Ethereum is the blockchain that manages Ethereum, Bitcoin’s second-largest cryptocurrency, and is undergoing a major update this week.
The London update scheduled for Thursday includes Ethereum Upgrade Proposal (EIP) 1559, which aims to change the way transaction fees, or “gas fees,” are calculated.
Currently, consumers have to bid how much they are willing to pay in order for miners to withdraw their Ether transactions, which can be quite expensive. According to EIP-1559, this process is controlled by an automated bidding system and the amount of the fixed fee varies depending on the level of network congestion.
Eric Connor, co-author of EIP-1559 said “It’s very useful for casual Ethereum users and makes it less intimidating to use the protocol.”
Another major change under EIP-1559 is that a portion of the transaction fees will be eliminated or withdrawn from circulation, reducing Ether delivery and potentially increasing its price.
Having said that, “EIP-1559 is one of the most important Ethereum updates since the network launched,” said Meltem Demirors, the chief strategic officer at CoinShares.
Here’s what investors need to know when the update is released.
What does EIP-1559 mean for investors?
EIP-1559 aims to strengthen the Ethereum ecosystem. Demirors said it had a big short-term impact on investors.
In the longer term, however, the proposal’s co-authors hope to deplete the ether by reducing supply. Connor said it was “very rewarding” for investors, especially “the United States has been talking about inflation lately”. This will give crypto investors the ability to hold deflationary assets.
However, Demirors said the EIP-1559 proposal alone would not topple Ethereum.
EIP-1559 will not lower gas prices or transaction prices on the network which can be very high.
However, the update remains important because it has the potential to improve the Ethereum user experience and potentially increase the price of Ethereum.
Demirors said other innovations are taking place around Ethereum. This includes plans to move from a Proof of Work (PoW) model to a Proof of Pledge (PoS) model later this year or early 2022.
In the PoS model, transactions can be accessed or checked based on the number of coins. In the PoW model, miners must compete to solve complex problems to verify transactions. Proponents of the PoS model say it will use less energy and increase blockchain efficiency.
Overall, I think the most important thing that EIP-1559 is showing investors is that Ethereum remains an actively developed project and refuses to stagnate and age,” Connor said.
The Ethereum network supports a number of projects in the cryptocurrency world, including irreplaceable tokens (NFTs), encrypted assets that are intangible digital elements such as images, videos, or game elements, as well as many decentralized, financial (DeFi) applications.
The update, known as Ethereum Improvement Proposal (EIP) 1559, will change the way transactions are handled and provide clearer pricing.
This will also reduce the delivery of ether and possibly increase its price significantly.
Several major exchanges have announced that they will be suspending deposits and withdrawals of Ether before and after adjustments.