Ethereum’s London hard fork came into effect smoothly Thursday morning.
The London hard fork, like a “fork” in the road or in any blockchain, occurs when the path splits in two. A change in code means that there is both a newer and an older branch. In a soft fork, the two post-fork chains remain compatible with one another, as was the case with the SegWit fork in Bitcoin in August 2017.
In a hard fork, such as London, though, the two branches will not be compatible. Each will proceed as if the other does not exist.
Despite the name, the London hard fork has no special connection to the City of London: there have also been forks named for Berlin and Constantinople.
“London” introduced certain software upgrades generally deemed necessary for Ethereum, and for the cryptocurrency it supports, Ether, the world’s second-largest cryptocurrency.
Buy on the Rumor?
In a 24-hour period leading up to the fork, the value of Ether rose 3.9%.
But this may have been an example of an old traders’ adage: buy on the rumor, sell on the news. By the time any good news actually IS news — officially, publicly, etc.– it has already been discounted into the price and is no longer driving that price upwards. Best, then (so runs the theory) to sell the asset and take one’s profits off the table.
As of this writing, traders have not acted on that adage. The pattern seems to have been, “buy on the rumor, hold on the news.” The price of Ether remains as of 3:30 PM (eastern) in the neighborhood of $2,800., the target it reached in its pre-fork surge.
Ether’s value became very volatile this spring due to the market interest in nonfungible tokens (NFTs), which are chiefly built on the ethereum blockchain, and the development of decentralized finance (DeFi), which is likewise an ethereum phenomenon.
The volatility from those sources sent Ether (ETH) up to $4,000 briefly in early May, then down to $1,800 in late June. Lower vol is one of the effects sought from the Hard Fork.
What are the Changes?
The upgrades are known as EIP (Ethereum Improvement Proposals). The most debated among them is EIP 1559, which doubles the block size and abolishes the “blind auction” system by which the transaction fee (gas price, as it is known) had been determined. Some buyers were willing to pay premiums to get into a block, but then they’d feel cheated having “won” the auction by too much. The blindness of the auction almost ensured volatility.
The new system sets transaction fees algorithmically based on overall network demand.
An even more important EIP creating the hard form is 3554, which paves the way for a comprehensive overhaul, Ethereum 2.0. The network will switch from an energy-intensive “proof of work” mining system to a “proof-of-stake” system where users leverage their existing ether cache to verify new transactions and mint new tokens.
Given climate change concerns, there has been a fair amount of political pressure on the whole cryptocurrency world of late to find some less electricity-menacing way of doing business. Proof-of-stake is an answer to that challenge.
How does 3554 prepare for Ethereum 2.0 specifically? It sets an important deadline, known as the “difficulty time bomb,” for December of this year. That is the time when old-fashioned mining is now set to become so difficult that even the most stubborn of the miners are expected to abandon the old code and adopt the new ways of minting.
The London hard fork could let Ethereum regain some of the market share it has lost of late to competing systems Binance, Polkadot, and Solana. It is up to the developers, who have to decide where to build their latest and upcoming projects, or even to which system to migrate existing projects.