Less than 1 week after turning 6 years old, the Ethereum network is getting ready for a very important update, the so-called “London Hard Fork”.
Ethereum as a whole is undergoing a major transition process: the algorithm is migrating from Proof-of-Work (“proof of work”, used by Bitcoin) to Proof-of-Stake (“proof of participation”), which will increase your transaction capacity per second, and possibly lower your high gas fees.
In this process, the next big update is the “London Hard Fork”, scheduled to take place between today (04) and tomorrow (5th).
If you have ETH in your wallet, you don't have to do anything. The update is done automatically.
The name of the city, in this case, London, is inspired by the cities where the network's developer conferences took place.
The update is an improvement to the user experience and, among other improvements, includes EIP-1559, which changes the dynamics of fees paid by users.
Understanding the London Hard Fork better
Today, the ETH is an inflationary currency, with no limits. At each block validation (+-15 seconds), miners are rewarded with newly created coins and transaction fees paid by users.
The protocol update includes 5 Ethereum Improvement Proposals (EIPs), including EIP 1559 and EIP 3554, which aim to:
-double the Ethereum network gas limit, which will increase transaction capacity.
-change the reward to miners.
On this last point, it is worth understanding better how this will be done. The new proposal is that the base rate has a “base” value, which will be automatically adjusted by the protocol, according to network congestion. When the network exceeds the gas per block target, the base rate will increase slightly, and when capacity is below the target it will decrease slightly.
As these base rate changes will be constrained, the maximum difference in base rate from block to block will be predictable.
An important aspect of this fee system is that miners will only be able to receive the block's priority and reward fee, while the base fee will always be burned (i.e. sent to a wallet that no one has access to).
Among other more technical factors, this burning will help to balance Ethereum inflation, and significantly lessen the practice of tax manipulation by miners, who often do so to try to extract more fees from users.
In addition, users will also be able to manually set the maximum transaction fee, which would help them to limit their total costs per transaction.
Conclusion
The London Fork is the starting point for a series of changes to the way miners operate on the Ethereum blockchain.
It is unlikely to turn ETH into a deflationary asset. This should only happen around December 2021, when the network changes its consensus algorithm, leading to a large drop in the ETH emission rate to around 0.4% pa
This 90% emission reduction is compared to 3 BTC halvings, which is where the “triple halving” arises, as seen in the historical and projected ETH emission rate graph below (in the orange line stretch between “1/1 /2021" and "1/1/2022"). It is only after this event that the network is likely to become deflationary.
Apparently, London has been benefiting from the price of ETH in recent weeks. In the last 7 days alone, the price of ETH has already risen by more than 18%, while that of BTC has fallen by around 0.5%.
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