• Ethereum London hard fork is expected to launch very soon, traders move forward with guarded optimism.
  • EIP 1559 protocol upgrade will change the current Ether fee mechanism and monetary policy, likely to make transaction costs cheaper.
  • Goldman Sachs believes Ether could overtake Bitcoin as the network becomes more scalable. 

Ethereum enthusiasts are waiting for the delayed release of the London hard fork while trading with caution. The most notable Ethereum Improvement Proposals (EIP) in the upgrade is EIP 1559. This, combined with the transition to Proof-of-Stake (PoS) is considered equivalent to a “Triple Halving”. 

Ethereum prepares for network upgrade

The upcoming London hard fork is a critical milestone in the Ethereum roadmap leading up to the release of ETH 2.0. It will change the protocol’s consensus algorithm from Proof-of-Work to Proof-of-Stake and restructure the monetary policy. 

Currently, transaction fees are calculated by the concept of the "first-price auction.” Market participants bid a set price for miners to process their transactions and the highest bidder wins. However, this is set to change with EIP 1559. 

The network update will introduce a “base fee” for transactions to be included in a block. Users who wish to prioritize their transactions will have the option to add a “tip” or “priority fee” to incentivize miners for including their transactions in the next block. The higher the tip the bigger the chances for the transaction to be processed. 

EIP 1559 does not directly intend to make gas cheaper. The base fee will fluctuate by up to 12.5% after blocks are more than 50% full, which makes transaction fees predictable and transparent to prevent users from overpaying for gas. 

Among other changes that result from the EIP 1559 upgrade, the most notable one is that 70% of transaction fees on the Ethereum network will be burned, meaning that this supply will be deleted from circulation. The remaining 30% will be delivered to stakers as an additional staking reward, in addition to their regular issuance. 

The significant drop in Ether supply is key to drive Ethereum’s price since it makes it a deflationary asset. 

Popular Ethereum Researcher Nikhil Shamapant, mentioned in his research on EIP 1559  that

While many Ethereum bulls fully understand that EIP1559 will improve Ether as a store of value, I don’t think they are modeling for the further way it affects elasticity of supply. If supply is being removed, it matters more if it’s being removed from HODlers who were already inelastic anyway or speculators who can’t sell that Ether in the future. There is no more inelastic source of supply than nonexistent supply.

The so-called Triple Halving

Given the significance of the upcoming protocol upgrade, the concept of “Ethereum Triple Halving” that started as an analogy on Crypto Twitter has evolved into an analysis of financial flows to predict what will happen to the price of Ethereum by January 2023. 

Ethereum’s Triple Halving has its roots in the reduction in supply, Following a successful upgrade to EIP 1559, a drop in sell pressure is expected. Analysts believe that  a 30% reduction of circulating Ether could take place, which is about half of the effect of a single Bitcoin halving. Meanwhile, the transition to PoS might result in a supply shock equivalent to two halvings. 

The much-awaited London hard fork was expected to go live this month, but after a delay, Ethereum core developer Tim Beiko proposed August 4 as the potential launch date. Other key developers will make a final decision on July 9. 

While the exact date of the network update remains to be decided, US multinational investment bank Goldman Sachs is bullish on Ethereum.

[Ether] currently looks like the cryptocurrency with the highest real use potential as Ethereum, the platform on which it is the native digital currency, is the most popular development platform for smart contract applications.

 

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