Ethereum’s Most Controversial Proposal Ever Goes Live in Testnets. Why is This Important - and What is Next?

On June 24, 2021, Ethereum’s core developer Tim Beiko released a celebratory tweet about London hard fork testnet activation.

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On block 10499401 of the Ropsten test network, new rules of operations were implemented for testing.

What is new in London hard fork?

Ethereum’s London hard fork is a crucial update of Ethereum network’s consensus mechanism. It entirely re-shapes the fee model of Ethereum and delays the ‘difficulty bomb’ to facilitate migration from Proof-of-Work to Proof-of-Stake.

London consists of two Ethereum Improvement Proposals (EIPs), namely EIP 1559 and EIP 3238. Meanwhile, all eyes are on the first one as it entirely reconsiders Ether tokenomics.

Why does Ethereum (ETH) need EIP 1559?

As of today, to authorize a transaction on Ethereum (ETH) network, an owner of an account should pay gas fees to Ethereum miners. Higher the gas, faster the transaction. As a result, during the periods of maximum pressure, sending money over Ethereum (ETH) becomes too costly - in particular, for small transactions and automated microtransactions.

With EIP 1559 implemented, every Ethereum (ETH) block will have its ‘base fee’: it will depend on the current interest in sending transactions. If a block becomes more than 50% full of unconfirmed transactions, base fee increases and otherwise.

As a result, this 50-% equilibrium will be guaranteed for the majority of blocks. However, users can motivate mining pools to include their transactions by sending ‘tips’.

Also, Ethereum (ETH) fees will be periodically destroyed. Thus, for the first time in its six-year history, Ether becomes a deflationary asset.

EIP 3238 delays ‘difficulty bomb’, a situation in Ethereum when its mining becomes unprofitable and impossible. Similar upgrades were implemented a couple of times previously.

Why is EIP 1559 so controversial?

EIP 1559 was needed by Ethereum tokenomics and its scenario was discussed for three years on All Core Devs (ACD) Ethereum calls. Meanwhile, some mining pools opposed its implementation as it ‘discriminates’ against ETH miners.

Typically, analysts predict the decrease of Ethereum mining profitability. As a result, the whole situation doesn’t look ‘win-win’ for all participants of this decentralized network.

At the same time, as Ether becomes deflationary and its scarcity spikes, the USD-denominated profits of miners may increase. Also, some of EIP 1559 possible effects are still obscure for researchers and software engineers. Finally, in the coming months, Ethereum (ETH) will finally migrate to Proof-of-Stake which will put an end to its mining.

What is next?

On Jun.,24, London went live in its first-ever testing network, Ropsten. Despite its launch coming with minor delays, the whole network works like clockwork. Some hours later, the performance of Ropsten was stress-tested.

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On Jun.,30, London will be activated in its second testnet, Görli. Then, should it be up and running in all testnets for 300-400 thousands of blocks, the much-anticipated hard fork will be activated in Ethereum’s mainnet.

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