The Ethereum upgrade to the London Hard Fork will include EIP-1559, which will reduce the amount of ETH miners receive. Is that a curse or a blessing for the Ethereum miners?
The London Hard Fork, a planned upgrade for Ethereum, will first be checked and installed on test networks.
Ethereum Foundation’s Tim Beiko announced today that the London Hard Fork will go live on Testnet Ropsten around June 24th, followed by Goerli on June 30th and Rinkeby on July 7th.
As soon as the upgrade has been successfully activated on these networks, a block is set for the Ethereum mainnet. That should be in July.
The London upgrade will implement five separate Ethereum Improvement Proposals (EIPs). These are changes to the blockchain code that must be widely accepted by community members before they can be adopted.
The most controversial change is EIP-1559, which was originally proposed by Ethereum creator Vitalik Buterin. It changes the way network fees work and how the miners, the people who run the software that processes all the transactions and shapes new ETH, are rewarded.
Currently, every time someone makes a transaction or interacts with a smart contract on Ethereum, they have to set a fee, which is more or less a guessing game. To get a transaction through quickly, you can set a high fee, which almost ensures that the miners put it in a block.
If the fee is set too low, that transaction will likely wait until miners are less busy processing higher-paying transactions. Speed is important in several cases, including when trading on Ethereum-based decentralized exchanges like Uniswap, where token prices can fluctuate quickly. Traders lose money if they wait. This has often led to criticism from the community in recent months.
To solve this problem, EIP-1559 will double the capacity of blocks.
That means that most of the time, blocks will have an additional 100% of their capacity to fill with transactions. So as long as a transaction is sent with a higher fee than the base fee and contains a tip for the miner, it will be included in the next handful of blocks.
The added transparency is touted as an improvement in the user experience. Some miners, however, claim that it is detrimental to their experience. Under EIP-1559, this basic fee is burned instead of going to the miners. The idea is to turn ETH, which has no supply limit like Bitcoin, into a deflationary asset, or at least to create deflationary pressure.
Less ETH in circulation should theoretically be good for miners because it can increase the demand and exchange price for Ethereum, which miners still receive as a reward when they create a new block.
SparkPeople, the largest mining pool in Ethereum, is not convinced and has spoken out against the change. In February, he wrote:
As long as London is only on test networks, it’s just experimental robbery. But the upgrade is almost there.
It is possible that this upgrade could cause Ethereum miners’ revenues to collapse by up to 50%, which used to be a reason for attempting a miner revolt, as it is now called. However, the situation seems to have calmed down since the first reaction.
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