What is this ETH update that everyone is talking about?

 

Ethereum London fork service update


Ethereum London Fork and its most important improvement proposal, EIP-1559, is coming very soon. The London Network upgrade is scheduled on 5th of August, 2021 at Ethereum block height 12,965,000 at approximately 8:35 AM EST

Long-anticipated London Network Upgrade includes 5 Ethereum-Improvement-Proposals (EIPs):

  • 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 1st, 2021

Currently, Ethereum users send ETH over the blockchain and therefore pay transaction fees, also called gas. By paying transaction fees (gas), a sender is paying miners to include his transaction in the block. The miner then adds the transaction to the block and is paid by the block reward which is currently 2 ETH per block. The miner is also rewarded with the gas of all the transactions included in the block. So the actual reward of a miner is 2 ETH + transaction fees.

EIP-1559 explained

As explained above, currently the transaction fees are rewarded to the miners. This way the Ethereum coin supply in circulation is only growing and technically causing inflation. EIP-1559 proposes the transaction fee to be burned instead by the protocol. This should counterbalance the Ethereum inflation.

The EIP-1559 proposes that all transactions cost the same base fee at the start. The base fee can then be adjusted by the protocol based on how congested the Ethereum network is (more transactions = more congestion = higher base fee). When the network congestion is high, the base fee is increased slightly, and when the transaction volume is below the target, the base fee is decreased.

Will EIP-1559 affect mining?

The proposal will not affect mining as it is. It will most likely affect the profitability of mining. As we are used to, when there are a lot of transactions on the Ethernet network, the fees are increased the miners receive higher rewards. You can learn more about why profitability changes here. After the London Fork, the fees will be burned at the miners will not receive them as they did before. This will eliminate the profitability spikes that we have experienced from time to time. 

The general mining profitability should not change dramatically as Ethereum will be burned. This will lower a circulating supply and should, in theory, provoke a price increase.











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