The improvement, also known as the London upgrade, was not eagerly awaited by the community for nothing. The update – formally referred to as EIP-1559 – aims to standardize the cost structure for transactions on the Ethereum blockchain. The update is also considered to pave the way for the new validation procedure Proof-of-Stake, which is expected to be introduced with the Ethereum 2.0 update in the coming year.
The London upgrade fundamentally changes the fee model of the Ethereum network. The miners, who are responsible for processing and validating transactions on the blockchain, have so far played a central role in the Ethereum cosmos. Blockchain users had to pay a certain amount of ether as a fee for transactions, which was determined by the miners. If the network was busy due to many transactions, the fees set by the miners have also skyrocketed in some cases.
That is changing now. In the future, an algorithm will set a basic fee so that the transaction costs would be uniform and therefore more transparent. The basic fee that is now due does not go to the miners, but is permanently destroyed. Miners could only collect fees through a “priority fee” from users, whose transactions would then be prioritized.
An optimized and uniform fee structure in the network makes the Ethereum currency ether even more interesting, because it could ensure increasing user and transaction numbers in the medium term. Just a few months ago, the price of the second-largest crypto currency in terms of market capitalization fell sharply within a very short time. While the value of Ether on May 12th was USD 4,180, the price had already fallen by almost half on May 24th to USD 2,100. In mid-August the rate stabilized again at around USD 3,200.
The update could now give the digital asset new momentum. The new fee model reduces the amount of circulating ether coins. In the long term, this could result in a deflationary effect that could contribute to an increase in the value of the asset if demand remained the same. Less than 22 hours after the update, over 4,418 ethers (USD 12.1 million) were permanently destroyed. The update was well received by the market, which also had a positive effect on the price: Shortly after it was published, the value rose by 14 percent. The trading volume of digital assets on BSDEX was also recently at a high level.
Thanks to the update on the Ethereum blockchain, Ethereum is likely to remain one of the most widely used digital assets on the market in the future. After all, some of the most important uses of the crypto universe would be based on the Ethereum blockchain. For example, almost all providers in the DeFi sector (decentralized finance) would use the network for their applications. These are usually blockchain-based financial products with classic fields of application such as loans, bonds or interest. The applications would run decentralized and automated, intermediaries are usually not necessary. The DeFi sector is becoming more and more important in the crypto space: At the beginning of August, assets worth the equivalent of almost 73 billion USD were in circulation there, and the number of users and applications is rising steadily. Since the majority of these applications are processed via the Ethereum network, the recently carried out London update could lead to further growth at DeFi and, conversely, to stronger demand for Ether. (14.09.2021 / ac / a / m)