London Hard Fork Ethereum Update
When some see the phrase ‘London hard fork Ethereum’, elegant UK table manners while enjoying a digital dining experience in Decentraland may come to mind.
This in fact refers to something a little less delicious and more technical as the ‘London hard fork’ was the name given to the Ethereum Improvement Proposal 1559 (EIP-1559). This upgrade was implemented on the 5th of August 2021 and is a key component of the Ethereum networks overhaul from proof of work to proof of stake.
Key takeaways under the London hard fork Ethereum upgrade
• A base fee and tip system which makes the user experience smoother.
• A fee-burning mechanism that assists ETH in becoming a deflationary crypto currency in the long term.
• The industry believes the update in the transaction system could save approximately 90% in transaction costs.
London hard fork Ethereum updates improvements to the transaction fee system
A significant aspect of the update was the change in the transaction fee system to improve user experience and save ETH on gas prices without sacrificing confirmation times.
In the legacy system prior to the London hard fork Ethereum update, transaction fees could be very volatile and transaction priority would favour whales on the network who could afford exorbitant transfer costs.
Transaction fees before the update was based on a first-price auction mechanism. This works by senders specifying fee bids, also known as gas prices, they are willing to pay for their transaction and miners choosing the transactions with the highest bid to include in the block.
This resulted in congestion, increased gas prices and often users would need to pay more transaction fees (gas fees) than others on the same block.
The London hard fork Ethereum update removed the first-price auction mechanism. Gas fees are now made up of a mandatory algorithmically determined base fee and a priority fee (tip).
The base fee is paid in Ether and can fluctuate depending on the load of the network. The networks aim is to keep the utilisation rate near 50%. If the block is over 50% full, the base fee automatically increases. If the block falls below 50% full, the base fee automatically decreases. This regulates network congestion and allows for transaction costs to be set automatically for wallet providers.
What if you would like to the speed up the processing of your transaction?
No problem, priority fees (tips) can be added as a form of gratuity on top of the base fee. Priority fees go to miners which gives them strong incentive to favour transactions with tips. In ideal network conditions blocks are rarely filled over 50%, leaving the remaining half of the block for tip transactions. Depending on how full the block is (utilisation) even a tiny tip is sufficient to guarantee that the transaction gets included in the next block.
Burning mechanism under the London hard fork Ethereum update
Another major aspect of the update is that part of the base fee is burned i.e., eliminated from circulation which will begin to reduce the supply of Ether and potentially increase the digital assets price.
ETH which has a price of approximately 2334 pound per coin at the time of writing 5 May 2022 has no maximum limit to the mining of Ether which makes it an inflationary cryptocurrency. The EIP-1559 burning mechanism which will slowly reduce the supply of Ether has been viewed as a positive step in making Ethereum a deflationary asset in the long term. Experts suggest this implemented proposal alone will not make ETH deflationary as the nominal amount of gas burned won’t outpace network inflation. Rather the London hard fork Ethereum update in conjunction with future proposal executions to assist in the transition to Ethereum 2.0, will make Ethereum completely deflationary.
The ‘Merge’ to come
The next major protocol update will be the ‘merge’ of the Beacon Chain with the Ethereum Mainnet. We’ll be tracking the developments of impending EIP’s on network, for this and more of the latest crypto news check out Latest Moni.
Author: Dominic Wall
I am an Operations Officer and Copywriter at Moni Talks. I have created investment content across a variety of mediums since 2015 with a particular interest in sustainable finance and blockchain. Bridging the communication gap between finance and ideas that need to exist in the world excites me. I'm always eager to learn and relay new information to help others and our environment.