The London fork is the name of an upgrade made to the well-known Ethereum blockchain that was executed on 5 August and that aims to enhance the network’s processing capacity and reward structure.
As a result of the rollout of the EIP-1559 proposal, as it is also known, the foundations of a widely expected shift toward the more environmentally-friendly Proof of Stake (PoS) protocol will be laid out to eventually shun the energy-intensive Proof of Work (PoW) scheme.
Meanwhile, apart from the EIP-1559, other upgrades were also rolled out on 5 August and, in the following article, we summarize the modifications introduced by these set of enhancements along with assessing the potential impact that they could have on your ETH crypto investment.
What does the London fork consist of?
Five different Ethereum Improvement Proposals (EIPs) were included in the so-called London upgrade. The code number for each of these were 1559, 3554, 3529, 3198, and 3541.
Here’s a summary of the modifications that the network has experienced as a result of these proposals going live:
EIP 1559: Before the London fork, Ethereum’s gas fees were determined by following an auction system. The transaction that placed the highest bid had the top priority in the network and that usually led to elevated transaction costs. With the implementation of EIP 1559, an algorithm will now establish a maximum gas fee automatically.
EIP 3554: This proposal is not exactly a modification. Instead, it is another delay to the implementation of the so-called “difficulty bomb”, which is a mechanism devised by Ethereum’s senior developers to incentivize miners to move toward the Proof of Stake (PoS) protocol the network plans to implement soon. This would be the fourth delay to the rollout of PoS and developers now expect that the protocol will be fully implemented by the end of 2021.
EIP 3529: As a measure to free up network space, the Ethereum network previously offered gas refunds to developers who deleted unused smart contracts and inactive addresses. However, certain schemes were devised to exploit this incentive by taking up space when gas fees were low to then collect a higher gas refund when fees moved higher once they eliminated these older-dated smart contracts. With EIP 3529, developers will no longer be able to exploit this flaw in the network’s design.
EIP-3198: This simple proposal allows developers to obtain the current base gas fee set by the newly introduced algorithm by using a small piece of code that can now be called for that purpose.
EIP-3541: This proposal will now require the immediate validation of all smart contracts introduced to the chain at the moment they are deployed. It also changes the format of all new Ethereum contracts while it sets the foundations of upcoming upgrades to the Ethereum Virtual Machine (EVM).
What is the purpose of this fresh set of rules?
One long-dated issue of the Ethereum network has been its scalability and expensiveness. On the one hand, the bidding system that existed prior to the London fork was a bit unfair as it prioritized high-paying transactions. Transaction fees were so high at some point that decentralized applications (dApps) built on top of the Ethereum blockchain struggled to remain affordable for customers.
With the introduction of EIP 1559, base gas fees will now be established by an algorithm instead of an auction. The algorithm will prevent users from overpaying by introducing a maximum fee per transaction based on the size of the block that will be validated.
As a result, the network should be cheaper to use while it will also be easier for developers to estimate transaction costs as this upgrade will reduce gas fee volatility.
Moreover, an interesting feature that has also been introduced as a result of the London fork is the fee burn. What this means is that gas fees collected by the network in ETH tokens will now be burned once the transaction is validated – a situation that effectively reduces the total supply of the token.
In essence, this should put a lid on the supply of ETH tokens yet it might not lead to a net reduction in the total supply unless transaction volumes grow to a point that the amount paid in gas exceeds the issuance of new tokens.
All in all, the consensus opinion is that the London hard fork should have a positive effect on both the network’s functioning and the price of ETH in the mid to long term.