Ethereum London: What is it?

Published On: September 22nd, 2021

What is the Ethereum London hard fork? The long-awaited update occurred last week at block height 12,965,000, marking the start of Ethereum Improvement Proposal (EIP) 1559. London changes the blockchain’s transaction fee model. With that upgrade, Ethereum will now undergo a significant overhaul of the network transaction fee market and other parameters, such as gas rebates. The most important aspect to note is that the Ethereum network will set transaction fees with a base fee for each block rather than bidding on gas prices. According to EIP-1559, every transaction on Ethereum will involve burning the base fee, which automatically decreases the circulating supply of Ether (ETH). Joseph Lubin, co-founder of Ethereum and founder of ConsenSys, described the London update as part of a journey to make ETH become what is called “ultra sound money.” This is focused on decreasing the supply of ETH, thanks to all these changes and upgrades. Ethereum London: What is it? 

Ethereum 2.0 (Serenity) is planned for release in 2022, so this London update paves the way to move from Proof of Work (PoW) to Proof of Stake (PoS). ETH supply will likely decrease when PoW issuance is eliminated, leaving only PoS issuance. Since London is a hard fork, all nodes must use the new rules and the latest version in order to continue mining and validating. The most significant change, as we indicated above, will be in transaction fees, including a new deflationary mechanism. Previously, users would submit a bid to pay their gas commissions. Miners would prioritize transactions based on the users’ commission and use the commission as a reward. Now, each block will have a fixed commission associated with it. This change comes as a result of EIP-1559. So…Ethereum London: What is it? 


What is an EIP? Ethereum London: What is it? 


Ethereum Improvements Proposals (EIP) are technical documents in which the Ethereum community makes proposals for improvements in the design and development of the network. It serves for its developer to propose and explain in detail a new feature or improvement for Ethereum. The goal is to propose to the community the future of the project and give everyone a chance to discuss it. An author of an EIP must follow an established process before approving the EIP, which includes peer review and drafts. Once the community is satisfied with the proposal, they can add it to a release.


To get the proposal approved, the author of an EIP is responsible for generating consensus within the community, as well as documenting dissenting opinions and providing clear responses to arguments that are against his or her proposal. EIPs have become an interesting tool, as they allow developers to plan the future of Ethereum, propose improvements, leave it documented and make this information available to everyone. 


What is EIP-1559?


EIP-1559 is a proposed change to the way users pay gas commissions on the Ethereum network. This EIP was created by Vitalik Buterin, co-founder of Ethereum, and a team of other developers, to make transactions on Ethereum more efficient. 

Currently the Ethereum network has an auction system that determines which transactions are grouped within which blocks. The more a user is willing to pay, the more likely a miner is to include a transaction. The more crowded the network, the higher the fee, which means users have to take network congestion into account when they want to calculate the total cost of transacting across the network. By switching to EIP-1559, the system will be replaced by a fee structure that the network calculates automatically. In addition, a tipping system will be introduced so that people who want their transactions to go faster can pay a miner to do so. 

What was the initial issue that led to this change? The average commission paid by Ethereum users has become too expensive for small transactions in recent times. These high commissions make the network less attractive, especially for beginners.

EIP-1559 proposes a new transaction pricing mechanism that will instead create a base commission for each block. The blockchain will burn the commission, reducing the overall supply of Ether (ETH): this will generate deflationary pressure on the cryptocurrency. Also users can add a tip for the miners, as an incentive to shorten their transaction time. However, Ethereum tries to keep the blocks 50% full even without tips. 

Vitalik Buterin has hailed the success of the London hard fork and added that it has given him more confidence about the upcoming Ethereum 2.0. He also argued that EIP 1559 is definitely the most important part and that the successful implementation of the London is proof that the Ethereum ecosystem can make significant changes. The update changed the fee generation mechanism, which resulted in burning a portion of the fees.


What is EIP-3238?


There is a concept called “time bomb difficulty”, which makes Ethereum mining more and more difficult. When we reach time bomb difficulty, the time it takes to mine a new block will be very long, so transactions will be too slow and the profitability for miners will decrease. The developers want to make sure that miners have no choice but to stop mining Ethereum 1.0 and move to Ethereum 2.0 once it is released.

However, the network would reach this point too soon. To ensure that the blockchain incentivizes validators to Ethereum 2.0’s Proof of Stake consensus model at the right time, EIP-3238 will delay this “ticking time bomb.” If not delayed, there could be a possibility that miners will continue to use Ethereum 1.0, similar to the split between Ethereum and Ethereum Classic. With EIP-3238, the difficulty of mining will be raised to discourage mining, encouraging miners to definitely switch to Proof of Stake (PoS), achieving network-wide consensus. 


Adoption or resistance within the community?


The markets are excited about this possibility, as a reduction in ETH issuance could create pressure on supply: the amount of new ETH coming into circulation now will be limited. This could be compared to the Bitcoin halving that takes place approximately every four years, in which the amount of new BTC coming into circulation is reduced, causing price increases. While it cannot be stated with certainty, these deflationary mechanisms are expected to raise the price of ETH. Such an expectation could be related to the fact that, after the upgrade, Ethereum will burn the ETH base commission from all transactions. 

But not everyone is satisfied: the proposed upgrade has met with resistance from some mining pools. This presents a dilemma for the Ethereum network, as more than 50% of the total Ethereum network hashrate opposes this move.

While miners are already preparing to end Proof of Work with Ethereum 2.0, this update significantly alters the commissions they receive. Another concern is that Ethereum mining could become more centralized: some argue that only the largest miners with the lowest energy costs will be able to operate at a profit. 

For users, meanwhile, the London upgrade will work similarly to an offer. Currently the more you pay for transaction fees (or gas costs), the more likely your transaction will be quickly selected and validated by miners. But after the London upgrade, you will no longer need to select the gas price you pay when transacting with Ethereum.

Instead, when you want to trade you will simply see the base commission, plus an option to tip the miner. However, the base commission may change between the time you submit a transaction and the time it is added to a block. To avoid this, you can set a commission limit as the maximum you wish to pay. If a miner includes your transaction in a block where the base commission is lower than your commission limit, the network will reimburse you the difference.




London will be one of the most important updates so far related to user interaction with Ethereum. The likelihood of a decrease in transaction prices and times is now quite a bit more likely for all the reasons we have discussed above, but it is not yet guaranteed.

Ethereum 2.0 PoS transition is planned for 2022, so the implementation of the London hard fork is still time-limited and temporary.


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