Ethereum, the technology underpinning the ether cryptocurrency, has just activated its “London” hard fork.
The upgrade to the digital ledger – and the world’s second biggest cryptocurrency – changes the way transaction fees are estimated.
Currently, users must bid for how much they would pay to have a transaction picked up by a miner, which can be considerably expensive. Users who wanted to prioritise their transaction would pay a premium to get a preferred status.
Under this fork, the process is handled automatically with a set fee amount based on network congestion, making it more predictable.
Every part of the transaction fee will then be burned, or removed from circulation, reducing the supply of ether and could increase its price.
Users will now pay a base fee, algorithmically determined by network use, but could pay miners a ‘tip’ to have it transacted faster. This change means the fee will now be more stable, with users able to wait for a potentially lower price at a later time.
This would be “extremely beneficial” for investors, Eric Conner, Eric Conner, a co-author of the Ethereum Improvement Proposal (EIP-1559) included in ‘London’, told CNBC, especially “with all the recent talk of inflation in the United States.”
There are four other code changes included in the fork, which is the eleventh of its kind, but this upgrade to transaction fees are seen by experts as the most vital.
The changes are necessary due to the explosion of interest in NFTs (non-fungible tokens) which are the equivalent of digital signatures for online-only art or services. NFTs use the ethereum blockchain, and as such the technology has suffered scaling challenges to keep up with demand.
Several exchanges, including Binance, have announced a short-term pause on the buying and selling of ethereum due to the fork.
“Until it’s deployed, we don’t know exactly what the effect will be in terms of ether burned,” Ben Edgington, an Ethereum developer at ConsenSys, told Markets Insider.
While this means that miners will not be able to profit as much as they did before the fork, as the fee that they would collect is now burned, it is hoped that the value lost will be made up with the increased price of ethereum.
Unfortunately another proposal, called EIP-3554, is being released alongside EIP-1559. This paves the way for ethereum 2.0, a complete overhaul for the system that will be coming in December, which means it will switch from the high-energy “proof of work” system to “proof of stake”.
The former had miners solve maths equations to mint new coins, while the latter requires users to leverage their existing ether cache to verify new tokens.
This upgrade, called the “difficulty time bomb”, means miners will be forced to totally upgrade their software.