- Ethereum’s London fork brings some long-awaited changes to the platform that are not welcome for everyone.
- Ethereum 2.0 is moving from the proof-of-work to the proof-of-stake model.
- Miners will get less income from the new system.
The world’s leading platform for decentralized applications, Ethereum, is facing some changes this week. In what is known as a “hard fork”, the underlying software code of the digital currency will change some or all of its fundamentals.
As every time the Android operating system got an update, it was named after a desert – KitKat, Lollipop, Nougat, etc. – the update for Ethereum is called “London”.
Many have touted the update for its intent to reduce the amount of energy required to verify a transaction by 99%. But not everyone is so excited about the upcoming changes.
Miners may earn less per transaction
The biggest change in Ethereum 2.0 is the fact that it adopts a new method of rewarding miners. So far, the Ethereum platform has rewarded miners for validating transactions that take place every few seconds, while also giving transaction fees – also known as gas fees – to these miners for each transaction.
This is the largest source of income for miners involved in the Ethereum community and is a model called the “Proof of Work” as they are rewarded for their work.
After the London Fork, the transaction fees will no longer be passed on to the miners, which means they will lose a large source of income. The new “Proof of Stake” model also requires miners to contribute a stake in the form of their own ether. Only a select number that makes the largest bets will be rewarded for validating transactions.
This means that most miners, especially those with smaller inventories, lose a massive loss of sales. Those who still get rewards get less.
On the other hand, the new changes will reduce the computing power in Ethereum mining and also lower the gas fees, which can currently be as high as $ 150 and will be a major obstacle in building new platforms on Ethereum.
As Coinmarketcap pointed out, “While nothing prevents miners from becoming validators, a small problem lies in the fact that many of them have expensive equipment that is now serving no purpose.”
There is a way for users to tip miners for urgent transactions, but that is a fraction of the gas charges. “Instead of pocketing 100% of transaction fees, miners only get tips from users through an optional” lock-in fee “paid optionally by users seeking priority for their transactions,” Coindesk wrote.
Limitation of the supply of ether
The transaction fees associated with Ethereum transactions may not go to the miners, but the users still have to pay them. With the London Fork, these fees go to an inaccessible ether wallet, which is referred to as a “burning” token in crypto parlance.
Essentially, every transaction will take some of the currency off the market, which, according to Tim Beiko, an Ethereum developer, will create “deflationary pressure on the network.”
Since the supply will be more limited than before, the price of Ether on the market is likely to rise. And unlike Bitcoin, which only allows 21 million coins to ever be on sale, Ethereum has no such cap. This step will put such a cap.
“One reason for the relative premium of BTC is the fixed offer, which may make it more suitable as an asset for long-term value storage than one with an endless supply. With EIP-1559, ETH is taking the first step to reduce emissions, with supply likely to peak Feb 2022, ”tweeted Lucas Outomuro, Head of Research at Into the Block.
More difficulties in mining
Additionally, Ethereum 2.0 will also actively discourage PoW mining by making calculations much more difficult over time. The London Fork, aptly referred to as the “Difficulty Time Bomb,” employs a system in which the calculations computers must perform to validate transactions become increasingly difficult over time. It will eventually lead to an “ice age” in which the difficulty is practically impossible to overcome.
“Finally, and perhaps most importantly, the merger encourages everyone to jump on the proof-of-stake system or risk staying in an unusable chain,” Ethereum’s client network provider Nethermind wrote in a tweet.
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