London Hard Fork: here’s what we can expect from the Ethereum Improvement Proposals

By Raffaele Redi

The London Fork could open up to two possible new scenarios for ethereum

3D rendering of Ethereum close up                                 
Close-up of 3D rendering of Ethereum – Photo: Shutterstock

Ethereum is at a crossroads. Network upgrades could open up two new possible scenarios: attract more institutional investors or cause crytocurrency miners to leave.

These questions will only be answered after the system goes live on block 12,965,000 on 5 August at around 1:40 PM BST.

Transaction fees, which are less volatile and more predictable, and aim to make the system “open and transparent”, could also make ether attractive to investors, but there is always the other side of the coin to be considered.

EIP-1559, the upgrade of ether’s (ETH's) system, could turn out to be more difficult – either affecting participants’ expectations and triggering a potential mass migration to other cryptos, or even the possibility of triggering unknown bugs.

“Although EIP-1559 doesn’t seem to bring anything good to miners, it is happening. Theoretically, miners could fork a new altcoin or remain on the old chain, but it is impossible on the Ethereum chain now due to the difficulty bomb and the decentralised finance (DeFi) component,” said Vitaliy Kedyk, analyst and head of strategy.

He added: “With the London update, miners will need to invest more in hardware and power as miner extractable value (MEV) and block subsidy becomes a main revenue stream. This makes a bid on Ethereum a long-term strategy.

“I’d say that although short-term miners will feel the reduction in revenue, long term they will benefit from a growing Ethereum ecosystem. I do think that after switching to proof of stake (PoS), Ethereum will lose some miners to ethereum classic price (ETC)/Monero or other proof of work (PoW) chains,” he said.

Kedyk analyses the pros and cons of the upgrade, starting with the pros: “Better user experience (UX) with better fees estimation that should drive the fees down, a better chain security as transaction fees are burned and, finally, lower fees.”

As for the cons, he stressed that: “Miners' revenue could be impacted. Although I think that the widely discussed risk of miners going against the community and users is very exaggerated.”


ETH price

“ETH price [now around $2,485] still moves together with the market. I do not expect significant price changes in the short to mid term. But long term, I reckon ETH will over-perform the market,” said Kedyk.

“There might be slight movements in price straight after the update, but this will be caused by the media talking about it rather than reduced supply,” he added.

The Ethereum Improvement Proposal (EIP-1559) is reminiscent of Bitcoin’s halving events, with periodic adjustments to reduce the supply of bitcoin, which propelled the cryptocurrency’s price to higher records.

However, rather than introducing a supply cap – in other words, what makes bitcoin the ‘digital gold’ – the Ethereum upgrade moderates ether’s total supply growth by taking some coins out of circulation each time a transaction is executed.

In particular, a simulation of EIP-1559 suggests it could trigger a cumulative burn of more than 2,900,000 of ETH over the trialling 365 days, with a net reduction of around 70% in supply growth over the period.

Minimum price for transactions and fees

Code changes within the Improvement Proposal are going to set a base fee to miners for each transaction, part of which will be burned. Participants can then include an optional tip with their base fee to speed up the process.

In other words, they will be able to figure out how much they pay rather than floating in uncertainty.

Easy life for miners… but not for everyone

0x Labs software engineer Alex Kroeger posted on Twitter: “Reminder that if you have any gas tokens ($CHI, $GST2), they are going to be worthless in a few days when London activates.”

Ethereum Foundation ecosystems' Trenton Van Epps added to the tweet: “Amidst the coordination for EIP-1559, I admit we have neglected comms on EIP-3529: Reduction in refunds, PSA: these tokens will be w/out functions in <1wk, divest accordingly, fortunately, I think the majority of holders were more sophisticated market makers, users eg. @1inch.”

The Gastoken2 is worth $208.65 now, with a trading volume of around $588k, while the CHI (Xaya) Gastoken actual price is around $0.4, with a trading volume of $135k.

 They were both given as a kind of refund, but were largely used to take advantage of low gas fees.

The other side of the coin

Whether participants and investors will appreciate the five improvement codes is now just a question of a few hours. If the upgrades fail to deliver that promised efficiency, the London Fork could lead ETH on the wrong path, with cryptos like Tether, Binance or Cardano waiting in the wings for a shot at the silver-medal position.

While one bug has already been fixed, more could come following the network implementations. After the Ropsten bug in May, Ethereum Foundation is hiring a test engineer to prevent other issues from emerging – a  measure that could be enough to prevent malicious software from attacking the network.

The countdown to 13:40 BST (based on avarage block time of 13.68842265s) on 5 August has already started. As French croupiers are apt to say at the roulette table in casinos: “Ladies and gentlemen, mesdames et messieurs, rien ne vas plus, les jeux sont fait [Bets are done, nothing can go anymore].”

Further reading: Crypto market update: further falls for bitcoin

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