The Ethereum London hard fork comes with some improvements
The London hard fork is preparing the Ethereum network for its switch to Ethereum 2.0 next year. The biggest difference to its predecessor is that Ethereum 2.0 will run on Proof of Stake (PoS) and no longer on a Proof of Work (PoW) consensus algorithm. While PoW requires the process of mining, the consensus algorithm of PoS does not. PoS is a set of rules governing consensus in a blockchain network that is projected to be more energy-efficient than the network’s current PoW algorithm, intending to phase out mining in the short to medium term.
This is where the London hard fork comes in. The upgrade is based on several Ethereum Improvement Proposals (EIP), and some of them affect the mining industry. That is why the upcoming changes are somewhat controversial since it makes mining ETH less lucrative.
EIP-1559 is the most discussed improvement in this regard, as it changes the way transaction fees will be calculated. Until now, miners set their own prices, but the new base fee will be calculated by an algorithm, making costs for a transaction more predictable and transparent. The new base fee replaces the gas fees miners had been charging in the past through an auction-like bid to prioritise transactions.
ETH transaction fees will replace gas fees
Ethereum developer, Tim Beiko, recently said in an interview that while the change of fees will be significant, he would not expect a drastic reduction. To prioritise their transactions, participants can pay miners an optional tip. The base fee per gas will be burned to make the network more efficient.
Another change for Ethereum miners is the removal of gas refunds. What started as an incentive for miners to clean up after their transactions, was often misused to make up for mining costs. According to Beiko, removing the gas refunds will make the network more stable.
If you want to get more into the technicalities of the London hard fork, we recommend reading Beiko’s blog as he has been heavily involved in this upgrade.
What the Ethereum upgrade means for you
So, while the Ethereum London upgrade will bring major changes and challenges to miners, who also need to deal with the switch to PoS, ETH users won’t experience much of a shift at first. With this upcoming hard fork leading the way to Ethereum 2.0, the change will be an important step for making the network more efficient and more sustainable. It is believed that the technological updates of the network and the preparations towards Ethereum 2.0 are bound to increase its popularity and utilisation even more.
Shortly before the crypto market dropped in spring, ETH hit a new all-time-high and even during the past 30 days, the price has increased by more than 25%. The Berlin hard fork pushed the price up significantly in April, so part of the more recent price increase can probably be attributed to the anticipation of the London upgrade. The hard fork might affect profitability for miners as they need to adjust their business model, but investors and developers are generally in favour of the update as Ethereum 2.0 gets closer to launching.
If you are a Bitpanda user holding ETH or any other ERC20 token, you don’t have to worry, as we will take care of the migration. In order to process the hard fork, we will need to disable deposits and withdrawals for the duration of the update. Trading, however, will not be affected.
Interested in buying ETH? Head on over to Bitpanda!
The information contained in this article is for general information purposes only and is not investment advice in any form.
