Ethereum Arrives to London, Price Jumps, Exchanges Pause Deposits/Withdrawals 101
Source: Adobe/Beautifulblossoms

The highly-anticipated Ethereum (ETH) London upgrade is here, bringing with it the revamp of the network’s monetary system through the Ethereum Improvement Proposal, or EIP, 1559.

The price of the second cryptoasset by market capitalization has been rising in the past week ahead of this upgrade, going up 14% in that time. It’s unchanged in a day. At 13:38 UTC, it was trading at USD 2,624. This is its highest price since early June.

It had hit its record high of nearly USD 4,357 (per Coingecko) in May, falling 40% since.

Some major exchanges have decided to suspend ETH and ERC-20 tokens deposits and withdrawals during the time of upgrade. Binance said this is done to reduce the trading risks brought about by price volatility and to maintain the safety of user funds during the fork. Crypto exchange OKEx has made a similar statement as well. BitMEX announced that three BitMEX contracts and two BitMEX indices will be impacted by the upgrade and that these markets will be open during the fork.

Imagine Apple shares being burned

The London upgrade follows April’s Berlin upgrade, and it includes five EIPs.

The most talked-about in the recent months is EIP-1559, and it’s accompanied by EIP-3198 and EIP-3529. Two other included proposals are EIP-3541 and EIP-3554, the first of which is meant to set the stage for broader Ethereum Virtual Machine (EVM) improvements, and the second to delay the difficulty bomb, aka the ice age, to December 1.

As for EIP-1559 itself, as reported in more detail, it brings an automatic token burn mechanism for each transaction, and is expected to help improve the fee market.

It should enable better transaction fee estimation and allow for more reliable transaction inclusion, as well as at least modestly decrease the rate of ETH inflation through the burning of transaction fees, among other points.

It will not, however, lower the gas prices in the long run, nor make ETH deflationary by default.

Ross Middleton, CFO of the DeversiFi exchange, called the upgrade “a huge day for the Ethereum cryptocurrency ecosystem,” saying that now every transaction, non-fungible token (NFT) purchase or loan on the Ethereum network will result in ETH being burned out of existence.

“The equivalent would be Apple Inc burning AAPL shares every time someone bought something from the Apple App store or made an in-app purchase,” said Middleton.

During the Bankless livestream, a number of key people in the Ethereum ecosystem confirmed that the upgrade went live and continued to monitor different aspects for possible issues.

“Everything is burning ETH as expected,” Ethereum developer Trenton van Epps said.

Just 10 minutes in, nearly ETH 3 have been burned, the participants noted. Some 4 minutes later, it was more than ETH 8.

Hasu argued that the current burn rate will not last forever.

Patience and warnings

Many of the changes brought by this EIP and the upgrade in general will not be visible overnight. Additionally, a number of industry insiders, such as MyCrypto CEO Talyor Monahan, have been warning users to lower their expectations, and be aware that there may be issues coming with the fork as well. For example, we’d seen problems occurring during the previous, Berlin upgrade.

Others have noted that a variety of issues and bugs can pop up, but also that this particular EIP has been tested extensively.

During the livestream today, software developer and engineer Hudson Jameson noted that people would know that something went wrong as the few key people would be “leaking stuff over Twitter” slowly, and without panic.

The participants also noted that there’d be some effect on the hashrate, but that it’s currently hard to say in what way exactly.

The EIP-1559 contributors described the EIP as “an incredibly complex change, the largest done on Ethereum mainnet to date, which will improve both the user experience and economics of the entire network.” They added that “the engineers, researchers, and other contributors will not directly capture any of the ultimate benefit to the network.”

As of the time of writing on Thursday, 77% of clients are ready for the upgrade, per ethernodes.org data.

In order to be compatible with the London upgrade, node operators will need to update the client version that they run.

“If you are using an Ethereum client that is not updated to the latest version […], your client will sync to the pre-fork blockchain once the upgrade occurs. You will be stuck on an incompatible chain following the old rules and you will be unable to send Ether or operate on the post-upgrade Ethereum network,” wrote the Ethereum Foundation community manager Tim Beiko.

Beiko told Cryptonews.com that “if people have not upgraded their nodes, then they will need to the next time they use it.” It’s possible that some nodes did not upgrade, and “they stop being valid peers on the network until they do.” It happens because people forget, or miss the announcement, etc.

“It is also worth noting that these crawler websites don’t have a full view of the network, so the numbers may be misleading. They are likely roughly right, but I would not give too much weight to the specific percentages,” Beiko noted.

As for the wallets, Eric Conner, EIP-1559 co-author, said that MetaMask, for example, can still work even if not supporting the new transaction fee path. “Legacy [transactions] are still supported, not all wallets will flip over at once,” he added.

However, MetaMask confirmed that they are rolling out the support for the upgrade.

As for the much-discussed priority fee/tip, Beiko said that users “want to pay miners a priority that’s high enough that if they include their transaction, it is net profitable for them,” providing additional math in the thread.

Also, Hasu tweeted answers to two major questions asked within the Cryptoverse.

If wallets aren’t ready for EIP-1559 from the start, old transaction format stays compatible, and gas price is converted to the new format (max basefee + tip the user is willing to pay). “Be careful not to overpay for [transactions] as a result,” he said.

Also, all transactions, including the legacy ones, are handled according to the new format, so miners have to burn ETH to include them.

Meanwhile, this is just one upgrade on a long path that is the unrolling of Ethereum’s second iteration, ETH 2.0. According to Joe Lubin, CEO of Consensys and co-founder of Ethereum, this iteration will be “a paradigm shift.”

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(Updated at 13:39 UTC: updates throughout the entire text.)

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