Ethereum London Fork Is Imminent – What Does It Mean

After many months of planning, Ethereum has finally activated the London hard fork on August 5. A hard fork is an irreversible change to the network, and this particular one has been hyped for many years. Unfortunately, it has also been with its fair share of controversy as many miners were against the upgrade.

The upgrade means plenty of positives for the Ethereum network. Perhaps the most notable of these positives will be in the price of Ether which has continued its rally with a successful activation of the hard fork.

Other Perspectives

However, not everyone believes the hard fork has anything to do with the increase in ETH value. The Editor in Chief at Cointelegraph, Rafaela Romano, is one of those who don’t see the correlation. According to her, Ethereum historically has a 2.5x performance compared to the price of Bitcoin.In her words

“the current superior performance of Ethereum over Bitcoin may not necessarily be caused by the London hard fork, but by its price history.”

Whether the hard fork is responsible for Ethereum’s increase in value will always be debated. But the real benefit of the London Hard Fork is the changes it will bring to the Ethereum network.

Ethereum has established itself as the number one blockchain network when it comes to decentralized applications. It is the home of DeFi, DAOs, and all things decentralization on the blockchain. But for all these, it faces the fundamental problem of scaling. Unfortunately, this has led to excessive and unpredictable gas (transaction) fees on the platform.

Gas Fees

Sometimes, the gas fees are so high that it results in transactions not being completed because the user sets a lower fee. When this happens, the user loses Ether all the same even though the transaction is reversed.

This issue has become serious in recent months due to the renewed interest in DeFi and non-fungible tokens, primarily on the Ethereum blockchain. It has led to the development of many solutions such as sidechains, other blockchains claiming they offer better alternatives and more.

The London Hard Fork intends to change all that to an extent. It will fix these problems by ‘burning’ or destroying Ether coins and making the transaction fees more predictable. While it might make the fees structure more complex, the successful activation will stabilize gas fees on Ethereum.

More Predictable Fees

Ethereum is known for its numerous changes in code with the same primary motive of making the blockchain network better. For instance, the London Hard Fork is the eleventh hard fork of the network. But this particular one might offer a real difference. The London Hard Fork is made up of five Ethereum Improvement Proposals (EIPs). Each of them represents a change in the Ethereum code.

EIP1559

Of these five, EIP1559 is getting the most coverage as it is the one that addresses the gas fees on Ethereum.

Before the hard fork, users had to participate in an open auction for every block. They will bid with the miner to be included in the transactions that will form part of the next block. Since it is a closed bid, they usually have to propose transaction fees that they believe will be included in the next block.

Some users usually pay above the regular fees to gain priority in the next block since miners will usually favour higher fees transactions above others. With EIP 1559, that will change. There won’t be any more closed bid or blind auction systems. Instead, The Ethereum protocol will determine the transaction fee based on the traffic on the network at that point in time.

Since it is the protocol that algorithmically decides the transaction fees, the problem of a substantial spike in price because some users are willing to pay more in gas prices will be prevented. However, it must be noted that this doesn’t mean the gas fees on Ethereum will become cheaper, only that it’ll become regulated.

The upgrade will still allow users to maintain priority by tipping. But EIP1559 also doubles the block size. In theory, it means blocks can now have twice as many transactions. However, in practice, the protocol wants to keep the blocks half full to regulate demand and keep gas fees stable.

Transition to Proof of Stake

For years, Ethereum has talked about making a transition from Proof of Work to proof of stake. The London Hard Fork is a step towards achieving that. As Rafaela Romano, the Editor in Chief at Cointelegraph puts it,

“The London hard fork marks the progress of this transition with the introduction of the miner fee burn mechanism.”

In her view, the upgrade may not necessarily have anything to do with increasing Ether value. She said, “Although the mechanism generally increases asset scarcity, it is important to distinguish the concept of capitalization from the concept of the unit price of the asset. Decreasing supply does not alone can increase total market capitalization. But in the long run, the unit value of each ETH can increase.”

The EIP 3554, part of the hard fork, specifically exists to pave the way for Ethereum 2.0. Ethereum 2.0 will be the PoS blockchain that Ethereum will become. With EIP-3554, the difficulty time bomb on Ethereum was moved to December of this year. When the difficulty time bomb becomes active, miners and node operators on Ethereum will have to upgrade their software as mining will no longer be the way to verify transactions on Ethereum.

Conclusion

The London hard fork will surely bring important changes to the Ethereum network. From stabilizing the gas fees to activating the Ethereum difficulty bomb later on, it is a remarkable upgrade that will affect Ethereum and blockchain technology in general.

Leave a Reply

Your email address will not be published.

Related Articles
Read More

Ethereum Announces Merge Expected By Q1 2022

During the much-anticipated Merge event, the Ethereum Mainnet will become its own shard. The process, which is scheduled to occur in the second quarter of 2022 will bring to an end the current Ethereum Proof of Work system and convert it into a Proof of...
Read More

Vitalik Buterin Plans For Ethereum To Extend Beyond DeFi

The founder of Ethereum, Vitalik Buterin, has stated that he has plans to grow Ethereum beyond decentralized finance (DeFi). He discussed how Ethereum had the potential to develop a decentralized social media platform. Buterin was speaking during the Ethereum Community Conference (EthCC), in Paris where...
Total
0
Share