The Ethereum (ETH) network is experiencing its own version of the London Fog. The upgrade, which should have happened in late 2018 or early 2019 instead has been delayed until 2021 and many are speculating as to why.
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Although Ethereum remained the leading blockchain in 2021, its market share continued to decline, falling from about 100% at the start of the year to 65%.
The PoW (Proof of Work Mechanism), which makes transactions costly and time-consuming, is its biggest issue.
In order to prepare for the switch from PoW to PoS, Ethereum developers have pushed for the Ethereum 2.0 upgrade with four hard forks in 2021 after realizing that new L1s provide quicker, more comfortable networks (Proof of Stake).
These knives were
- April: Upgrade for Berlin
- August: Upgrade for London
- Beacon Chain Altair upgrading in October
- Arrow Glacier improvement in December.
Since it impacts users, holders, miners, and developers alike, the London update has drawn the most attention of the four.
Market share of TVL by chain according to Footprint Analytics
Who benefits from EIP-1559? by Footprint Analytics, published in August, examined this improvement. The London Upgrade will likely allow ETH to continue gaining in value by making it deflationary, among other advantages, in addition to smoothing out gas charge variations by permitting variable block sizes, dividing the gas price into Base Fee and Priority Fee, and burning off the base fee.
Modifications After the London Upgrade
These are the key outcomes of this upgrade:
- Gas prices are more stable and predictable thanks to the base fee pricing, which is based on historical block consumption and may change between blocks by up to 12.5%. As a result, users can more precisely forecast how much gas they will spend. Be aware that this does not always imply cheaper petrol prices.
- Miners will lose money as a result of the update since they will no longer get the full gas charge as they did in the past but just a portion of the priority fee. The majority of future money will likewise come from block rewards.
- The ecosystem will begin burning ETH since Ethereum introduced a method to curb down inflation quickly. This modification will probably link the value of using the network to the value of ETH.
In all, 1,317,700 ETH had been burnt as of December 31—five months after the burn mechanism was introduced—burning an average of 6.22 ETH every minute and 1.43 ETH each block.
ETH Burnt Footprint Analytics
Around 10,000 ETH will be burnt on average every day, and the percentage of users that choose EIP-1559 as their transaction type is progressively rising from 50% to 70%.
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Daily ETH Burnt – Footprint Analytics
The London update paves the way for Ethereum 2.0 even if it does not completely revamp the network experience and reduce costs. It guarantees miners may continue to make money without going on “strike” under the PoW method until the Beacon chain is prepared to use PoS by postponing the difficulty bomb, a technique to make PoW cease creating blocks.
How Is ETH Made Deflationary by the London Upgrade?
The Ethereum 2.0 and Layer 2 extension will continue on the deflationary endeavor that the London upgrade started. In 2022, the Beacon chain and Ethereum mainnet will be fully integrated. After the update, the block structure will change from a single chain to multi-chain fragmentation, and the PoW method will become the PoS mechanism.
Better energy efficiency and improved capacity are made possible by the PoS process. Ethereum 2.0 has the potential to increase TPS to 2,000–3,000 and potentially 100,000 TPS, which would address the present congestion issue.
Mining as it has been practiced up to that point will be obsolete due to the removal of the PoW method, and new incremental issues will only be released via the PoS process at a rate of 400,000 to 700,000 per year. At the current pace of around 10,000 ETH burnt each day after the London upgrade, 3.65 million ETH will be burned annually, greatly exceeding the amount of incremental problems.
Summary
The cost of ETH increased in 2021, going from $738 at the start of the year to $4,182 in May. Following a sharp decline in value, the price of ETH steadily increased, hitting a high for the year of $4,826 in November. While the expansion of the projects during the summer of DeFi contributed to this, the decline in inflation after the London upgrade also had an impact.
Footprint Analytics: Price of ETH
The mining incentives steadily decreased with the release of Ethereum 2.0 in December 2020. The Ethereum developer Tim Beiko anticipates that Ethereum 1.0 and 2.0 will combine in April or May 2022, after which Ethereum 1.0 would likely deteriorate and finally be forgotten. The PoS method will replace the PoW mechanism of Ethereum 1.0, and the deflation of ETH will happen shortly after. 2022 may be a “ETH Summer” to look forward to for those who are optimistic on Ethereum.
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Date & Author: Jan 12th, 2022, [email protected]
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