26 July 2021
The long-awaited Ethereum London update is arriving on
August 4th, 2021. The impact will be massive and have ramifications across the
entire crypto space.
Experts predict the update could propel Ethereum to new
heights, potentially overtaking Bitcoin. We could be about to witness the
moment Ethereum begins to dominate the crypto industry.
If you’re unsure about Ethereum or worried about falling behind the crypto curve, then worry no more, we’ve got all the info you need on:
- Ethereum’s biggest obstacles to crypto domination
- How the latest update solves some of these problems
- Whether the price of Ether could take off
Ethereum has been a top player in the crypto space since the early days. The blockchain platform became famous for its smart contracts which developers use to automate tasks.
Since 2015, the price of Ether has risen from $0.67 to more than $4,000 at its peak. Its meteoric rise has pulled back in recent months, but the London update could see Ether reach new all-time highs.
In short: its reliance on the proof of work protocol, its
uncapped currency pool, and its extortionate gas fees.
proof ofwork consensus mechanism is bad news for any climate minded developers. The process is identical to the Bitcoin mining process, which is also incredibly energy-intensive. For more about crypto energy usage, click here. Unlike Bitcoin, the Ethereum platform’s currency, Ether, is uncapped. There are eighteen million new Ether mined every year. Ethereum struggles to maintain a consistent value due to the laws of supply and demand - the more there is of something, the less value it has.
Additionally, the gas fees are deterring potential developers from using the Ethereum platform. The average fee for transferring Ether fluctuates wildly, making small transactions expensive. During Ethereum’s peak value in May 2021, the gas fees reached $71 per transaction. Sending less than $71 would have been pointless.
Currently, Ether miners receive gas fees in exchange for validating network transactions. This is part of the PoW mechanism. Fees are determined by measuring how much computer power is needed to perform an action. Like validating a transaction, for example.
The more congested the network, the higher the fees you have to pay to move Ether around.
These issues have prevented Ethereum from scaling and attracting new developers.
But they could soon be problems of the past.
The London upgrade, also called a hard fork, is the final
development stage of Ethereum 2.0.
The change hasn't been easy. A hard fork is a radical change to a blockchain. One of the few disadvantages to decentralised networks is updating them. In other words, changing how a blockchain works, especially massive ones like Ethereum, is a real pain.
You need strong relationships with developers and the community because a majority need to agree on the upgrades. Fortunately, Ethereum has solid relationships with its platform users.
The first important change is to Ethereum’s consensus
protocol. The platform is moving from proof-of-work (PoW) to proof-of-stake
(PoS). In case you’re unfamiliar with the terms, or the difference between them, guide.
Implementing PoS will completely upend Ethereum’s mining process. In fact, it could nearly eradicate it. Instead of mining by solving algorithms, you'll be able to mine new Ether by staking your currency. The more coins you have, the more mining power you have.
Cryptos that rely on a PoW consensus mechanism use inordinate amounts of energy, which is bad for the climate. Bitcoin is one example. But coins that use PoS need much less energy to work. That's why switching to a PoS mechanism will greatly benefit Ethereum. It should bring more climate minded developers to the Ethereum platform.
The Dapp developers on the platform will also be able to boast much lower energy usage.
The second key upgrade relates to limiting the supply of Ether by changing the way that gas fees work.
After August 4th, the fees will be split into two parts. A base fee, and a tip. The new fee will be burned (permanently destroyed), and the tip will go to the miner. Although there will be eighteen million Ether mined every year, the burned fees will reduce the ongoing supply. As Ether is destroyed after every transaction, the cryptocurrency should rise in price. That’s the plan anyway.
The vast majority of Dapps and DeFi tokens are built on
Ethereum. Decreased fees increase the demand for Ether, raising its price.
Additionally, lower prices will encourage new developers to consider Ethereum
for new projects.
The miners, who are no longer awarded the fees, aren’t too happy with the upgrade. It’s a big bullet to bite. Ethereum is risking a miner revolt, which could make Ether more inflationary again.
Although miners being able to accept tips seems like some consolation, it could cause a fees war. Competing Dapp developers could pay increasingly higher tips to push their transactions through. This could cause high gas fees to return. So far, these concerns are only theories. The vast majority of Ethereum users are still excited about the new developments. Lower gas fees, a better energy record and a native currency that better holds its value are upgrades worth being excited about.
There’s positive energy in the crypto space toward the London
The finance world also sounds positive - Goldman Sachs said last month that Ether has a ‘high chance’ of overtaking Bitcoin as the dominant value store in the crypto market.
The London update could lead us into a future where Ethereum, not Bitcoin, is the dominant cryptocurrency worldwide. We'll see soon enough.