In early August, Ethereum launched a highly anticipated upgrade: the London Hard Fork. Despite delays with its release, it is expected to revolutionise the Ethereum blockchain and significantly improve the platform.
The London Hard Fork is made up of five Ethereum improvement proposals (EIPs). One of them is EIP-1559, which aims to make Ethereum transactions more efficient by changing the way “gas fees” are estimated.
As for the name, “London” was chosen because Ethereum tends to name its hard forks after cities which have hosted its developer conference, known as Devcon.
Originally, Ethereum users had to make bids in order to have their transactions picked up by a miner. As a result, transaction fees would increase when the network was busy. Instead, this upgrade will allow users to pay a base fee up front which is determined by how busy the network is.
In other words, it doesn’t necessarily make transaction fees cheaper - but it does make them more predictable. For instance, they’ll increase when the network is busy and decrease when there is less traffic. Additionally, users can also pay miners an optional “priority fee” to process the transaction quicker.
The London Hard Fork could also increase the value of the network’s native token, Ether. This is because the base fee that users pay for transactions will no longer be given to miners. Instead, it’ll be destroyed (or “burned”) completely. When tokens are burned, this limits overall supply which in turn raises value.
However, as this upgrade is still relatively new, the influence on ETH’s value isn’t entirely certain. It also depends on transaction volumes, as this determines how high gas fees are and how many ETH tokens are destroyed.
While predictable transaction fees may be beneficial for users, it could also be argued that this drastically cuts mining profitability. According to the London Fork authors, base fees aren’t given to miners because this “removes miner incentive to manipulate the fee in order to extract more fees from users.”
An article by Tom’s Hardware agrees that the London Hard Fork reduces the short-term profitability associated with mining. Before the upgrade was implemented, the average block reward for miners was 2.581 ETH. This average then dropped to 2.234 ETH after the fork, resulting in a 15% loss of profit.
However, CoinDesk commented that miners can still be rewarded through the optional priority fee. Since the fork’s launch, users have paid 7,141 ETH in priority fees, which is approximately worth $22.4 million.
Overall, the London Hard Fork will certainly bring about significant change in the Ethereum blockchain. The network will also be switching from a proof-of-work (PoW) system to proof-of-stake (PoS) after the ETH 2.0 merge, which aims to reduce mining carbon emissions by 99%.
In case you’re not familiar with PoW or PoS protocols, check out our previous blog here