Ethereum – the world’s second largest crypto asset – is just hours away from a highly-anticipated network upgrade known as the London hard fork.
Ether markets have seen an impressive period of growth during the past two weeks, with many analysts speculating the price action has been influenced by community excitement ahead of the hard fork.
Vitalik Buterin’s brainchild has become a victim of its own success, becoming plagued by high gas-fees, slow transaction speeds, and increasing environmental impact as the network has grown beyond his wildest imagination.
London hard fork is thus a vital stepping stone for the network, ahead of the massive shift from proof-of-work (PoW) to Ethereum 2.0’s proof-of-stake (PoS) technology – aimed at saving the network from near paralysis.
A hard fork occurs when there is a major alteration to the protocol of a blockchain network that results in a divergent split between the old protocol and the newer version. In a hard fork, miners must choose whether to continue validating the old blockchain or the new one.
The London hard fork is the latest update, and will incorporate five new Ethereum Improvement Proposals (known as EIPs) – which are all temporary, until the permanent Ethereum 2.0 update.
What are the new Ethereum Improvement Proposals?
Matthijs de Vries, Co-Founder and CTO of AllianceBlock provided insight into how the new London Hard fork will impact the industry.
“The new transaction fee model is a big deal for Ethereum: it can further increase adoption as new users will have less trouble figuring out how to execute a transaction that won’t fail,” he said.
“It is yet to be seen if the burning mechanism will make ETH deflationary, but it is certainly a step in the right direction and will not hurt the price development of ETH on its own.”
EIP-1559: is a very exciting proposal for the introduction of a ‘base fee’ that will track gas fee prices across the entire Ethereum network in order to ensure accurate gas fee predictions for network users, while also introducing a deflationary measure that will burn transaction fees, and cap transactional and miner fees.
This EIP has stoked serious fire in the Ethereum mining community.
“Block size will be scaled depending on how congested the network is and transaction fees scale with it,” added Matthijs.
“The entirety of this fee gets burned (taking it out of circulation). This is new for Ethereum, as until now Ethereum has been inflationary.
“However, with this change comes also the possibility to tip the miner, an additional part on top of the fee that doesn’t get burned and will go directly to the miner.
“This sounds fair, but we must take into account that miners can prioritize transactions almost however they like, introducing more front-running opportunities for those that choose to tip the miners.
“It’s possible that miners will facilitate frontrunning a token swap by default if you don’t tip them high enough, leaving the question: when do you tip enough? That can become a dark rabbit hole compared to the transparency of the current transaction model in place.”
The key EIPs…
EIP-3198: A small measure aimed at smart contracts, ensuring the return of the new base fee value to the block that facilitate the transaction.
EIP-3529: Removes the gas fee refunds associated with developer slate-wiping functions, in order to facilitate the proposals in EIP-1559.
EIP-3541: Enables the usage of a brand new format for smart contracts that begin with the 0xEF byte.
EIP-5334: An important – and very welcome delay (until December 21, 2021) – to the impending freeze on mining during the transition to Ethereum 2.0 proof of stake which will bring about a higher ETH difficulty rate.
Matthijs pointed out that EIP-5334 has been granted as a concession to miners, in order to help ensure adoption of controversial EIP-1559.
“As it currently stands, a difficulty time bomb has been built in that will gradually increase the difficulty for miners until mining becomes virtually unviable for them,” he explained.
“As miners definitely benefit from having this difficulty time bomb delayed long enough until Ethereum 2.0 is finished, they decided to tie EIP-1559 to EIP-3554 as an incentive to accept EIP-1559 in order to continue building Ethereum 2.0.”
How will price action respond?
During the past two weeks, Ether (ETH) – the native cryptocurrency for the Ethereum network – has undertaken an unprecedented 12-day rally to $2,600 from a four-month low of $1,729.
A continual rally of 12 days has never occurred before in Ethereum price history – highlighting the potential and excitement surrounding the new London hard fork.
This marks a decent divergence between ETH and BTC price action, and has seen ETH drive forward market movements in other altcoins such as LINK.
Many anticipate that the new hard fork update will bring about a sudden slump in ETH gas prices, making it cheaper for transactions to take place across the network. This was seen in practice with the last hard fork – Berlin.
With the age old idiom ‘trade the rumour, sell the news’ in mind, all eyes are on the charts as London comes calling.
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