The Ethereum London Hard fork, codenamed EIP-1559, became effective on August 5, 2021. For many users, the event signifies the resolution of several long-standing difficulties in the Ethereum Network.
The unpredictability of gas prices and the inflationary nature of Ethereum's usage cost during peak periods are two examples.
However, one must wonder: what potential flaws must Ethereum users now brace themselves for in the future?
What, more specifically, would be the new status of the ERC-20 blockchain in the face of ever-expanding crypto sub-niches like NFT and DeFi?
The EIP-1559 upgrade has a history.
To get a sense of the possible impact of the network upgrade, let's take a look back at what happened on August 5th.
EIPs, or Ethereum Improvement Proposals, are a collection of publications that define new protocol standardisation projects for the Ethereum platform.
Typically, network optimisation methods are implemented as Ethereum Hard Forks. The event has occurred multiple times since the debut of the Ethereum Virtual Machine.
The Ethereum community has witnessed the deployment of two hard fork events this year alone, the first of which was the Berlin upgrade, which began on April 15.
The London Hard fork follows, which includes five EIPs as well. The EIP-1559 suggestion stood out among them.
The EIP-1559 standard attempts to make transaction fees more stable for consumers in addition to implementing a new gas fee structure that will transform Ether into a deflationary asset through several burning mechanisms.
What is the EIP-1559 network upgrade procedure?
Despite much enthusiasm, the Berlin improvement had no effect on the sky-high pricing of ETH transaction fees. When the crypto sector saw a big upheaval as a result of the spread of DeFi platforms, gas prices became even more critical.
Ethereum's developers used two essential components in the implementation of the EIP-1559 standard to change all of that. The first step is to implement a base fee framework to control transaction costs.
Previously, Ethereum users' destiny was in the hands of mining gig operators who were given the authority to decide the rate. The new model, on the other hand, employs an algorithm to assure consistent pricing throughout the supply chain.
The base charge is the bare minimum of gas prices required to certify a transaction as acceptable for processing in a block. This framework's flexibility to be high during times of high activity and low during periods of low activity is an intriguing characteristic.
The "inclusion fee" notion is the second critical component of the EIP-1559 model. This function enables users to move their transactions up the waiting queue by introducing more incentives for whichever miner chooses them.
The EIP-1559 standard's advantages
The most visible beneficial impact of EIP-1559 for most crypto traders is the recent price increase in Ether. The token's price rocketed to new highs and had more traded volume than Bitcoin less than 24 hours after the update was implemented.
A closer examination of the event, however, reveals a number of major technical developments that institutional investors are pleased with. We'll investigate them in order.
The impact of the asset-burning function
Previously, investors were concerned about Ether's design characteristic, which makes it a capless asset with an infinite supply.
This issue counted heavily against using Ether as a store of value because the maximum number of Ethereum that will ever be in circulation could not be determined.
However, with the implementation of the token burn mechanism, Ethereum's current supply will be continuously reduced even while new coins are produced.
And, as one might expect, during peak hours, the amount of Ether removed from circulation will be greater than the amount gained, as the basic charge is bound to rise. The recent surge in NFT transactions is an excellent example.
While Ethereum's low or negative issuance rate cannot be completely relied on to anticipate its price, it does give a vital tool for investors to examine the outcome of investing in the coin.
Ethereum is playing a larger role.
Following EIP-1559, another intriguing update that has piqued the interest of investors is that Ethereum now has a far larger role to play on its chain.
Previously, miners could accept other ERC-20 tokens as an alternative payment mechanism for gas fees — other than Ethereum. In other words, other coins might replace ETH as a basic cost.
The base charge for the EIP-1559 network update must be paid in ETH. A miner who wishes to receive an altcoin as a reward can do so by prioritising transactions in which the inclusion fee is paid in other coins.
Otherwise, the mining gear operator must supply the necessary ETH. To summarise, EIP-1559 seeks to establish an economy in which Ethereum is the exclusive payment method.
As more dapps rely on Ethereum's infrastructure, the cryptocurrency will undoubtedly evolve into a capable payment mechanism.
When combined with Ethereum's reputation as a reliable computing system in the blockchain business, it is easy to predict how well this will turn out.
Controversial hard forks are not tamper-proof.
The crypto world has become accustomed to watching many fork events go wrong since the inception of Bitcoin. This is due to the decentralised structure of blockchain networks, which makes it nearly impossible to prohibit the continuous existence of obsolete "standards."
During the Ethereum network fork in 2016, for example, dissatisfied miners who refused to update to the then-current version of Ether's client software created "Ethereum Classic."
The possibility of a similar mutiny has followed the official announcement of the EIP-1559 standard ever since. That's why it became such a big topic.
Ethereum developers created the EIP-3554 proposal in order to avoid such a development backlash.
EIP-3554 seeks to force miners to migrate to the new Ethereum blockchain by making the older version more difficult to use. It is part of a long-term strategy to convert Ethereum to a Proof-of-Stake network (as opposed to the current Proof-of-Work which is energy consuming).
The difficulties that have still to be resolved as consumers prepare for ETH 2.0
While EIP-1559 introduces a new feature that will increase the predictability of gas fees while also stabilising Ethereum's volatility, it does not imply that transactions would be cheaper.
The charge, however, can only be increased or decreased by 1.125x every block. This will go a long way towards removing ambiguity about Ethereum's transaction costs and bolstering its stability.
However, EIP-1559 does not address the scalability of the Ethereum blockchain, which is a major worry.
Even in its current state, Ethereum can only manage a modest number of transactions per second when compared to competitors like Solana, Binance Smart Chain, Polkadot, and others.
However, it is believed that the impending ETH 2.0 will solve these concerns by 2022, when Ethereum will be able to perform 100,000 transactions per second (much higher than the current capacity of 30 trans per second).
The use of a sharding method will enable this. The implementation of EIP-1559 is just one of several steps leading up to the eventual switchover.
For the time being, the crypto community should be satisfied with the enhanced user experience brought about by the new network modification. Miners, on the other hand, must make due with the "inclusion fee" as their sole source of income.
