transaction fees on Thursday were around 15% to 50% lower on average than at similar times of day in the previous week.
Even with the lower prices a simple fund transfer cost between R40 and R60 to execute.
By Friday morning transaction fees had climbed again and a fund transfer on the Ethereum network cost over R100.
Transactions fees therefore remained high despite the changes rolled out with the Berlin upgrade.
Fortunately, Berlin is a stepping-stone to a larger upgrade for Ethereum called London, which is currently scheduled to deploy in June or July 2021.
The London upgrade is set to include changes to Ethereum specifically designed to slash transactions fees.
One of the proposals set to be included in the London update is EIP-1559. It aims to make fees on the Ethereum network more predictable and help people avoid overpaying on transactions.
Under EIP-1559 a fixed portion of transaction fees will also be “burned”, reducing the overall supply of Ether tokens in circulation.
Many Ethereum miners oppose the proposal to burn transaction fees, as these fees are currently included in the rewards received for successfully validating (“mining”) a block of transactions.
EIP-3368 was proposed as a compromise, suggesting that the rewards for mining a block of Ethereum transaction be temporarily increased to compensate for the loss of transaction fees.
The proposal to increase the block reward for mining is still being debated and it has not been scheduled inclusion in a future Ethereum protocol update.
Big gains in price of ether
The price of Ether, the native token of the Ethereum blockchain, rose dramatically in the lead-up to the Berlin upgrade.
At the end of March, Ether traded at around R25,000 on South African cryptocurrency exchanges.
The price saw a steady rise throughout April, trading at highs of over R37,000 (+48%) and even peaking at R40,000 (+60%) on one exchange.