The Ethereum network is regularly upgraded with new changes agreed upon by the Ethereum community. Developers submit Ethereum Improvement Proposals, which are then voted on by others in the Ethereum community. The Ethereum London upgrade, scheduled for mid-July 2021 introduces five of these Ethereum Improvement Proposals. Many who are following the development of the world's second largest cryptocurrency think this could spark a new surge in the price of Ethereum.
The most talked about of the five changes to the Ethereum network is Ethereum Improvement Proposal 1559. This proposal could have a huge impact on how fees are paid for transactions using Ethereum. It also has the potential to dramatically reduce the future supply of Ethereum.
So what exactly will this Ethereum upgrade change? And why do some cryptocurrency analysts expect this to lead to a surge in the price of Ethereum?
Changing the Way the Ethereum Network Calculates Transaction Fees
The cost of sending transactions on the Ethereum network fluctuates depending on network activity. At times of heavy network usage, Ethereum fees become prohibitively expensive. The Ethereum London upgrade will change the way transaction fees are calculated, making these fees less volatile and easier to predict.
Ethereum miners currently bid to verify transactions on the Ethereum using a blind auction system. This means the cost of sending Ethereum transactions can currently change dramatically within a short space of time.
The Ethereum London upgrade will limit how much transaction fees can change when each block is mined on the network. The change will limit transaction fees to being a maximum of 1.125x the cost of transactions sent on the previous block.
This doesn't necessarily mean that the London upgrade will bring a big reduction to Ethereum's transaction fees. However, it does mean that these transaction fees will be much more stable.
Reducing the Supply of Ethereum
Bitcoin has a strictly limited total supply of 21 million bitcoins that can ever exist. Ethereum has no similar cap on the total supply of ETH that can be created. In May 2021, the total ETH in existence passed the 116 million mark.
Bitcoin's limited supply is thought to be a major factor in its price rising over time. Many Ethereum holders hope that reducing the supply of ETH will similarly guarantee long-term growth in the value of each Ethereum token.
The Ethereum London upgrade will see some ETH destroyed every time a transaction is sent. This should lead to a reduction in the amount of Ethereum in circulation and consequently cause the Ethereum remaining on the network to rise in price.
The amount of Ethereum destroyed per transaction will change dynamically based on network activity. One of the key reasons for this happening is to stop miners from charging exorbitant transaction fees at times of heavy network usage.
Ethereum Mining after the London Upgrade
Some Ethereum miners have been strongly opposed to this change, as it could see the amount of Ethereum they earn fall by as much as 35%. Many of these miners joined a petition against the proposal being accepted as part of the Ethereum London upgrade. Now that the wider Ethereum community has voted to accept this proposal, some worry that miners will defect from Ethereum or even turn their mining power against the network and launch anti-Ethereum attacks.
Other analysts think these fears are exaggerated. Ethereum is slowly moving away from being reliant on miners to stabilize the network altogether. The much larger upgrade of Ethereum 2.0 will see Ethereum abandon mining and secure the network using a Proof of Stake mechanism. Proof of Stake will mean transactions are verified by large Ethereum holders instead of miners.
Ethereum 2.0 was originally expected to launch in 2020, but this has been delayed several times. Some still hope that Ethereum 2.0 will be live before the end of 2021. Others think it is much more likely that Ethereum 2.0 will go live in 2022. Either way, the importance of miners to the Ethereum network is in terminal decline.
Will the London Upgrade Lead to a New Surge in the Price of Ethereum?
As with all things related to cryptocurrency, nobody can be completely certain of the impact of the London Upgrade on Ethereum price movements.
The value of Ethereum fell by more than half in the month following its mid-May all-time high above $4,300. Those optimistic about the London upgrade's effect on price will be hoping to see this trend reverse once the upgrade has gone live.
Others caution that the potential price impact of destroying Ethereum and stabilizing transaction fees has been exaggerated. Disappointment over the London upgrade's impact on price may even lead to a further fall in the value of Ethereum.
Only time will tell whether the price optimists of pessimists are correct about the impact of Ethereum's London upgrade.
The most talked about of the five changes to the Ethereum network is Ethereum Improvement Proposal 1559. This proposal could have a huge impact on how fees are paid for transactions using Ethereum. It also has the potential to dramatically reduce the future supply of Ethereum.
So what exactly will this Ethereum upgrade change? And why do some cryptocurrency analysts expect this to lead to a surge in the price of Ethereum?
Changing the Way the Ethereum Network Calculates Transaction Fees
The cost of sending transactions on the Ethereum network fluctuates depending on network activity. At times of heavy network usage, Ethereum fees become prohibitively expensive. The Ethereum London upgrade will change the way transaction fees are calculated, making these fees less volatile and easier to predict.
Ethereum miners currently bid to verify transactions on the Ethereum using a blind auction system. This means the cost of sending Ethereum transactions can currently change dramatically within a short space of time.
The Ethereum London upgrade will limit how much transaction fees can change when each block is mined on the network. The change will limit transaction fees to being a maximum of 1.125x the cost of transactions sent on the previous block.
This doesn't necessarily mean that the London upgrade will bring a big reduction to Ethereum's transaction fees. However, it does mean that these transaction fees will be much more stable.
Reducing the Supply of Ethereum
Bitcoin has a strictly limited total supply of 21 million bitcoins that can ever exist. Ethereum has no similar cap on the total supply of ETH that can be created. In May 2021, the total ETH in existence passed the 116 million mark.
Bitcoin's limited supply is thought to be a major factor in its price rising over time. Many Ethereum holders hope that reducing the supply of ETH will similarly guarantee long-term growth in the value of each Ethereum token.
The Ethereum London upgrade will see some ETH destroyed every time a transaction is sent. This should lead to a reduction in the amount of Ethereum in circulation and consequently cause the Ethereum remaining on the network to rise in price.
The amount of Ethereum destroyed per transaction will change dynamically based on network activity. One of the key reasons for this happening is to stop miners from charging exorbitant transaction fees at times of heavy network usage.
Ethereum Mining after the London Upgrade
Some Ethereum miners have been strongly opposed to this change, as it could see the amount of Ethereum they earn fall by as much as 35%. Many of these miners joined a petition against the proposal being accepted as part of the Ethereum London upgrade. Now that the wider Ethereum community has voted to accept this proposal, some worry that miners will defect from Ethereum or even turn their mining power against the network and launch anti-Ethereum attacks.
Other analysts think these fears are exaggerated. Ethereum is slowly moving away from being reliant on miners to stabilize the network altogether. The much larger upgrade of Ethereum 2.0 will see Ethereum abandon mining and secure the network using a Proof of Stake mechanism. Proof of Stake will mean transactions are verified by large Ethereum holders instead of miners.
Ethereum 2.0 was originally expected to launch in 2020, but this has been delayed several times. Some still hope that Ethereum 2.0 will be live before the end of 2021. Others think it is much more likely that Ethereum 2.0 will go live in 2022. Either way, the importance of miners to the Ethereum network is in terminal decline.
Will the London Upgrade Lead to a New Surge in the Price of Ethereum?
As with all things related to cryptocurrency, nobody can be completely certain of the impact of the London Upgrade on Ethereum price movements.
The value of Ethereum fell by more than half in the month following its mid-May all-time high above $4,300. Those optimistic about the London upgrade's effect on price will be hoping to see this trend reverse once the upgrade has gone live.
Others caution that the potential price impact of destroying Ethereum and stabilizing transaction fees has been exaggerated. Disappointment over the London upgrade's impact on price may even lead to a further fall in the value of Ethereum.
Only time will tell whether the price optimists of pessimists are correct about the impact of Ethereum's London upgrade.