Ethereum just got its biggest update in years

Ethereum underwent its biggest upgrade in years last week, when the cryptocurrency’s core development community activated the London hard fork.

The London update contains Ethereum Improvement Proposal (EIP) 1559, which overhauls the on-chain transaction process by making fees more predictable and user-friendly (but not necessarily lower).

• One perennial problem with Ethereum’s network is congestion, driven recently by NFTs, DeFi, and the like.
• The spiky usage patterns that result from congestion tend to translate into higher “gas fees” (the price you pay to process a transaction).

With EIP-1559, the base gas fee set by network usage is “burned,” thereby removing some ether from circulation forever. Previously, transaction fees went entirely to miners. If/when ETH’s burn rate exceeds the issuance of new tokens, the asset could become deflationary, as overall supply reduces with time.

Zoom out: The world’s second-largest cryptocurrency has an even bigger transition in its near-ish future: Ethereum 2.0. This will shift Ethereum’s consensus system to proof-of-stake. This transition away from computationally intensive mining, which has been delayed many a time, is when boosters say ether will become truly deflationary.—RD