If you are a little familiar with the crypto space, you should not have missed the fact that Ethereum introduced the hard fork upgrade, London. Considering the network is shifting its focus to 2.0, proof-of-stake consensus, parts of this upgrade included Ethereum Improvement Proposals (EIPs)voted by the community.
In this post we will cover the various important ones Ethereum EIPs Introduce and break down in detail how they will affect the Ethereum protocol and price in both the short and long term. But first we want to briefly discuss hard forks and their history with Ethereum.
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Ethereum hard forks
A hard fork is basically an overhaul update of an already existing blockchain network. It invalidates the old chain in many ways and forces users to switch to the updated chain instead.
The first Ethereum hard fork is for example the Ethereum Classic (ETC) fork. In short, the Ethereum network got massive chopped, and the community voted for a new EIP to invalidate the hack so the owners could regain control of their funds. However, the update required a hard fork, which means that a new network – what we know today as Ethereum – was born. However, some users disagreed with this proposal and stuck with the old network called Ethereum Classic.
Since then, Ethereum has gone through various hard forks. Most of them laid the foundation for the Ethereum 2.0 proposal, which was repeatedly postponed for various reasons. However, many assume that the latest ETH fork will become a reality by the end of this year.
A breakdown of the major Ethereum EIPs
The EIP authors have published several proposals with significant implications. We list several important ones below Ethereum EIPs on that in the London hard fork are included so that you can better understand their implications.
Ethereum EIP-1559 largely focuses on EthereumTransaction feeswhich means it will have a significant impact on traders of all types. The impact will be felt on ERC-20 tokens in general and is a cornerstone of the London hard fork.
Lately, when the Ethereum price fluctuated, gas prices have been just as volatile as the network price. Unfortunately, this is partly due to the fact that users have to bid on verification of their transactions, as miners usually only accept the transactions with higher fees in order to get more money. Those who cannot afford these higher fees or simply refuse to pay them have been unable to transact.
EIP-1559 wants to remedy this and lets users pay an algorithmically determined basic fee. This is adjusted up and down by the protocol, depending on how congested the network is. In general, Ethereum aims for a certain amount of gas consumed per block. So if the gas price per block is higher than normal, the base fee increases to compensate for this, and vice versa. Then there is a small priority fee. In this case, the priority fee goes specifically to the miners. This basic fee is actually burned. It combats inflation and ensures that users only pay for the network in the form of ETH and not in the form of gas.
The result of EIP-1559
Basically, this makes the transaction fees (gas price) more predictable instead of being almost the same as the price of the transaction itself – and sometimes more! That means it won’t necessarily be cheaper than before. It’s just more predictable. Don’t expect lower fees across the board. This improvement is likely to change significantly with the release of Ethereum 2.0, which will move the network from proof-of-work to proof-of-stake.
This update was not without controversy, however, as burning the basic fee instead of making it available to miners reduces their incomes. The improvement also increases the block sizes, which can result in miners taking longer to validate a block. And since the network burns Ethereum, it can lead to some economic instability as there is no way to predict how much Ethereum will be burned.
Speaking of transaction fees: EIP-3198 is a simple but important improvement. The EIP ensures that smart contracts – basically automated, digital if-then instructions for transactions in the network – benefit from the returned basic fee. Essentially, this improvement normalizes smart contract-based fees as well.
There are incentives for developers to clean up the code by deleting smart contracts and obsolete features, which reduces the burden on the network. The reward for this is the reimbursement of gas charges.
However, some developers have taken advantage of this feature. When gas charges were low, developers would enter pointless smart contracts and clog the network. As soon as the gas price went up, they cleaned up those contracts to get a refund much higher than what they paid for. They’re taking advantage of the refund while slowing the network down for everyone.
With EIP-3529 Refunds becomes a bit more specialized by making sure that developers only get refunds for certain promotions and not all cleanups. The improvement will also reduce some refund fees to the point where they’re still worth it, but no longer enough to allow for further exploits.
Mining has been part of the consensus since the beginning of Ethereum. However, in the first few days the developers introduced a so-called difficulty bomb to attract miners. They did this because Ethereum wanted to switch to a proof-of-stake consensus algorithm. Considering the various delays that occurred in the transition, the Difficulty Bomb will be for most of them Ethereum forks however postponed. This will probably happen until the release of Ethereum 2.0, in which mining will be abolished.
What EIP-3541 This update invalidates some older types of smart contracts and prepares the network for this newer format. It merely sets the course for future growth and is one of the less common but important Ethereum EIPs in this article.
London Hard Fork paves the way for the future
Now that these major Ethereum EIPs are in place, we are likely to see significant moves in Ethereum price over time. Everyone is waiting with bated breath for the move to 2.0, which will shake the entire consensus method and force all users to change their approach to this network. Provided that there are no more delays, Ethereum 2.0 should become a reality by the end of the year.
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