The long-awaited upgrade to the Ethereum (ETH) network is said to be merely a couple of months away, according to recent rumors spurring from the word of alleged industry insiders. Consequently, investors are bullishly eying up the upcoming gas-saving upgrade.
The Ethereum Improvement Proposal, or EIP-1559 for short, has been the most talked-about upgrade to the network since the launch of ETH 2.0 last December - the implementation of EIP-1559 is said to tackle the debilitating problem of high transaction fees due to strain on the Ethereum network in recent times.
According to ETH speculators and rumors in the community, with the long-term effects of the upgrade, it would not be unrealistic to see the price of Ethereum soar to figures upwards of $20,000 and beyond.
Why EIP-1559?
The surge in prices and a booming decentralized finance (DeFi) sector have put massive demands on Ethereum. As a consequence, gas fees have skyrocketed to record levels in recent months.
EIP-1559 introduces a mechanism to adjust the current auction process that determines transaction prices - creating an effect of dynamically adjusted fees so that users pay the lowest bid for the block.
Positive Effects on Ethereum
While EIP-1559 will not have any direct impact on ETH prices, it does affect the supply. The proposal would dynamically burn fees which should eventually reduce issuance over time once proof-of-stake is underway.
One benefit of EIP-1559 is that it helps scale Ethereum this year by enabling Arbitrum and Optimism to execute secure transactions on the next Ethereum block in a reliable fashion. Since Arbitrum and Optimism are critical to scaling ETH this year, EIP-1559 is too. Predictions Global founder and ETH developer Ryan Berckmans has suggested that the upgrade is likely to be launched in July with the ‘London’ hard fork.
Finally, in addition to all of these things, the anticipated upgrade will make the Ethereum network much more equitable for retail investors without all the transaction fees going to the miners, like in the current proof-of-work (PoW) mining algorithm.
Fee Burning Bullish
Framework Ventures co-founder Vance Spencer suggested that the massive burning of ETH fees will create a “wealth effect tsunami” -
There is the additional premise that miners currently need to sell their ETH to cover the costs. Without this selling pressure, the asset has more room to grow in value under proof-of-stake.
In Summary
Ethereum Network developers continue working on the crucial EIP-1559 upgrade with hopes to help alleviate sky-high transaction prices plaguing the network in recent times.
There have been more preparations for the next major network upgrade, dubbed Berlin, which will usher in several other EIPs, including one which defines a new transaction type.
