Ethereum, the blockchain that runs Ether, the second-largest cryptocurrency next to Bitcoin, is undergoing a major upgrade this week.
Slated for today (August 5), the upgrade is called “London” and includes Ethereum Improvement Proposal (EIP) 1559, which aims to change the way transaction fees, or “gas fees,” are estimated.
Currently, users must bid for how much they’re willing to pay to have their Ether transaction picked up by a miner, which can be expensive. Under EIP-1559, this process will be handled by an automated bidding system with a set fee amount that fluctuates based on how congested the network is at a given time.
Another major change under EIP-1559 is that part of every transaction fee will be burned, or removed from circulation, which will begin to reduce the supply of Ether and boost its price.
EIP-1559 is being called one of the most significant upgrades to Ethereum since the network’s launch. The upgrade aims to strengthen the ecosystem of Ethereum — which is known for its smart contract capabilities that power decentralized finance, apps and nonfungible tokens.
Long-term, the upgrade will make Ether deflationary by reducing the supply. This will be beneficial for investors as it will allow them to hold a deflationary asset. Lastly, the current upgrade is expected to improve Ethereum’s user experience.
Other innovations surrounding Ethereum are being planned for the coming months, including a planned migration from a proof of work (PoW) model to a proof of stake (PoS) model later this year or in early 2022.
Under a PoS model, a person can mine or validate transactions according to how many coins they hold. In a PoW model, miners must compete to solve complex puzzles to validate transactions. Supporters of PoS models say it will use less energy and improve the blockchain’s efficiency.
