Ethereum London hardfork is successful as the market reacts with the price increase that surpasses Bitcoin. This upgrade will change the Ethereum network completely that departs its character from Bitcoin completely. Some can say it is a game changer if Ethereum performs well from now or a complete disaster if Ethereum tanked. Why Ehtereum makes such a decision and what causes it to take such risks to upgrade itself.
Here, I try to explain this in very simple terms that everyone can understand. My apologies for not being able to cover everything as this hardfork is complicated and involves a long history of battle between developers and miners.
The path Ethereum takes that cuts off all means of retreat and moves forward disregarding the opposition.
Anyway, let’s dive in and start with something simple.
What is Hardfork?
It is a type of update that backwards--incompatible upgrade which means there is no way to go back.
What is included in London Hardfork?
The London hardfork includes 5 improvements proposals:
EIP-1559: Fee market change for ETH 1.0 chain
EIP-3198: BASEFEE opcode
EIP-3529: Reduction in refunds
EIP-3541: Reject new contracts starting with the 0xEF byte
EIP-3554: Difficulty Bomb Delay to December 2021
The internet is focusing on EIP-1559 but disregarding the rest of improvements.
Here I will breakdown on what really happened with each proposal and implementation after the impacts:
EIP-1559: Fee market change for ETH 1.0 chain
This is the core that changes the game of Ethereum future. There are two parts of changes: base fee per gas and burn gas fees that used to reward miners.
That is the reason people were opposed to the change because it will burn!
Actually, this was an old discussion that many people might foresee in the future. Look at Bitcoin blockchain, it had a similar issue when Bitcoin got popular with a sudden surge of transactions to process. What Bitcoin did was to introduce a method to split blocks into smaller but limited size by separating transactions into two segments: removing witness data (signature data) from transaction data and only process transaction data then adding into new structure. The method is all SegWit or Segregated Witness. However, it is not an ultimate solution and it introduces lots of network security issues. I will focus on Ethereum now and introduce it in another article.
Why are gas fees high in the Ethereum network?
The problem of the high gas fees came from the exploit of the Ethereum network. The method is called Maximal Extractable Value or MEV.
Miners earn their rewards through process payment transactions. If you want to process faster, you may pay more for miners to have your payment as priority.
Miners want more profits and they can take advantage of the network through arbitrage similar to DeFi applications AMM or Automation Market Maker. Instead, it is a little bot that finds the best price of blocks that miners can work with. Since time matters with such bots operation, miners may pay a bit more out of their pocket to overpay on the transaction fees in order to process the block. Such overpaying operations become competition and eventually drive the entire network up to the price.
There are many solutions that play around such as a bidding process for miners to submit but it may take longer time to process each transaction.
The problem of high gas fees because of unfair competition from miners. Therefore, the solution is to pay them with not more or less than a fair share: base fee.
The second problem is miners pay up their own in order to process payment faster. Therefore, the solution is to put the ceiling of priority fee per gas and cut off the excess fees for reserve. In other words, burn the excess fees.
The benefit of such change is to let the network operate under minimum fees with the maximum efficiency.
It deflated the network to put off inflated transaction fees.
EIP-3198: BASEFEE opcode
This improvement extends EIP 1559 into smart contracts such as DeFi apps, NFTs and other possible utilizing smart contracts networks.
EIP-3529: Reduction in refunds
It is a clean up operation that improves the previous proposal of EIP-2200 for refunds of the gas fees. The previous methods will generate “useless” data that accumulate to clog up the network and the consequence will cost more for refund operation. This proposal is to free up network space and reduce costs of refund.
The impact will make the entire network more stable with stable gas fees rather than surging fees to slow down the network processes.
EIP-3541: Reject new contracts starting with the 0xEF byte
EIP-3541 is related to EIP-3540. Basically the change will separate codes to do its functionality by its own to free up space for other features. It just needs to prove to move forward for future projects. Therefore, this change did not catch many eyes.
EIP-3554: Difficulty Bomb Delay to December 2021
This improvement to extend the mining difficulty to December 2021 for people to prepare migration into Ethereum 2.0 as mining difficulty will become irrelevant.
In conclusion
London hardfork changes the game. It makes Ethereum go in another direction that is apart from Bitcoin. Whether it is good or bad, we will see in the future. However, this is a piece of technology that continues evolving and improving itself with developers' time invested and hard work. We should thanks for coders and developers for their diligent work that helps lead into such successful implementation
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Disclosure: I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose cryptocurrencies are mentioned in this article. This information is only for educational
