What are Ethereum EIP-1559 and London Updates?

What are Ethereum EIP-1559 and London updates? The network of Ethereum, the second most valuable cryptocurrency in the world, has received a significant update.

London update includes a protocol called EIP-1559. After the update, a block on the network took on a deflationary structure for the first time in history. So what is the London update and how has Ethereum become deflationary?

What is the London Update?

The London update is one of the most important updates before Ethereum 2.0, which is expected to activate on the Ethereum network next year. With the "Ethereum Development Protocol 1559" launched within the scope of the update, some important problems in the network are resolved. Let's take a look at the innovations that come with the EIP-1559, in which significant changes in fees stand out.

1.Increasing the Predictability of Transaction Fees

Transaction fees on the Ethereum network can be volatile due to the network's use of some form of auction system. Users bid each other to process and verify the transactions they want to make by other users, called “miners”. Transaction fees that arise when the network is busy can cause users to transfer even small amounts for huge fees. The real problem, however, is that this auction takes place in a “blind” manner, meaning transaction fees are volatile and unpredictable. With EIP-1559, users will pay a base rate determined by the algorithm, based on how busy the network is. Users who want their transactions to happen faster will be able to send an additional tip to this base fee.

2.Burning Process

The process, known as burning in the cryptocurrency market, which serves to reduce the supply, will also apply to Ethereum with EIP-1559. The base fee will not be given to miners. This is to remove the risk of miners artificially clogging the network to keep transaction fees high. Instead, ETHs will be burned, that is, destroyed. Some experts argue that the price of Ethereum could increase significantly with this move, as it will reduce the supply. But the developers share the view that the effect of reducing supply on prices is possible in theory, but not in Ethereum practice. Because the size of gas fees on the Ethereum network and the transaction volumes that determine how much ETH will be destroyed are among other factors that can have an impact on the price.

3.Transaction Fees May Not Decrease Exactly

Although transaction fees on the Ethereum network are expected to decrease, the predictable base fee may help us face fewer overpayments than the “highest bidder wins” system. However, EIP-1559 is not intended to reduce transaction fees, it just makes fees more predictable. The base rate will change, increasing when the network is busier and decreasing when things are calmer.

4.Bigger Changes to the Ethereum Network

EIP-1559 is actually a pretty minor update considering the current plans on the Ethereum network. Ethereum 2.0, which is targeted to be completed at the beginning of 2022 and will overhaul the entire infrastructure of the network, is expected with much greater interest. Ethereum 2.0 will switch the network from a Proof of Work (PoW) system to a Proof of Stake (PoS) system. Under the PoW algorithm, miners use large amounts of computing power to verify transactions. However, in the PoS algorithm, users will have to give up some ETH to get the right to verify transactions and earn cryptocurrencies. Developers are also continuing to work on growing the Ethereum network by adding more side networks and connecting them. It is hoped that this will reduce congestion and transaction costs.

5.Ethereum Becomes a Block Deflationist

The final rally came in anticipation of the London hard fork that will activate EIP 1559. The Ethereum network has officially started burning the base fee paid in ETH. A little over 24 hours have passed since the activation, but it has been reported that 4,840 ETH, which corresponds to approximately $12.7 million, have already been burned on the Ethereum network. At the last point, the more Ethereum is used, as we always see, the more the fees will increase and the more ETH will be burned. Block 12,965,263 reportedly burned more ETH than was released, making the aforementioned block the first deflationary block in history.     This article has contributions of Investing.com and Business Insider.