The Ethereum community has been prepping for the long-awaited London Network Upgrade, which is currently underway. Block height 12,965,000 will be upgraded, and node operators have been asked to upgrade their nodes as soon as possible. The update for Ethereum will include a new mining model as well as cheaper transaction fees.
Ethereum London Fork
Ethereum, the world's premier platform for decentralised apps, will undergo major adjustments. The underlying software code of the digital currency will witness changes in some or all of its principles in what is known as a 'hard fork.'
A "hard fork" is software jargon for a backward-incompatible upgrade, which means that if you wish to stay connected to the Ethereum network after London activation, you'll need to download London.
To summarise, London's major purpose is to increase Ethereum users' quality of life. For example, while London does not intend to make Ethereum more affordable, it does intend to make the cost of using Ethereum more predictable. This was the goal of the contentious proposal known as EIP-1559.
What EIP-1559 means for investors?
capabilities, which power DeFi, or decentralised finance, apps and NFTs, or nonfungible tokens, among other things - Demirors believes it is unlikely to have a significant short-term influence on investors.
The proposal's co-authors, on the other hand, want to make ether deflationary in the long run by limiting supply. Conner claims that this would be "very helpful" to investors, especially given "all the recent discussion about inflation in the United States." It would provide crypto investors with the opportunity to invest in a deflationary asset.
Users and dapp developers should be aware that the benefits of EIP 1559 may not be as effective in practise as they are in principle. Failure to deliver on anticipated fee-market efficiency could lead to disillusionment among users and developers. If this happens, Ethereum rivals Binance Smart Chain and Cardano, the two largest smart contract blockchain platforms by market capitalization after Ethereum at the time of writing, would surely seize the opportunity to gain market dominance.
Miners may be earning less per transaction
The most significant change in Ethereum 2.0 is the adoption of a new mechanism of paying miners. So far, the Ethereum network has paid miners for confirming transactions, which occur every few seconds, as well as distributing transaction fees - also known as gas fees - to these miners.
This is the most common source of income for Ethereum miners, and it follows the ‘Proof of Work' principle, in which they are compensated for their efforts.
The miners will lose a significant source of money after the London fork since transaction fees will no longer be awarded to them. Miners must also put up a stake in the form of their own Ether under the new ‘Proof of Stake' approach. Only those who are willing to put up the most money will be rewarded for authenticating transactions.
Finally, EIP 1559 is a proposal to reduce the volatility and predictability of Ethereum transaction costs. Beyond that, the code update creates a number of risks and opportunities for Ethereum, which will be crucial to monitor in August.