Why the new Ethereum hard fork is important?

In July, the developers of the largest altcoin by market capitalization will release an update for the main network. How this can affect the prospects of a digital coin and its value in the near future?

The first block has already been mined on the Ethereum – Ropsten testnet as part of the London update. This was announced on Twitter by one of the developers of the altcoin Tim Beiko. On June 30, the update is planned to be rolled out to the Goerli testnet. On July 7, the hard fork will be released on the third test network – Rinkeby, after which the update will be transferred to the Ethereum blockchain.

We have a block! Took a bit longer than expected, but London is live on Ropsten 😅https://t.co/wM2xepis0y

— Tim Beiko | timbeiko.eth 🦇🔊 (@TimBeiko) June 24, 2021

London is the next update of the altcoin network as part of its transition to Ethereum 2.0. This is a solution that will scale the original blockchain and make it more user-friendly.

The main feature of the update is the network’s transition to Proof-of-Stake (PoS) consensus – it will replace the Proof-of-Work (PoW) consensus, which the blockchain is currently running on.

The main difference between PoS and PoW is that miners who generate computing power are no longer needed to keep the network running.

The health of the blockchain is ensured by the holders of digital coins and are rewarded for this. This process is called staking.

The essence of London

The update includes four suggestions for improving the network:

-EIP-3554 – delay in increasing the mining difficulty level until December 1, 2021;
-EIP-3541 – blocking smart contracts whose address starts with “0xEF”;
-EIP-3529 – reduction of compensation for gas (the currency that is used in the altcoin network to pay commissions);
-EIP-3198 – changes the operation that returns the value of the base commission of the corresponding block;
-EIP-1559 – changes the mechanism for calculating the reward to miners, which they now receive for mining a block. Part of the reward will be burned.

Burning tokens is the destruction of a certain number of tokens to reduce their number in circulation. This method is used to combat inflation and increase the value of cryptocurrencies.

All coin burning operations are recorded on the blockchain as a transaction, so anyone can verify that the coins have been destroyed.

EIP-1559 is the most controversial proposal since it has been under discussion since 2018. When miners learned that EIP-1559 would be included in the London update, they threatened to hold a protest, which ultimately did not take place.

Miners threatened to redirect their power to one mining pool in order to get 51% of the network hashrate and to be able to make one-way changes to the Ethereum protocol.

According to BitInfoCharts, on June 24, the average transaction fee on the Ethereum network is $ 2.96. This is the absolute minimum since December 2020.

Over the past month, the size of commissions has decreased by 95%. In mid-May, the average commission on the Ethereum network was $ 69.

After the collapse of the cryptocurrency market, Ethereum miners earned 44.2 thousand digital coins on May 19 ($ 114 million at the exchange rate as of May 21).

This is the largest daily miner earnings of all time. On this day, commissions for transactions in the Ethereum network in some cases rose above $ 1.3 thousand.

Renewal prospects and market response

The London hard fork can be called fundamental for the Ethereum blockchain, since the update is designed to make transaction fees more predictable, says Nikita Soshnikov, director of the Alfacash cryptocurrency exchange service.

In his opinion, it is unlikely that EIP-1559 will lead to a decrease in fees, most likely the level of fees will be more evenly distributed across the entire volume of transactions.

“It is unlikely to have a strong impact on the incomes of conscientious miners, especially since it is unlikely to lead to their decrease. But the income of those miners who artificially loaded the network in order to increase commissions are likely to suffer, ”the expert noted.

A slight decrease in commissions can occur as a result of ousting unscrupulous miners, Soshnikov admits. According to him, if this happens, it can become an incentive for the growth of Ethereum quotes, since users will see with their own eyes an increase in the efficiency of the ecosystem.

“Together with the expectations of further successful updates within the framework of Ethereum 2.0, this can have a synergistic effect and contribute to the progressive movement of the altcoin price to the $ 3.5 thousand mark in the next couple of months,” Soshnikov added.

Co-founder of the EXMO crypto exchange Ivan Petukhovsky is sure that the London update will not lead to a decrease in commissions.

According to him, the hard fork does not have such a goal, but aims at creating the concept of “block elasticity” in order to increase the theoretical maximum capacity of the platform.

“In addition, the greed of the miners covers everything, any load on the network instantly inflates the commission,” Petukhovsky added.