Ethereum’s next hard fork, called London, could arrive in July.
It has already been launched on the Ropsten and Goerli testnets, and should soon be launched on the Rinkeby testnet.
If all tests are successful, a launch date will be set, which presumably could be as early as the end of July, or as late as August 2021.
What does the London hard fork mean for the Ethereum network?
London is in fact only a protocol update, following Berlin, and includes five EIPs.
The most important is EIP-1559, which modifies the fees of the Ethereum 1.0 chain.
This EIP introduces a fixed base fee for transactions, but can be algorithmically varied so that it increases when blocks are above the gas target, or decreases when they are below.
The base fee is then burned.
Currently, Ethereum’s transaction fees are based on a simple auction mechanism, where users submit transactions offering a certain gas, and the miners choose the transactions with the highest offers.
This leads to a number of inefficiencies that EIP-1559 aims to address by introducing the new fee structure.
The new fee structure provides for a discrete base fee for transactions that are included in the next block, with the option for users to prioritize their transactions by adding a so-called “priority fee” to incentivize the miner for faster inclusion. The miner pockets the priority fee, while the basic fee is burned.
The other EIPs introduced by London are EIP-3198, EIP-3529, EIP-3541 and EIP-3554.
The latter serves to delay the effects of the so-called “difficulty bomb” until December 2021.
Since the Ropsten testnet was updated with the London hard fork on 24 June, the price of ETH has returned well above $2,000, perhaps due in part to the expectations surrounding this update.
Indeed, it is assumed that EIP-1559 in particular will make ETH 1.0 deflationary, or at least less inflationary, although this update will not apply to ETH 2.0 which, being based on Proof-of-Stake, will not require mining.
For example according to ConsenSys’ director of communications and content,
James Beck, burning the base rate will put deflationary pressure on the issuance of new ETH, but it is difficult to estimate the strength of this, as many variables need to be taken into account, such as the number of transactions and network congestion. Theoretically, the more transactions there are, the greater the deflationary pressure will be, as the base rate for each transaction will be fixed.
However, these problems will be definitively solved with the future switch to PoS.