The Ethereum Improvement Proposal 1559 was ushered Thursday with the full activation of the London Hard Fork.
The news of the software upgrade triggered a positive move in the price of Ether. ETH soared to about $2800, gaining 4.8% in the last 24 hours. Market capitalization rose to $300, up from the previous daily low.
The activation comes as a necessary alteration in the codes backing Ethereum, the second-biggest cryptocurrency in the world.
Why the London Hard fork?
Scalability, as well as unpredictable and expensive transaction fees, has always been a problem for users of the Ethereum blockchain.
The surge in the development of nonfungible tokens and the high adoption of DeFi protocols which are built majorly on the Ethereum blockchain made the problem worse in the last few months.
The upgrade and activation of the codes will resolve these issues by:
- Altering the ways transaction fees are calculated, hence making ETH less volatile, and
- Probably making ETH mining irrelevant because the process of earning rewards will be made difficult.
Under the EIP 1559, the circulation of ETH will be automatically deceased because each Ethereum transaction will involve burning the base fee.
As a result, Binance had announced a temporary pause to deposit and withdrawals on the Ethereum network due to the London hard fork.
Analysts believe the upgrade will make ETH a deflationary asset because each transaction will see a portion of the total supply of Ethereum being removed from circulation completely.
The London hard fork and upgrade of the EIP 1559 will probably set the ground rolling for transition to Ethereum 2.0, moving the network from a proof-of-work to a proof-of-stake consensus mechanism.
With this, engineers now look forward to the Shanghai hard fork billed to take place later in the year.
Just as Ethereum co-founder and ConsenSys founder Joseph Lubin described the London upgrade as a move to propel Ether to become “ultrasound money,” crypto fans are equally excited. This is because the update will not only restore interest payments but also improve token redemption.
“The notion of ethereum becoming a deflationary cryptocurrency in the future is now tangible, and the effects on ethereum’s valuation could be profound,” Martin Gaspar, a research analyst at CrossTower, said in a chat with CoinDesk.
However, Alex Svanevik, co-founder & CEO at Nansen thinks it will take a while before an impact from the upgrade will be seen.
“As wallets, bots, etc. start making use of the EIP 1559 features, we will know more about how this upgrade affects Ethereum long term,” Svanevik says.
