Ethereum’s London hard fork is the platform’s biggest news in years, and it has a huge potential impact on the people that use and contribute to the Ethereum network. Even if you don’t believe that cryptocurrency is the future of money, the Ethereum blockchain has many applications that aren’t strictly monetary.
If you use Ethereum, you should understand what the London fork means for you, and if you don’t use Ethereum, you should understand what the London fork means for blockchain.
Ethereum’s Road to the London Fork
Ethereum is one of the oldest and most used cryptocurrencies. “Ether,” the coin generated by and used on the Ethereum blockchain, is a non-backed, non-pegged cryptocurrency, meaning that its value is determined entirely by supply and demand.
The network is partially decentralized. That is, it is maintained by dispersed node operators who work together to achieve consensus. However, it also has a board of founding members and a more visible and cohesive organization than, say, Bitcoin.
Also, unlike many other cryptocurrencies, the Ethereum blockchain does more than just record transactions of the currency itself. The Ethereum blockchain is also used as a foundation for decentralized applications. This ability creates a huge opportunity for Ethereum but also presents obstacles. Using the blockchain for decentralized applications means that more people were using the network than supporting it, leading to scalability problems.
Understanding Forks
In computing, a “fork” is a change in open-source software agreed upon through the consensus of the people that operate or maintain it. In cryptocurrency, there are hard forks and soft forks. Soft forks are typically minor changes or patches that don’t drastically impact the network and its users. Hard forks are more significant changes that create a new version of the blockchain.
In some cases, hard forks have resulted in an alternate version of the blockchain with enough supporters to maintain it, resulting in a new cryptocurrency. In most cases, because forks arrive through consensus of the network in the first place, the old protocol does not have enough supporters to maintain the network, and a new cryptocurrency does not materialize (or at least, not last for very long).
We’ll look more at the resulting Ethereum chains later in the article. But, first, we need to cover what the Ethereum London hard fork is specifically.
What Is the London Hard Fork?
The London hard fork is the most recent part of Ethereum’s move to “Ethereum 2.0.” This slow-burn, multi-faceted reinvention of Ethereum does two main things: it switches Ethereum from a Proof-of-Work (PoW) protocol to a Proof-of-Stake (PoS) protocol called “Casper,” and it makes Ethereum a potentially deflationary asset.
Switching Ethereum to a New Finality Protocol
Proof of Work is the cryptocurrency protocol you’re probably most familiar with, in which miners perform the computations to verify transactions and are rewarded with tokens. Proof-of-Stake protocols are essentially the opposite, in that transactions are verified by token holders, similar to how stock and voting works in public companies.
This switch will have a couple of impacts, but one of the main reasons the Ethereum organization is implementing it is because PoS protocols do the same job as PoW protocols but require less power. PoS protocols also increase the number of people potentially involved in supporting the network, taking pressure off of over-tasked node operators and helping the blockchain to operate at a larger scale.
EIP-1559: Allowing for Deflationary Ether
On most Proof-of-Work protocols, the number of coins in circulation only goes up because they are produced as the blockchain grows, making cryptocurrencies that use this protocol inherently inflationary (Bitcoin bucks the trend with its limited supply). This isn’t necessarily the case in a Proof-of-Stake protocol, so Ether can become a potentially deflationary asset.
Ethereum Improvement Proposal 1559 will allow the removal of coins from circulation through the fee schedule in a process called “burning.” Essentially, the gas fee for a block will fluctuate based on usage above or below a standard gas fee.
Deflationary crypto can ensure that the token circulation reflects the size of the active network to help make prices more stable. If this sounds familiar, it’s probably because this is essentially a cryptographic version of the same tools that central banks use to control circulation and inflation in national currencies.
However, with the ability to burn Ethereum with every transaction comes another issue: Ethereum miners lose those transaction fees. Estimates put the overall loss of earnings for Ethereum miners between 20-50 percent of previous income levels. So, as you might expect, EIP-1599 and the Ethereum London hard fork isn’t the most popular Ethereum update among miners.
What the London Hard Fork Means for Ethereum
Forks are a little less dramatic for Ethereum than they are for less-centralized cryptocurrencies like Bitcoin. By being more organized, the Ethereum organization can develop longer-term plans that make forks a little less scary.
For example, the Ethereum FAQ page says that “It’s not accurate to think of Eth2 as a separate blockchain” because of a planned “merger” event down the road. As a result, even though some crypto-zealots are likely prepared to plant their ideological flag on PoW, the odds that the hard fork will functionally create a new long-term cryptocurrency are pretty low.
As far as more mundane processes go, the fork should do what it is intended to do: create a more secure, more scalable, and more sustainable Ethereum.
One Step Closer to Ethereum 2.0
Forks are usually times of great uncertainty for a cryptocurrency and its community. However, Ethereum is in a better place than most to roll out these changes in controllable ways. Switching protocols is a lot to get used to, but it isn’t going to break the blockchain.
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