London Fork: The New Ethereum Monetary System

On August 5th, 2021 the London Hard Fork was implemented in Ethereum to make transaction fees more predictable for users and as a solution to challenges in price volatility and scalability issues. To illustrate, the DeFi market makes an exceptional example.

The decentralized finance (DeFi) market size according to Statista (2021) is about $88 billion dollars, as measured by the amount of cryptocurrency locked which has increased exponentially since June 2020. The increase has to do with new appliances in the DeFi market and their popularity that has increased the congestion and pushed transaction fees to new highs. DeFi appliances give users more control over the data the apps manage and expand the utility of cryptocurrencies to more complex financial use cases such as security tokens, secondary market places, digital loans, shares, bonds, derivatives, tokenized fund shares, among others (Hertig, 2021). In response to these challenges, Vitalik Buterin proposed EIP 1559 which outlines a major change to Ethereum’s transaction fee mechanism.