Ethereum is a decentralized cryptocurrency that is the second-largest token in the crypto cart, with a market cap stepping towards $400 billion in the coming few days. There is no limit to the supply on Ethereum, whose crypto symbol is ETH.
Running a technology-based network is not easy. With the constant and never-ending development, everything, even humans needs an upgrade with time, and so are the cryptocurrencies.
One such example is Ethereum. The blockchain has recently been in buzz, particularly because of its network upgrade named ‘London Hard Fork’ that will move it from an energy-intensive proof-of-work algorithm to proof-of-stake.
Undoubtedly it is delayed, but better late than never. Ethereum’s transformation can be described as a complete renovation of your house, while you continue to live within it. It faced a lot of issues and challenges.
The Ethereum community has been excited about moving to Proof of State (PoS) because it will now enable them to handle more transactions per second. There are high hopes of increasing scalability and an end to high gas fees.
Proof of State is a concept states that a person can mine or validate block transactions according to how many coins they hold. It means that the more coins held by a miner, the more mining power they have.
But you can not expect anything without controversy or criticism, and Ethereum 2.0 is no exception. Not everyone is happy with the updated number two cryptocurrency.
What is London Hard Fork?
The latest major update for the Ethereum blockchain network was rolled out in the first week of August, and it was named London Hard Fork. However, the exact timing of the release is difficult to pinpoint.
This hard fork contains five Ethereum Improvement Proposals or EIPs. Let us try to decode each devil in detail and reason why the other chunk is unhappy.
Bitcoin has a fixed supply cap as only 21 million Bitcoins can be mined. However, Ethereum is an inflationary cryptocurrency, which means that there is no limit to its supply. Miners are rewarded with brand new Ethereum coins every time they validate a block. This happens about every 15 seconds. They are also compensated with the transaction fees paid by users.
Ethereum’s EIP 155, a crucial component of London Hard Fork, is aimed to change this issue. After the update, miners will not receive compensation for the transaction fees. It will go straight to the network, to be burned actually. It will result in curbing the supply of Ethereum for a longer period. It will give a boost to Ethereum’s value.
Why is there ‘London’ in the hard fork?
It is a fun fact and a small trivia. Hard Forks are named after the cities. They are inspired by the names of the places where the conferences of the developers had taken place. That’s how ‘London Hard Fork’ got its name.
To cut a long story short, the London fork fires the starting gun on massive changes to the way miners operate on the Ethereum blockchain, leading to the extinction of the ETH miners.
What are the benefits and losses?
The update should make the transaction fees a bit more predictable for those who are using this technology or blockchain. There has been widespread exasperation at the congestion seen on the Ethereum network- exacerbating the triple threat of the bull market, led by the explosion of NFTs and lately, thriving Defi sector.
Some miners are annoyed that they will lose a crucial source of their revenue. Now their reward will be reduced to two Ethereums which is significantly less than the five Ethereum they used to receive a few years back.
The entire game is a glass-half-full mentality if you change after upgrades. Users still have a chance to pay tips to the miners; so that their transactions are taken care of on an urgent basis. Also, the deflationary efforts will ultimately mean that the miners will receive more ‘precious’ Ethereum in the coming days.
Miners are a very crucial part of the Ethereum ecosystem. They own the responsibility to ensure the smooth running and validation part. However, the move to PoS will render them obsolete. Now the focus and responsibilities will shift to validators, having a financial interest in the security of the network.
Although nothing will stop the miners from becoming validators, their expensive equipment will no longer serve any real purpose.
In EIP-1559, the real question is if the miners will start throwing in the towels or not as they have, somehow, become expendables. It is very unlikely that there would be a mass exodus that would reduce the blockchain’s security. However, if more miners exit, the mining of Ethereum will become more profitable and will stay for long.
Let us have a look at a breakdown of the revenues that Ethereum’s miners have received recently. In May 2021, the revenues hit an all-time high of $2.35 billion, which coincides with the eye-popping rally in the token to $4,32.35. However, it fell 53% to $1.1 billion in June 2021. As a result, in an EIP-1159 world, they would have pocketed $940 million.
What Else was updated?
Another notable update in the London Hard Fork is Ethereum Improvement Proposal or EIP-3554
One of the major threats for Ethereum miners could come as a ‘difficult time bomb’ that will make the new Ethereum extremely hard to find, which will wipe out all the financial incentives. EIP-3554 will see this time bomb pushed back to December 2021, giving more time to miners to be ready.
The other EIPs included in the Hard Fork is not very significant from the user’s perspective. However, the detailed roadmap of every update is there, and they will be rolled out in a phased manner.
The next milestone for the Ethereum network is referred to as the merge, and it is expected to be another dramatic change to it. It is likely to add staking across the entire network. The research is going on, and the process may be accelerated soon. Thus, it may arrive sooner than expected.
It will enable the Ethereum mainnet to dock with the already-live Beacon Chain and be followed by shard chains that will expand Ethereum’s capacity to process transactions and store data.
What is for the owners?
Tim Bieko, an Ethereum Foundation developer, has reiterated that Ether owners who use crypto exchanges, web wallets, mobile wallets, or hardware wallets won’t be affected by the London Hard Fork.
They do not need to take any actions unless instructed to do so. However, those who run their node will need to download the latest version of their Ethereum client.
Disclaimer: Angel One Limited does not endorse investment and trade in cryptocurrencies. This article is only for education and information purposes.