The London Fork Has Arrived
The long awaited EIP-1559 (Ethereum Improvement Proposal) is finally being rolled out, the “London’’ mainnet upgrade. This update is set to be the largest update to the Ethereum core protocol in the last several years.
The upgrade implements five EIPs (Ethereum Improvement Proposals). The most awaited of these — EIP-1559 — is garnering mass attention since its announcement a few months ago, despite its cryptic name. What’s the deal? Well it signifies a major change in the economy of Ether (ETH), the native cryptocurrency that powers the Ethereum network.
EIP-1559 has the potential to drastically change all parts of the Ethereum ecosystem. It’s intended to reduce the amount of ETH circulating at any given time, which in theory results in higher prices, due to supply being reduced, assuming demand remains consistent with current levels. One major goal is that it should make transaction fees more predictable, possibly reducing them altogether. The hope from Ether holders is that it could benefit users who, in recent months, have often experienced fees spiking to the point where smaller or more frequent transactions can be unfeasible. In other words, getting rid of the cat issue.
What’s the purpose of EIP-1559?
ETH cryptocurrency is the pillar in the Ethereum network. Transactions are paid for with gas fees in ETH whenever users interact with the system. Miners validate transactions and update the blockchain to ensure its security, and are paid in ETH — both in the form of gas fees paid by users and new ETH generated by the network.
EIP-1559, which was first proposed by Ethereum co-creator Vitalik Buterin in 2018, changes this system. Users will pay a simplified fee (now called “a base fee,” which will typically be set automatically by your wallet), along with a “tip” that can be added to speed up transactions.
The base fee, however, doesn’t go to the miner that validates the transaction. Instead, it’s “burned” by the network — which means it’s permanently removed from circulation. Some potential consequences include:
- Gas prices could be more stable. Before EIP-1559, a user could spend more on gas to have their transaction executed first — because miners, unsurprisingly, tended to process transactions that paid higher fees first.
- ETH price could potentially rise due to a reduction in the circulating supply. Since EIP-1559 now removes a portion of ETH in the form of a burn with each transaction, the supply of ETH is reduced. If demand remains consistent, or increases due to more consistent gas prices, prices will surely rise. (There are also risks associated with the upgrade, the biggest being the possibility of disgruntled miners quitting or revolting — thus impacting security and transaction times. See the section below for more.)
- This reduction in supply would make ETH deflationary and cements its evolution into a store of wealth-style investment, but with the addition of smart contracts, make it far superior to Bitcoin.
Does everyone who uses Eth Like the EIP-1559 change?
No, and that’s why it’s taken so long for the London upgrade to be adopted. Miners do a lot of the heavy lifting for the network, and some are concerned that their income will drop as a result of EIP-1559.
Brief history of Ethereum
Ethereum is the second-largest cryptocurrency by market capitalization. Unlike Bitcoin, however, it’s not just another form of digital money. Since being created in 2015, Ethereum has given birth to a multiverse of applications, everything from decentralized finance (DeFi) to stablecoins like USDC to non-fungible tokens (NFTs).
Unlike its predecessor Bitcoin — which is more purely a form of digital money — Ethereum is based on smart contracts and is an extremely flexible platform. Ethereum makes it possible for people around the work to interact with each other in financial transactions that are secured by code that can give you full visibility into where an how the financial transaction is completed.
The Ethereum software, in this scenario, is the operating system — and like the more familiar operating systems on your phone or computer, it also gets upgrades from time to time. Some upgrades are minor tweaks, while others introduce major new elements.
Unlike your phone, Ethereum is decentralized — which means there’s no central developer that can just send out an upgrade. Instead, changing the core Ethereum software requires a “hard fork.”
A hard fork happens whenever a majority of a cryptocurrency’s community (typically comprising users, miners, developers, and investors) agrees to change the core rules governing the software and underlying blockchain. Enter the London upgrade, which is set to roll out this week and contains, among other changes, EIP-1559. It’s scheduled to go live between August 4th and 5th at Ethereum block 12,965,000.
The London Mainnet, while a major upgrade to Ethereum, is a first of many changes coming very soon. The ultimate goal is to shift Ethereum to ETH2 which will be a proof of stake type of blockchain reducing costs and complexity allowing for faster, and cheaper transactions.