Upcoming London Upgrade will boost Ethereum Price Levels?

07/09/2021

The highly anticipated London upgrade for the Ethereum network will launch on Aug. 4 according to the lead developer. It is designed to take the network into a deflationary state, but will not necessarily reduce gas fees through the EIP-1559 update. It is believed that this burn will decrease miner revenue.

What it does do is adjust the auction mechanism for the fee calculation structure and burns a portion of the transaction fees. Over time this will make the asset deflationary, a process that will accelerate once mining ceases and proof-of-stake becomes the primary consensus mechanism sometime next year.

Key Benefits of London Upgrade

  • With EIP-1559 comes a new deflation mechanism that will burn the base fee. Developers expect this process to increase scarcity and improve the general usability of the Ethereum network.

  • At present, under the auction system, users bid to pay gas fees. This incentivizes miners to cherry-pick the most profitable transactions leading to spiraling fees and long wait times for low bidders. Under EIP-1559, each block will have a fixed, associated fee instead, making a more predictable and fairer fee mechanism.
  • A common misconception is that EIP-1559 will reduce high fees on the Ethereum network. The proposal aims to make transaction fees less volatile by creating an algorithmic model to adjust with traffic activity automatically.

In addition, ETH is continually ‘reduced’ as more ETH is ‘staked’ on the network (some estimates state up to 1.4% supply reduction). This adds to market dynamics (lesser supply and constant/increasing demand) and may result in higher ETH prices for investors and holders.

The London Effect

ETH, in the past 24 hours alone, pumped from a daily low of $2,250 to its current level of almost $2,400, which is its highest price line since June 17th.

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