Key Facts about Ethereum EIP-1559 London Hard ForkAugust 7, 2021
Of course, any big change in the functionality of a network, even if it is only the regular halving process like that of BTC, brings changes for the price movement and the financial potential of the network. The same will happen to ETH as well, even though no one can tell for sure when and how that new trajectory will take shape. But, here is a breakdown of the key elements of EIP-1559 and how the London hard fork will influence the future of the network, including its essential move onto a proof-of-stake system of support.
Early August saw the biggest upgrade to the ethereum network in many months. Its codename is EIP-1559 but many simply know it as London hard fork, following the tradition of naming many upgrades to the network using big cities across the world (now and in the past, like in the case of Constantinople). There is no doubt that EIP-1559 is bringing some serious changes to the second-biggest cryptocurrency network by both market capitalization and coin price. Chief among them is the process of burning either coins or destroying the same tokens to allow for a different kind of network than the classic proof-of-work concept seen in the bitcoin blockchain system.
The change in the network was set for August 4 but had a small delay. However, despite this, the upgrade is still more than relevant not just for the ETH-based developers and users of this cryptocurrency, but also for anyone who has invested in it or is planning to do so. Today, besides people like esports players and cryptocurrency enthusiasts, there are numerous traditional investors, but also institutions like companies who want to add crypto to their coffers.
This is why the delay of the Ethereum Improvement Protocol 1559, better known as EIP-1559 is not a big issue for the community. Instead, all eyes are on its critical elements and how these will change the functionality of the network. The same goes for the potential of these changes to influence the cryptocurrency price and the availability of its tokens on the market in the coming weeks and months.
Support and Destruction
There are several key factors related to the way that the London hard fork will influence the ethereum network. The first one is that the aim of EIP-1559 is to make transaction fees something users can better understand and predict. That should, in turn, make the use of the same network easier. Right now, fees of ethereum transactions are very volatile, mainly because of the auction system that the network uses. In it, those who wish to make a transaction big against one another to have their transactions verified first by the miners.
When the network sees a lot of activity, bids can go up drastically and end up costing an arm and a leg. That is why the developers have an issue with the so-called blind auction system, which is also a problem in any other digital venture. EIP-1559 will provide a base fee that will be determined through an algorithm of network activity instead of having to bid. Besides, they will be able to influence the speed by tipping the miners to process their transactions sooner. With that, the number of funds the users will need to invest will be cleaner and not jump around all over the place as it does now. Also, if the users find that the base fee is too high, they can simply wait for a period of less activity to get their funds across the network and be vitrified by the miners.
Support Through Destruction
The main reason why so many are excited about EIP-1559 is the fact that it will burn ether tokens and destroy them. Now, miners will not receive a baseline fee because of fears that they could artificially create congestion in the network. Instead, the excess ETH tokens will be burnt. For some investors, that is great news because it will limit the supply of ETH coins and thus put pressure on the price in a positive direction. This, for many, is the key piece of the puzzle that is making them bet big on the price growth within the ethereum network. However, in reality, the influence on the price is nowhere near clear. While ETH did jump in value on the day of the hard fork initiation, climbing from around 2,500 USD to 2,800 USD, the further trajectory is not given.
Instead, like always, all of the relevant factors remain in play. These include transaction volume, from which the gas fees are calculated, and thus the amount of destroyed ETH defined as well. Presently, it seems that the period of several hours after the hard fork, some 2,000 ETH tokens have been burned. That is generally seen as an impressive number because many developers doubted that the process will be anything more than a gimmick in the end. The current setup shows that this is not the case and that massive amounts of ETH could be destroyed on a regular basis.
Price of Transaction
In recent years, the end-user case has often been neglected as one of the most important drivers of adoption. That means, in practice, how much does using a certain network provide individuals with benefits and hurdles. While EIP-1559 promises a big step towards a more functional network with novel ideas and concepts that will propel it closer to the proof-of-stake, the user scenario remains ambivalent even after the London hard fork.
Transaction fees might fall now because they will use the base fee that is more predictable. However, the base fee itself will vary regularly and still provide an issue when the network is busy. So, it all boils down once again to scalability and the issue of implementing ethereum 2.0 finally for the entire network and its users. Because of that, the proof-of-stake transition is the hinge on which the entire future of the network hangs. The London hard fork is a big step towards that moment, but not one that can drastically move the needle in the overall gauge of ETH.