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Ethereum London Upgrade Expected To Lower Transaction Fees, Fight Inflation With Coin Burn

August 1, 2021 8:03 am
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Ethereum London Upgrade Expected To Lower Transaction Fees, Fight Inflation With Coin Burn

Ethereum (CRYPTO: ETH) — the world's second-biggest cryptocurrency and father to the first decentralized finance (DeFi) and non-fungible token ecosystem — will soon start burning coins.

What Happened: Ethereum's London upgradeexpected to take place on Aug 5, will include the Ethereum Improvement Proposal (EIP) 1559, which will cause a big chunk of the Ether paid for transaction fees to be burned, in other words, destroyed forever.

This EIP also introduces variable block sizes, which will result in the network becoming more efficient in processing transactions.

Why It Matters: EIP-1559 will decrease the profits made by Ethereum miners who previously received those funds, but it is expected to make Ether more scarce and consequently cause its price to soar over time.

Co-Founder of investment firm Multicoin Capital Kyle Samani recently told Bloomberg that "the London upgrade is one of the most interesting and important upgrades in the history of Ethereum," suggesting that it will cause prices to skyrocket.

A mechanism countering inflation is far from the only improvement brought by EIP-1559. This upgrade's variable block size — which can go up to double the current block size — will better accommodate sudden traffic surges and allow transactions to be more reliable thanks to the new fee pricing mechanism.

With the new fee system, the blockchain establishes a variable base fee for each block that will guarantee the transaction to be processed.

Currently, making an Ethereum transaction includes a, usually automated, guessing game concerning how high the fee needs to be for the transaction to be processed.

Sometimes transactions end up stuck, and users are forced to bump up the original fee after the original estimate ended up not being enough.

What Else: Still, EIP-1559 is far from a panacea to this user experience nightmare. Other than the base fee — which is the part that ends up burned — users are also able to send an additional miner "tip."

It is expected that only transactions including such tips will be processed at times of intense network strain.

Read also: DeFi And NFTs Are Now Crypto Venture Capitalists' Favorites

Core Ethereum Developers Coordinator Tim Beiko said that base fees now account for somewhere between 25% to 75% of the gas fees paid to miners.

And that is no laughing matter, considering that according to YCharts, yesterday's Ethereum fees amounted to 3,010 ETH — or over $7 million.

He also explained that after Ethereum transitions to Proof-of-Stake (PoS) — probably in the first quarter of next year — Ether's inflation, currently standing at about 4%) will decrease further.

Price Action: Ethereum was trading at $2,582, up 4.87% over the past 24-hours.

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