This past week Ethereum rolled out a big update named “London”, we’re going to sum it up but first a few definitions. A Hard fork is basically a permanent update; EIP is an Ethereum Improvement Proposal---just what it sounds like, it’s a proposal to update Ethereum; burning is destroying (or permanently locking away) tokens. Since the update to the Ethereum protocol went live, there is roughly 3.7 ETH (~$10,000) being burned per day! We breakdown each proposal below, but there is a summary at the end. Here’s the nitty gritty details for each EIP:
- EIP-1559: Changes that cut the cost of transaction fees; burning some of the fee so that the total supply of Ethereum starts to decrease. People are really excited about what this means for the economics of ETH if the total supply starts to decrease because it’s expected to drive up the price.
- EIP-3198: This is a companion to EIP-1559, it includes a basefee for use in the 1559 changes, and allows for return of fees beyond what was required to transact (one of the mechanisms making the cost more efficient).
- EIP-3529: Changes some of the refunding mechanisms on chain. In practice, the mechanism that this changes was causing large variances in block sizes (taking swings from ~50% to ~20%).
- EIP-3541: Small change that identifies contracts running on the new protocol and enforces the change over.
- EIP-3554: Delays the “difficulty bomb”, which is the cut over to Proof of Stake (PoS), which will take effect December 1st, 2021. There have been multiple delays before due to PoS not being ready, but this is the shortest one so far. This is a good sign that core developers are confident about PoS coming soon.
Bottom Line: Ethereum rolled out some deflationary mechanisms and cost efficiency improvements, so it should cost less to do things in Ethereum and the value of each ETH should increase as the supply decreases.
If you want to read the details on all these proposals, here’s a link to the community project management post.