Just hours left until Ethereum (ETH) London hard fork
The Ethereum network, home to the second most popular cryptocurrency in the world, is just hours away from the London hard fork. It is believed that the upcoming update will help the network leave high transaction fees and congestion issues behind, as well as make ETH a deflationary asset.
Ethereum Improvement Proposal
EIPs (Ethereum Improvement Proposals) describe standards for the Ethereum platform, including core protocol specifications, client APIs, and smart contract standards. For example, the recent network update codenamed Berlin consisted of four EIPs: 2565, 2929, 2718 and 2930, each of which focused on a separate aspect of the blockchain, even if ultimately they are all intertwined.
The upcoming London hard fork contains:
EIP-1559: transaction pricing mechanism with fixed-per-block network fee for ETH 1.0
EIP-3198: a small update that gives the EVM (Ethereum Virtual Machine) access to the block’s base fee, expanding the capabilities and security of smart contracts
EIP-3529: remove gas refunds for removing data from the blockchain, and reduce gas refunds for a feature that used to give way to some exploits of the refund mechanism
EIP-3541: compatibility update for new smart contracts starting with 0xEF
EIP-3554: delays the difficulty bomb until the first week of December 2021
In addition The significance of this update is further underscored by the fact that it is the last hard fork for the 1.0 version of Ethereum. It paves the way for ETH 2.0, a major overhaul that will switch the consensus algorithm from PoW (Proof-of-Work) to a more eco-friendly and efficient PoS (Proof of Stake).
High transaction fees on the Ethereum blockchain have long since plagued its fans and the crypto community at large. Ethereum’s failure to scale well has also been pushing a growing number of developers away from building their projects on the network, forcing them to choose a different blockchain to deploy their creations on.
The number one altcoin is often subject to network congestion problems so severe, users end up having to pay exorbitant fees for the simplest transactions, let alone more complex ones that involve multiple smart contracts. Some users have reported having to pay hundreds of pounds in fees, which renders DeFi (decentralised finance) protocols and DApps (decentralised applications) unusable for everyone involved.
EIP 1559 is a small update that will restructure the fee system entirely. The old fee auction system that incentivised miners to pick up expensive transactions first will go away, making room for the new base fee system, designed to dynamically adjust the fee on a block-per-block basis, depending on the current network load. The system will increase the base fee if the block exceeds the gas target, and decrease it if the gas target is below the set threshold.
Another crucial point of the update lies in the introduction of fee burning. This means the ETH spent for the transaction fee will be taken out of circulation forever, which potentially makes Ethereum a deflationary asset, provided its emission decreases over time.
However, opponents of this approach believe that burning fees is simply not enough for ETH to become deflationary. Simple maths: there must be less coins issued than burned, day in and day out. This doesn’t seem to be possible at the current stage – the amount of fees burned will be incomparable to the daily emission.
This EIP has sparked outrage in the miner community with how it affects their bottom line. However, some have expressed that the update will, in fact, grant nodes more leverage over network participants.
One of the features the update brings to Ethereum is the ability for users to tip miners. Some crypto enthusiasts have expressed concerns that miners will end up configuring their nodes to favour tipping transactions over regular ones, which might increase the time it takes for tipless transactions to come through.
Some believe this will only complicate an already complicated relationship between miners and users by removing the most crucial part of the current transaction system – transparency.
To miners, EIP-1559 seems to have become akin to a red rag to a raging bull. To compensate for the imminent drop in profitability, Ethereum developers have put forward an EIP-3534 that will delay the difficulty bomb until the first week of December 2021.
When the time comes, ETH mining difficulty will start to rise, making the PoW model financially unviable to support. When that happens, Ethereum mining will become desperately obsolete, and the network will shift to the PoS consensus algorithm that implies staking coins for the right to validate transactions and earn fees.
Ethereum co-founder Vitalik Buterin is sure ambitious about the upcoming shift to PoS and the subsequent move to ETH 2.0 that will improve the network’s scalability. Us, regular users, are the ones to benefit from the changes the most, as decentralised protocols and applications will finally become accessible. Ethereum has sure had its fair share of growing pains, and now the developers are finally implementing the solutions to the issues that have plagued the platform each time its popularity spiked beyond some nominal levels. Now, whether or not ETH will become deflationary remains a question, either way it will be a nice bonus to the increased speed and decreased transaction costs the London hard fork will bring in just a few hours. By the way, you can watch the countdown here.
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Belgium native who has a passion for writing. Since 2015 I have understood that the blockchain will radically change our lives, and I absolutely want to share my findings with you!
The views, thoughts, and opinions expressed in this article belong solely to the author, and should not be taken as investment advice. Do your own research before taking any investment decisions.