The imminent upgrade will introduce sweeping changes to the way that miners are compensated for their work — and some of them aren’t happy.
Running a decentralized network isn't easy. With no single person in charge, whole communities end up being involved in implementing upgrades.
This brings us to Ethereum. The blockchain is currently in the throes of a huge transition. It’s moving from an energy-intensive proof-of-work algorithm (like the one used by Bitcoin) to proof-of-stake.
Already heavily delayed, Ethereum’s transformation can best be described as completely renovating your house while continuing to live in it. As well as being hugely cumbersome and challenging, there’s also a risk that a rogue beam could end up crashing on top of you while you’re sitting on the sofa.
Generally, the ETH community is rather excited about moving to PoS, not least because it should enable the network to handle many more transactions a second. There are also hopes that this added scalability will tackle high gas fees.
But as you’d probably expect, the arrival of Ethereum 2.0 isn’t without controversy. As its arrival comes closer and closer, other improvements are being made to the current PoW blockchain — and some critics aren’t impressed with what they’re seeing.
The London Hard Fork
The next major upgrade coming to the Ethereum blockchain is the London hard fork. Although it’s difficult to pinpoint exactly when it will be released, current thinking suggests that it’ll be on Wednesday, Aug. 4.
Contained within the hard fork are five Ethereum Improvement Proposals, otherwise known as EIPs for short. It’s here where we find the devil in the detail, and the reasons why a not-insubstantial-chunk of the community are unhappy.
Bitcoin has a fixed supply cap, meaning that only 21 million BTC will ever exist. By contrast, Ether is an inflationary cryptocurrency, and this means that there’s no upper limit on how many ETH can exist. Miners are rewarded with brand-new coins every time they validate a block, which happens roughly every 15 seconds. They are also compensated with the transaction fees that are paid by users.
EIP-1559, which is included in the London hard fork, aims to change this. Once enacted, miners will no longer receive income from transaction fees — instead, it’ll go straight to the network in order to be burned. This could result in the circulating supply of Ether beginning to dwindle over time, potentially giving ETH’s value a boost.
There are benefits here. One of them is that it should help make transaction fees a little bit more predictable for those who use the Ethereum blockchain. There has been widespread exasperation at the congestion we’ve seen on this network — exacerbated by the triple threat of a bull market, the explosion of NFTs and the thriving DeFi sector.
But understandably, some miners are annoyed that they’re going to lose a crucial source of their revenue — especially considering that the 2 ETH they get as a block reward these days is substantially less than the 5 ETH they received a few years back.
There are miners who are attempting to adopt a glass-half-full mentality when it comes to these changes. Users are still going to have a chance to pay tips to increase the chances that their transactions are handled with urgency. Plus, efforts to make Ether deflationary should ultimately mean the remaining ETH that miners receive as a reward will end up being worth more.
Miners are a crucial part of the Ethereum ecosystem. They’re the people responsible for keeping the blockchain running smoothly and validating transactions. However, the move to proof-of-stake will effectively render them obsolete. That’s because their responsibilities will shift to validators, people who actually have a financial interest in securing the network.
Although there’s nothing to stop miners from becoming validators, one small problem lies in the fact that many of them will have expensive equipment that now serves no purpose.
When it comes to EIP-1559, the real question is whether or not miners — who know they’re about to become redundant anyway — start throwing in the towel. It seems unlikely that there would be a mass exodus that would plunge the blockchain’s security into peril. However, a substantial number of departures could mean that mining ETH becomes more profitable for those who stay online. (This is a scenario that we’ve seen recently on the Bitcoin blockchain. After a large number of miners were forced to shut up shop because of China’s crypto clampdown, difficulty rates on the BTC network fell, meaning it became easier for others to validate blocks.)
It’s also worth taking a look at the breakdown of revenues that Ethereum miners have received over the past few months. Revenues hit an all-time high of $2.35 billion in May, coinciding with ETH’s jaw-dropping surge to $4,362.35. However, data from The Block shows that revenues fell by 53% in June to a more modest $1.1 billion. A fall in transaction costs meant that gas fees accounted for just $166 million of this. As a result, in an EIP-1159 world, they would still have pocketed $940 million.
Other Big Changes in Ethereum
Another notable Ethereum Improvement Proposal in the London hard fork is known as EIP-3554.
One looming threat for Ethereum miners comes in the form of a “difficulty time bomb” that will essentially make new ETH ridiculously hard to find — so much so that there won’t be a financial incentive. EIP-3554 will see this time bomb pushed back to December 2021, theoretically giving miners a little bit longer to get their house in order.
The other EIPs that have been included in this hard fork aren’t particularly glamorous. However, a detailed roadmap means that other upgrades are imminent.
The next big milestone to expect is being dramatically referred to as “the merge” — enabling the Ethereum mainnet to dock with the already-live Beacon Chain, meaning that staking will be able to take place across the entire network. It’s emerged that Eth2 researchers are working on ways to accelerate this process — and as a result, it could take place earlier than initially expected.
This will be followed by shard chains that will expand Ethereum’s capacity to process transactions and store data, too.
Do ETH Owners Need to Do Anything?
Ethereum Foundation developer Tim Beiko has stressed that Ether owners who use crypto exchanges, web wallets, mobile wallets or hardware wallets won’t be affected by the London hard fork — and won’t need to take any actions unless they are instructed to do so by their provider. However, those who run their own node will need to download the latest version of their Ethereum client.
He also revealed a fun fact as to why hard forks are named after cities: they’re inspired by the places where conferences for developers have taken place.
To cut a long story short, the London fork fires the starting gun on massive changes to the way miners operate on the Ethereum blockchain — and soon, they will be extinct.
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