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New – revolutionary – update for Ethereum. With the London hard fork, update EIP-1559 radically changes the mechanism of transition costs.
New update for Ethereum, the world’s second largest cryptocurrency by market capitalisation. This is a hard fork whose effects could have a huge impact on the entire crypto market.
But what does the latest Ethereum update include? What does the London hard fork change?
In short, we are faced with an update composed of 5 updates (called EIP, Ethereum Improvement Proposals) with the aim of radically changing the way in which the commissions for each transaction run.
Of these, EIP-1559 is the most controversial. Unlike the last few forks, which changed the blockchain only moderately, the hard fork London will change the way transactions happen forever.
More specifically, the EIP-1559 update has to do with the cost of fees, dubbed gas, and their predictability.
Previously, transaction costs – which, it should be remembered, are valued in ETH – were determined on the basis of bids: those who made transactions simply presented their bids to the miners. Those who offered a ‘normal’ price, accessed a ‘normal’ speed on the transaction side. As a result, those who needed a fast transaction were forced to pay a higher price.
With the new update, the transition costs drop significantly. Those who were paying high and unpredictable fees will now be faced with a reduced cost.
How? Through the ETH burn. Part of the commissions in ETH is “burned”, eliminated. You can’t destroy Ethereum, but you can remove it from circulation.
Basically, burnt coins are sent to addresses that no one has access to. As a result, these coins are removed from circulation and are unreachable. The cryptocurrency is removed from circulation by sending it to addresses that no one can access. This generates a deflationary effect every time a transaction occurs.
Before the update, the fees were handed over to miners who, with ETH in hand, were free to put it back into circulation. But these are starting to become obsolete and the process needed to be streamlined.
From now on, for each transaction on the blockchain, the ETH protocol uses an algorithm to set the transaction cost, which makes it standardised and therefore more predictable and easier to manage.
In addition to EIP-1559, definitely the most impactful, we find:
In general, the London hard fork is clearly intended to disincentivise miners by pushing the network to move from Proof of Work to Proof of Stake.
The reduction of Ether in circulation, in addition to a burn mechanism that reduces its supply in circulation, could be a catalyst for the price of ETH.
ETH is currently trading at $3,240, not far from its all-time high of $4,100 last May. Meanwhile, Ethereum remains solid in its second-highest capitalisation crypto position.
Its value comes mainly from the fact that it fuels transactions within DApps (decentralised applications) built on its network, the more DApps there are, the more transactions are executed and, consequently, the more ETH’s price grows.
The EIP-1559 update could have a positive effect on the price of ETH according to the expert, as it reduces the amount of Ether circulating in the market.
The other main change will be the move from the Proof of Work consensus protocol to the Proof of Stake protocol, which will materialise between late 2021 and early 2022.
The new upgrade could also translate into higher returns than Bitcoin in the coming years. Ethereum is progressively disengaging from Bitcoin and has clearly offered higher returns since the beginning of the year. Their interdependence is declining and some are even starting to think aloud that Ether may outperform Bitcoin – how much, will depend on market conditions and general sentiment.