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Ethereum’s London Update: What is it & how does it affect ETH prices?

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With the launch of Bitcoin in 2009, the blockchain was only seen as a peer-to-peer decentralized payment network to send money. But when Ethereum was launched in 2015, it brought the blockchain technology to another level, allowing a lot of new projects to be developed on what was considered “blockchain 2.0”. Decentralized applications (dApps), Smart Contracts, ICO (Initial Coin Offering), and more recently Non-Fungible Tokens (NFT) and DeFi (Decentralised Finance) are among the most popular projects created on the Ethereum network.

But with the rise of Ethereum’s popularity, issues quickly appeared, such as technical factors limiting the blockchain’s scalability, as well as increasing gas fees. That’s why the Ethereum blockchain decided to implement a series of Ethereum Improvement Proposals (EIP) through network upgrades to become “Ethereum 2.0” – the most important change being the use of the proof-of-stake (PoS) protocol to validate transactions, rather than the current proof-of-work (PoW) system.

What is it & how does it affect ETH prices?

ETH prices

The latest upgrade to Ethereum was activated earlier this month – the “London” upgrade, which has increased speculation on price movements of the related token, the Ether. What is the London upgrade? How does it impact the Ethereum network? And how will it affect the ETH price? Let’s dive right in.

What is the London upgrade?

According to the Etherscan data explorer, the London update took place on August 5, 2021, when block number 12,965,000 was validated. This upgrade is considered by many as the most significant upgrade to the Ethereum blockchain, as it includes the EIP 1559, which changes the way Ethereum transaction fees (gas fees) are estimated.

Right now, Ethereum users are bidding for how much money they want to pay for their transactions to be picked and validated by miners. This can be costly for users, as miners will turn to transactions with the highest gas fees. With the recent implementation of the EIP 1559, a new automated bidding system with a set gas fee is used that fluctuates according to the level of congestion in the network. Moreover, a part of the gas fee is now burned.

How does it impact the Ethereum network?

There are 4 other EIPs included in the London upgrade, but the EIP 1559 is one of the most consequential, as it makes the Ethereum gas fee estimation process simpler and more predictable. Another significant change is the fact that a part of each transaction is removed from circulation by being burned. These changes will therefore impact the supply of Ether, which might boost the token’s price over time.

How will it affect the ETH price?

The ETH price rose after the implementation of the London upgrade, but this upgrade alone will not support strong sustainable price growth. However, this upgrade and the move to the proof-of-stake (PoS) system will have a great impact on the economics of Ethereum and the price of its token.

With all the changes towards Ethereum 2.0., the community is showing users and investors that Ethereum will always evolve, which means that the blockchain is likely to remain the most preferred network for DeFi and other related projects, which will push demand higher for the native token – the ETH and support its price.

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