In this episode of the BeInCrypto video news broadcast, presenter Jessica Walker explains everything you need to know about the Ethereum Improvement Upgrade (EIP) 1559, which enables the transition to Ethereum 2.0.
Impact of the EIP 1559
A component of the Ethereum upgrade, which bears the name London, aims to change the way in which the transaction fees or the “gas fees” come about. Currently, users have to bid how much they are willing to pay in order for their transaction to be taken over by a miner. However, it can be extremely costly. According to the proposal, this process is to be handled by an automated bidding system with a fixed fee amount that fluctuates depending on the network’s utilization.
Another important change in EIP-1559 is that a portion of each transaction fee will be burned or deleted. As a result, the number of available Ethereum will gradually decrease and the price may increase.
The EIP 1559 and the investors
While the EIP-1559 is aimed at strengthening Ethereum’s ecosystem, it is unlikely to have any major impact on investors in the short term. The $ 3,000 rise we saw the Monday before the video started recording is due to the general rally in cryptocurrencies.
However, the Ethereum price performed significantly better than the Bitcoin price in the last week. That shouldn’t be ignored. In the long run, however, the drafters of the proposal hope to turn Ethereum into a deflationary asset by reducing supply. Given the current discussions about inflation in the United States and around the world, that could be beneficial for investors. Because it would give crypto investors the ability to hold a deflationary asset.
Effects on the Ethereum price
Around 52 million Ethereum have been burned in the last few days. That is a considerable amount. However, new Ethereum are still coming into the market. This means that Ethereum is not really in a deflationary state right now.
The offer is expected to be capped once the move to Proof of Stake is complete. However, that will take at least another year. So the current upward move we’ve seen over the past few days doesn’t seem to be due to some sort of optimism about the London upgrade.
What’s next with Ethereum?
Still, the upgrade is important as it has the potential to improve the Ethereum user experience. It could also drive up the Ethereum price. Other Ethereum innovations are also in the works, Demirors said. This includes the planned switch from a Proof of Work (PoW) model to a Proof of Stake (PoS) model later this year or at the beginning of 2022.
With the PoS model, a person can mine or validate transactions based on how many coins they have. In the PoW model, miners have to compete to solve complex puzzles in order to validate the transactions. Proponents of the PoS model say it will use less energy and improve blockchain efficiency.
We seem to be standing at a fork in the road. Not just in terms of Ethereum. Rather, the entire crypto world is affected. This upgrade is proof that Vitalik Buterin’s project is capable of making significant upgrades to the system and adapting to new challenges that are very difficult to foresee.
Further upgrades are planned for the coming year. With these, the developers want to reduce energy consumption and create more connections to other blockchains. It looks like Ethereum could become the most important project in the crypto world.
Translated by Maximilian M.
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