What is the Ethereum London upgrade? Is it just another upgrade of the Ethereum network? Some say it marks the new start of a bull market in the cryptocurrency industry. Why? Since the announcement of the Ethereum London upgrade, Ethereum has risen from around US$1,800 in late July to more than US$3,200 on August 20, a staggering 80% increase in a month. The figure below shows the trend of the top-ranked coins in terms of market capitalization:
They generally rebounded at the end of July: Bitcoin rose from $29,972 on July 21 to $47,277 on August 20, an increase of 60%. Cardano jumped by 116% from $1.06 to $2.29; Binance Coin soared 61.5% from $266.4 to $430.26; Ripple grew 124% from $0.53 to $1.19; Dogecoin increased 82% from $0.17 to $0.31; Polkadot skyrocketed 136% from $11 to $26; and cryptos such as SOL, UNI, and LINK all witness a rise ranging from 60% to 150%. The whole market is on the rise.
How come? What a big difference did the London upgrade make?
On August 4, 2021, Ethereum completed the long-awaited "London Upgrade" with a total of four proposals: EIP 1559, EIP 3198, EIP 3529, and EIP 3541. The most important one is EIP 1559. Why?
It has made two changes:
1) It replaced the long-standing first-price auction in Ethereum with the "base fee + tip" model.
Under the first-price auction, when there are multiple transactions to be confirmed at the same time, miners prefer those with higher fees. As a result, transaction fees skyrocketed during the peak period of the network. On the other hand, users who offer a lower transaction fee have their transactions postponed infinitely or even neglected. The network efficiency does not increase with the rising transaction fees. By comparison, the “base fee + tip” model not only smooths out the transaction fees borne by users, but also enhances the network efficiency. Under the EIP1559 proposal, all transactions with the “base fee” paid can be verified, and moreover, the “base fee” gets adjusted to the utilization ratio of the block. The flexible block capacity also increases the capacity of Ethereum, and to a certain extent, alleviates the Ethereum congestion.
2) The EIP1559 protocol introduces the Ethereum burning mechanism.
In other words, the "base fee" in the Ethereum transaction fees, regardless of the amount, will be burned, leading to a steep drop in the issuance of Ethereum.
Let's take a look at the data: According to the hashrate calculation of the entire network of Ethereum, in the past, a block was packaged every 14 seconds, and for each block packaged, 2 Ethereum would be rewarded, so there would be 12,342 more Ethereum a day. Since the EIP1559 protocol of the Ethereum London upgrade went live on August 4, 2021 (at 9 o'clock that night):
Up to August 26, 98,630ETH have been burnt, that is over 4,000 ETH burned per day on average, a 1/3 reduction in the new issuance. Although the burning amount does not outrun the new issuance yet, the Ethereum London upgrade has reduced the transaction fee, improved the network efficiency, relieved the network congestion, and made the Ethereum ecosystem more prosperous. Besides, the Ethereum beacon chain has drawn a growing population to stake mining. The above two factors have intensified the market demand for Ethereum, thus pushing up the price.
The cryptocurrency industry is subject to a hidden law: the rise of the core assets and currencies with top market capitalization is the catalyst for the growth of the entire industry, leaders in a market segment will also drive the currencies on their eco-chain to rise. Ethereum is not only a core asset and a leader in market value, but also the top public chain in the segment of "infrastructure", which cultivates abundant industries and ecosystems. DeFi and NFT, two major industries on the Ethereum network, are in bloom, and also prove to be a great driver behind the crypto price.
This is why the Ethereum London upgrade is deemed to herald another bull market. Of course, how long the bull market will last in the second half of the year and which currency will be profitable remain unknown. Even a bull market cannot always guarantee increases in all cryptos. As we all know, crypto investment is risky, and prudence is a must.
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