A massive upgrade to Ethereum i.e., the blockchain responsible for running Ether, the second-most prominent virtual currency in the world after Bitcoin, was rolled out on Thursday. As a result, the price of Ether went up. It is, as of now, trading at around 2,630 USD.
The upgrade, referred to as London, consists of EIP, or Ethereum Improvement Proposal 1559. This sets out to change the way gas fees, or in simpler terms, transaction fees are estimated.
As of now, users are required to bid for the amount they are willing to pay to get their Ether transaction handled by a crypto miner. This procedure can be very expensive. Under EIP 1550, this procedure will be managed by a bidding system that is automated, with an established fee amount that varies in accordance with how congested the network is.
As stated by Eric Conner, a co-founder of EthHub and co-author of EIP 1559 in his interview with CNBC Make It, this is great for casual users of Ethereum, and it makes the protocol comparatively less daunting to use.
Another significant change under EIP 1559 is that part of each transaction charge will either be removed from circulation or burned. This will potentially bring down the supply of Ether and boost its value as well.
According to CoinShares senior strategist Meltem Demirors, that is why EIP 1559, in part, is among the most substantial upgrades applied to Ethereum since the network’s inauguration.
Although EIP 1559 is aimed at strengthening the Ethereum environment – which is widely known for its smart contract resources that powder decentralized finance, or DeFi applications as well as nonfungible tokens, or NFTs, apart from other things, it is not very likely for there to be a short-term effect on investors, according to Demirors.
However, when considering the long-term, the proposal’s co-author aims to make Ether deflationary by way of cutting the supply. Conner has stated that this would prove very beneficial for investors, especially considering all the recent discussions about inflation in the US. It would provide cryptocurrency investors with the opportunity to own a deflationary asset.
Demirors also adds that the EIP 1559 on its own will not be able to turn Ether deflationary. She adds that a lot of these prospects are possibly too optimistic considering the short-term and will turn into additional material in the long term. According to her, that is because the minimal quantity of gas burned will not outperform network inflation.