Ethereum’s ecosystem is poised for two major upgrades in the near future: the London Upgrade and the upcoming Shanghai Upgrade. These changes are set to bring foundational shifts to the network’s fee structure, tokenomics, and consensus mechanism.
The London Upgrade introduces EIP-1559, which overhauls Ethereum’s gas fee model and adds a burn mechanism for ETH. It also includes EIP-3529, which will render existing Gas Tokens obsolete. Later, the Shanghai Upgrade is expected to merge ETH1 and ETH2, transitioning the network to Proof-of-Stake (PoS) and altering ETH’s issuance model.
Let’s break down what the London Upgrade entails and why it matters.
Key Dates and Testing Phases
The Ethereum community has targeted July 14 for the mainnet London Upgrade. However, the final date depends on the successful rollout across testnets. As of the Ethereum Foundation’s June 18 announcement, the testnet schedule is as follows:
- Ropsten: June 24 (block height 10,499,401)
- Goerli: June 30 (block height 5,062,605)
- Rinkeby: July 7 (block height 8,897,988)
- Kovan: To be determined, possibly after the mainnet upgrade
Once all testnets are upgraded successfully, a firm mainnet date will be announced.
Major EIPs in the London Upgrade
The London Upgrade includes five core Ethereum Improvement Proposals (EIPs):
- EIP-1559
- EIP-3198
- EIP-3529
- EIP-3541
- EIP-3554
Each serves a distinct purpose in enhancing the network’s functionality and efficiency.
EIP-1559: Gas Reform and ETH Burn
EIP-1559 is the centerpiece of the London Upgrade. It reforms Ethereum’s transaction fee mechanism by replacing the first-price auction model with a hybrid structure consisting of:
- A base fee, which is algorithmically adjusted based on network demand and burned
- An optional tip paid to miners for transaction prioritization
This new model aims to make gas fees more predictable and stable. The base fee will increase when the network is busy and decrease during quieter periods. Moreover, the burning of the base fee reduces ETH supply, potentially making ETH a deflationary asset in the long run.
Users will set a feeCap (maximum they are willing to pay per transaction) and a tip for miners. Wallets and dapps are expected to simplify this user experience.
👉 Explore more strategies on gas optimization
EIP-3198: BASEFEE Opcode
EIP-3198 is a complementary upgrade that introduces the BASEFEE opcode. This allows smart contracts to access the base fee of the block in which they are executed, enabling more sophisticated gas-sensitive contract logic.
EIP-3529: Reduction in Gas Refunds
This proposal reduces gas refunds for certain operations, specifically for SSTORE and eliminates them for SELFDESTRUCT. The change is designed to discourage state bloat—a situation where unused data congestes the blockchain.
A major side effect is that Gas Tokens like CHI and GST2 will become ineffective after the upgrade, as they rely heavily on refund mechanisms. Holders are advised to use or sell these tokens before London goes live on mainnet.
EIP-3541: EVM Object Format (EOF) v1
EIP-3541 is a developer-focused upgrade that restricts new contracts starting with the 0xEF byte from being deployed. This sets the stage for future EVM improvements like EIP-3540, which aims to make contract code more efficient and manageable.
Existing contracts are unaffected.
EIP-3554: Difficulty Bomb Delay
EIP-3554 delays the “Difficulty Bomb”—a mechanism designed to gradually make Proof-of-Work (PoW) mining more difficult—until December 1, 2021. This gives more time for the transition to PoS, expected to be finalized during the Shanghai Upgrade later this year.
The Difficulty Bomb ensures miners move away from PoW once Ethereum shifts fully to staking.
Implications of ETH Burning and Deflation
The introduction of EIP-1559’s burn mechanism is a landmark change for ETH’s monetary policy. In periods of high network activity, more ETH will be burned than issued, leading to deflation.
Sites like http://watchtheburn.com/ are already simulating burn mechanics on testnets. One simulation estimated that if EIP-1559 had been active over the past year, nearly 3 million ETH would have been burned.
Even with the growing use of Layer 2 solutions reducing mainnet fees, increased adoption could lead to higher net activity—and more ETH burned. This could create a new economic dynamic for ETH, aligning its value with network usage.
Frequently Asked Questions
What is EIP-1559?
EIP-1559 changes how gas fees work on Ethereum by introducing a base fee that is burned and a miner tip. This makes transaction costs more predictable and reduces ETH supply over time.
Will Gas Tokens still work after the upgrade?
No. Due to EIP-3529, which reduces gas refunds, Gas Tokens like CHI and GST2 will lose functionality. Users should spend or trade them before the upgrade.
When will the London Upgrade happen?
The mainnet upgrade is expected in late July or early August 2021, depending on testnet results. The Ropsten testnet upgrade begins on June 24.
How will EIP-1559 affect ETH inflation?
By burning a portion of transaction fees, ETH issuance may fall below the amount burned during high-usage periods. This could turn ETH into a deflationary asset.
What is the Difficulty Bomb?
The Difficulty Bomb increases mining difficulty over time, encouraging the shift from Proof-of-Work to Proof-of-Stake. It has been delayed until December 2021.
Does EIP-1559 eliminate high gas fees?
Not entirely. It makes fees more predictable, but during network congestion, users can still pay higher tips to prioritize transactions.
The London Upgrade is a critical step toward a more efficient, economical, and scalable Ethereum. With EIP-1559 leading the way, ETH is entering a new era of utility and scarcity.