Ethereum (CRYPTO: ETH) successfully implementing the controversial London hard fork this week reassures the blockchain's co-founder Vitalik Buterin that the network will easily transition to proof-of-stake (PoS) and cut most of its energy consumption.
What Happened: During an interview with Bloomberg published on Thursday, Buterin said that the success in applying the London network upgrade is “proof that the Ethereum ecosystem is able to make significant changes," hinting at the network's upcoming transition to PoS.
Understanding the reasoning behind Buterin's statement necessitates some notion of how blockchains and forks work. Most blockchains (or even all "real" blockchain if you ask old school proponents) are meant to be decentralized not only in network infrastructure but also in governance. This means that there is no centralized third party able to push a software update to all miners and node operators involved in running the network.
As a consequence of this, blockchain developers — such as Ethereum's core development team — have to coordinate people involved in running the network and convince them to actually implement the update. If a part of the community does not like an update then they often decide to keep running the old version of the software. In this scenario, if it was a so-called soft fork then the update can fail and if it was a hard fork the network splits into two separate and independent blockchains.
This has already happened when Ethereum developers decided to perform a hard fork to recover the funds stolen in The Dao's hack. A part of the community was against the change — since all transactions were meant to be final and no third party should have been able to alter them — and spawned the Ethereum Classic (CRYPTO: ETC) blockchain by refusing to run the newest version of the software.
Just like the hard fork that restored access to the funds stolen in The Dao's fork, the London hard fork also had its fair share of opponents. Mostly, the miners who had their revenues slashed by this update's Ethereum improvement proposal (EIP) 1559.
Why It's Important: EIP-1559 causes most of the Ether paid as fees for processing transactions on the network to be burned (destroyed forever) instead of paying it to miners. Investors, on the other hand, are quite happy about it as this means that thousands of Ether are destroyed each day and after the blockchain transitions to PoS it will probably become deflationary due to the lower coin issuance rate.
EIP-1559 saw the stark opposition of miners and many mining pools (organizations that allow miners to collaborate in their efforts). Dedicated website Stop EIP-1559 lists 8 favorable pools and 12 against, claiming that the favorable pools are large organizations with large Ether reserves whose interest in earning on their Ether investment is bigger than keeping mining as profitable as possible.
The website claims that "miners are no longer vital to the Ethereum developers or big mining pools because they’ve made their money, and now miners are an embarrassment." This is presumably an attack on the plans to transition to PoS eliminating miners altogether and the fact that the public is starting to be concerned about crypto mining's effect on the environment, which previously resulted in Tesla dropping Bitcoin.
In a way, the same people who will oppose Ethereum's transition to PoS had reason to oppose EIP-1559, just with less motivation since a slash to their profits is less dramatic than them being forced out of the network altogether. For this reason, Buterin feels like the London hard fork being successfully implemented without too much fuss makes him more confident in the success of the future transition to PoS.
See more from Benzinga
© 2021 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.