Anthony Di lorio co-founded Ethereum in 2013. Ether now has market value of around $225 billion (Image Source: Shutterstock)
A much-anticipated event for ethereum enthusiasts, the popular, open-source blockchain underwent a major revamp on August 5, boosting the intraday growth of its native cryptocurrency, Ether by 4.16 percent to trade at 2,790 dollars. But what is the London Hard Fork?
Formally known as the Ethereum Improvement Protocol 1559 (EIP-1559), a hard fork essentially means an unchangeable permanent modification on the blockchain. The change name is preceded by London simply because the community seeks to name these upgrades after the names of cities which have hosted its Devcon international developer’s conferences.
The change, notably, is a backward-incompatible upgrade, which means that post the activation of this protocol, downloading London would be mandatory if you wish to stay connected to the Ethereum network.
Greg Waisman, co-founder and chief operating officer at the global payment network Mercuryo, said that “the highly anticipated Ethereum ‘London hard fork’ event will expose users to a more flexible and cheaper fee structure and introduce a mild burn effect, billed to make Ether deflationary.”
The main goal of this improvement protocol is to create a predictable, transparent transaction fee structure for its network users. Prior to this upgrade, a blind auction was held for every block to determine the gas price (the fee, or pricing value, required to successfully transact or execute contracts on Ethereum). These first-price auctions basically meant that the users ended up predicting and paying far higher transaction or gas prices, just to confirm their inclusion in the upcoming block of transactions. This also meant higher transaction prices during a busy period and subsequently lower prices during leaner times.
Post this enhancement, the blockchain community’s protocol will algorithmically and automatically determine the transaction fee, depending on the ongoing demand-supply trends. This would eliminate substantial, erratic price hikes across the platform and bring uniformity, apart from creating a much-needed deflationary pressure on the cryptocurrency, since less supply implies a rise in prices.
Earlier, miners would hold control of the entire process, from deciding the fees to processing transactions. But now, users will be able to tip these miners for quick transactions. Miners will only receive this tip and not the predetermined base fee.
The London hard fork ushers in major changes for the second-largest cryptocurrency community in the world by burning or destroying ether coins, increasing the value of those in existence, and fixing the current transaction fee issues. However, the EIP-1559 will also double the block capacity, making transactions on the network faster and easier and accommodating fluctuation with greater ease.
Per Nischal Shetty, Co-founder, WazirX, “The upgrade will ensure that no amount of network congestion results in shooting up of ETH gas price. This step of price transparency will single-handedly help increase the adoption of decentralised applications. Furthermore, the process of burning ETH will reduce its supply and hence, enhance its price value against the likes of Bitcoin which has a finite supply in the market. Although in the face of it, the process of burning ETH instead of paying it to miners for validating blocks might not seem fine, as the value of ETH appreciates, the miners will benefit from it. Apart from this, another important upgrade coming Ethereum's way is its migration from Proof of Work to Proof of Stake by 2022 which will eventually lead to lesser energy usage by the miners by block generation.”This change also heralds an important, forthcoming change in the fundamental structure of the blockchain, which is set to shift from a PoW (Proof of Work) to PoS (Proof of Stake) amidst concerns of sustainability and viability. While PoW focuses on solving complex mathematical puzzles by leveraging enormous amounts of electricity, expensive mining infrastructure, limited scalability, and slow transaction processing, PoS does the same job with less energy consumption and allowing the user to support a cryptocurrency by creating a block of the same on the blockchain. Some argue that this might render the miners irrelevant in a few years. While they can still sell their computing power to the network in anticipation of earning a newly-minted ether, the money flow from the same would substantially dry up. What are the other major changes? Take a look at some of the other minor protocols that have been launched along with the significant EIP-1559:
Per Edul Patel, Co-founder, and CEO, Mudrex, the “London Hard Fork or EIP-1559 aim to strengthen the ecosystem of Ethereum. ETH is at the forefront of smart contract capabilities that power DeFi, or decentralized finance and NFTs, or non-fungible tokens among other improvements. This upgrade is also a prelude to the massive upgrade 'Serenity' or ETH 2.0, which is expected to arrive by the end of 2021, or early next year. Serenity will likely switch Ethereum from a Proof-of-Work blockchain to a Proof-of-Stake blockchain”, he signs off.
|Ethereum Improvement Protocol Number||Purpose|
|3554||Defuses a difficulty bomb designed to disincentive miners from employing energy-heavy proof of work mining method post its transition to the relatively effective and environment-friendly proof of stake way. |
Reduces gas refunds to encourage developers to delete redundant, inactive smart contracts and addresses.
|3198||Facilitates return of base fee, which eases the way of developers in terms of calling and using any block’s base fee for better effectiveness. |
Preludes future upgrades to Ethereum Virtual Machine (EVM) and defines acceptable data typesets in the times to come.