DeutschEven weeks before the highly announced hard fork called “London” as an upgrade in the network of the currently second most important cryptocurrency Ethereum by market capitalization, many users and analysts speculated about the upcoming step. Part of this essential step, as the ETH developers had already announced some time ago, will be a correction of the network’s code – this change is called EIP-1559. The reason why this measure received so much attention in the entire crypto community is a good one. EIP-1559 is nothing less than the biggest update within the mainnet of the past few years. At the same time, it was already clear that the planned development would put plenty of pressure on ETH in the sense of deflation. In recent weeks, there had been some price movements around Ethereum as well as various coins and tokens that are based on the system’s blockchain. In the direct run-up to the Ethereum Upgrade scheduled for August 5, however, the movements were particularly clear.
The result:
The Ethereum price struggled for an almost double-digit gain within 24 hours. On the night of August 5, 2021, the price reached a level of over 2,730 US dollars, reaching a multi-month high. Although a slight correction followed, a large part of the profit was initially retained.
EIP-1559 Has Already Proven Itself as an Upgrade Feature in the Test
Many experts had predicted such a breakout with a view to the approaching date of the upgrade. However, they did not conceal the fact that the structural changes to the network caused by EIP-1559 are far-reaching and could certainly (at least for the time being) entail certain disadvantages for some Ethereum users. An important innovation as a result of the switch to EIP-1559 will be the abolition of a previously existing dilemma for users regarding the transaction processing procedure. Until now, it was hardly apparent to users what amounts they had to pay for miners to quickly consider their transactions. EIP-1559 is intended to and will resolve this problem in the course of the upgrade by introducing a kind of basic fee. The aim is, on the one hand, a larger transaction in the network, and at the same time the costs should fall to a limited extent. The extent to which the latter will happen remains to be seen.
Worth knowing: The installation of EIP-1559 already took place at the end of June 2021 in the Ethereum test network Ropsten – the first of its kind. The test run went smoothly.
Ethereum Upgrade: New Fee Practice and Conditions for Miners
The fact that the change to the code caused so much of a stir and offers plenty of material for discussion is mainly due to the approach that enables the positive developments mentioned above. Transaction fees will no longer be distributed to Ethereum miners in the future, but will be “burned”. This is done by transferring the funds to a wallet that is not accessible. The good news for miners in this context: They will continue to receive ETH 2 and rewards for their work, which relate to the blocks in whose processing miners are involved. None other than Tim Beiko, one of the leading developers of the Ethereum Foundation and significantly involved in the planning of the upgrade, recently repeatedly pointed out that EIP-1559 will reduce ETH production rates.
Basic Fee to Relieve the ETH Network
Through this measure, an algorithm-based “base fee” is to replace the previous fees in the system, the creation process of which some experts compare to the process of an action. The “new” basic fees will be flexibly increased or reduced according to network utilization. Particularly important is the fact that no user can profit from the fees through the burning process. The core developers reacted to the foreseeable protests from many miners as well as mining pools by implementing the EIP-3238 supplement into the upgrade. The use of a “difficulty bomb” makes Ethereum mining more complex and difficult. The approach is also technically a kind of preparation phase for the change from the Proof-of-Work (PoW) process to the Proof-of-Stake (PoS) concept, which is important for the further plans of Ethereum 2.0.
Transaction Fees Will be Burned after the Upgrade
The deflationary pressure mentioned arises from the fact that, according to the developer, the network after the London introduction through EIP-1559 consumes even more transaction fees per block than can be produced. This can occur if a network overload becomes apparent in the future or if the fees rise to 150 Gwei (the well-known smallest unit of Ethereum as a form of “gas fees”) due to the development of demand. Experts point to a parallel to the Bitcoin system in this point. There, the rewards that miners receive are halved (“halving”) every four years. Price increases can also occur with Ethereum due to such a shortage. Some analysts question whether the deflationary pressure on Ethereum may already be reflected in the significant increase in the ETH price since the beginning of 2021. The current trend could speak for the assessment of many traders and users who still saw “room for improvement” for the Ethereum price and therefore invested more.
London as an Immense Risk for Gas Tokens?
Ethereums Hardfork “London”, which could ultimately claim some victims, also includes the code update EIP-3529. The same update in turn ensures the abolition of the previously provided gas refunds. As a result, some gas tokens will be functionally and meaningless on balance. And at the same time worthless, which is why they will most likely disappear from the network. This change in the ETH code in particular is therefore by no means undisputed. Several developers are also affected by this change. They use GST2, CHI and other gas tokens with the aim of ensuring the lowest possible prices when using so-called smart contracts. What this can mean is currently becoming clear using the example of the Gas Token Two (GST2).
The token price was now listed on various crypto trading platforms in the range above 200 US dollars. A few months ago, well before the start of EIP-3529 in the London upgrade, the price was in the range above 600 US dollars. As the saying goes: Great events cast their shadows ahead.
Better Ways to Respond to Network Demand
Ethereum core developer Beiko recently explained in statements that the previous refunds certainly serve their purpose. Because these served as an incentive for users to carefully manage and store data on Ethereum and to avoid unnecessary amounts of data. On the other hand, this concept may have tempted developers to take advantage of low gas fees in the network – especially in market environments that showed lower utilization. So data has appeared again and again that can be described as “garbage”. Developers later received correspondingly better refunds after gas fees rose again. Beiko specifically mentions older gas tokens as a risk for such developments in the past. “London” or rather the variably calculated basic fee should at the same time allow a dynamic adjustment of the block sizes in order to prevent a network that is unnecessarily overcrowded.
Gas Tokens Do not Necessarily Have to Disappear into Oblivion
Due to the expected devaluation of many tokens in the time after the upgrade, they do not necessarily have to disappear completely from the crypto market. According to Beiko, it is by no means guaranteed that tokens will be useless and at the same time lose their value in full. There have been enough cases in which tokens without any factual benefit for the cryptoverse have continued to be traded. Industry experts often refer to the Defi protocol yearn.finance in this context. Its YFI token is often described as a supply token without financial value and worthless. Nevertheless, the currency is traded at high five-figure prices and serves as the basis for important governance decisions in the protocol.
The Journey Has Only just Begun for the Upgrade and ETH Users
What can be said despite all the considerations regarding possible advantages and disadvantages about the London upgrade, which, strictly speaking, consists of a total of so-called “Ethereum Improvement Proposals” (EIP)? It is important to realize that integration only takes place after extensive discussions. Both developers and stakeholders in the Ethereum network had actively participated in the discussions. Ultimately, it shows once again: No reorientation in crypto systems meets with exclusive approval. While, for example, lower fees for transactions benefit a large number of Ethereum users, the gas token sector may experience a significant shake-up in the coming weeks and months.
Ethereum Upgrade: First Effects Were Evident Immediately after the Start
If you look at the statements of the quoted ETH developer Beiko with a view to the development of gas tokens, it becomes clear that the actual effects are not fully foreseeable. An exciting time is therefore ahead for members of the Ethereum community. In the end, it must be shown in particular whether the price explosions of the Ethereum price predicted in some forecasts will occur. At the beginning of the first weekend after the start, the ETH price rose towards 2,800 USD and thus even higher. And that’s not all. On August 8, 2021, the price even recorded a further increase and was just below 3,200 USD with an upward trend. The starting point for the upgrade was in the range of block height 12,965,000. The limit for block fees is 25 million gas units, which corresponds to an increase of 100 percent.
- Ethereum
(ETH) - Price $4,187.67
- Market Cap
$505.19 B
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What has already been confirmed: The burning announcement was not long in coming. Significantly more than 4,000 Ether were quickly burned. At the time of going to press, the fee was in the range of 25 to 40 Gigawei (Gwei), while the hash rate increased noticeably thanks to London. These trends are likely to continue in the near future. The price analysis in particular currently reveals impressive potential.
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