Ethereum has seen a lot of volatility after the market crashed in May 2021. Many analysts emphasized the importance of Ethereum 2.0 and the transition from proof of work to a proof of stake consensus model. But there is more in the making, and Ethereum is facing a smaller but important update.
What is changing with the London upgrade, and how will it affect the market?
London started on Ropsten and Goerli
The upgrade has a couple of stages, and the first one was the rollout on the Ropsten testnet on June 23rd. It was followed only a week later by the rollout on the Goerli testnet on June 30th. It is expected that the Rinkeby testnet will follow on July 7th and that Kovan will follow after the London upgrade became part of the mainnet.
The upgrade contains five important improvement proposals for Ethereum: EIP-1559, EIP-3198, EIP-2529 as well as EIP-3541, and EIP-3554. The most anticipated proposal has caused quite a controversy while the roadmap for London was in the making earlier this year.
EIP-1559 will introduce the idea of a base fee, and it is expected that it will make it easier for users to estimate and set a fair fee. The fees in the Ethereum network have been sky high during the first two quarters of 2021. But it also has caused controversy because the miners complained that the base fee would cost them their rewards, and it was therefore rejected by a group of people and mining pools. But it became clear that EIP-1559 would become a part of London, and in fact, it did.
Ether might become scarce
Ethereum is not scarce per se because there is not fixed total supply. But with EIP-1559 a part of the transaction fee will be burnt and is therefore not available for the market. Increasing demand for transactions would burn more and more Ether.
The higher the demand, the less Ether is available on the market. With a significant amount of Ethereum actively staked with already working staking pools, the asset might become scarcer and see an increase in price. This is speculative, but many analysts have argued that EIP-1559 and the London upgrade might become a driving factor for another Ethereum rally. Yet this remains to be seen in the next couple of months.