Ethereum is surging steeply last few days. Many investors are betting on the world’s second-largest cryptocurrency by market cap after its new upgrade with the codename “London” took place. This update should change the fee structure of each transaction, making those fees less volatile while reducing the amount of ETH in circulation. Another major transformation of Ethereum is to go off from proof-of-work mining to proof-of-stake model, which will make it harder for miners to earn money and eventually could make mining irrelevant.
Over the past day alone, Ethereum has surged by more than 8%, seemingly helping other altcoins, such as BNB, Cardano, Polkadot, and Solana, all of which are up by 3-10% at the time.
Speaking on the upgrade, Ethereum co-founder Vitalik Buterin said the launch’s success is evidence that the ecosystem can make significant changes for the better. His words show confidence in delivering Ethereum 2.0, which Buterin said is scheduled for release in early 2022.
The EIP-1559, or the “London,” one of the most anticipated updates for Ethereum and the entire crypto industry in 2021, has finally rolled out on August 4. This update should change the fee structure of each transaction, making those fees less volatile while reducing the amount of ETH in circulation.
According to the specification, in addition to EIP-1559, the London Hard Fork update contains five other network updates.
EIP-1559 is the crucial update to Ethereum’s economic model; the update is also known as the “ETH token burning mechanism.” It is the one that is attracting the attention of the entire cryptocurrency community, as ETH burning implies an increasing ETH scarcity as more and more of it will be burned through transaction fees.
But the chief among the changes is a switch in the consensus protocol from proof-of-work (PoW) to proof-of-stake (PoS). Staking will lead to greater participation in securing the Ethereum network, which in turn will create a more decentralized blockchain.
The PoW algorithm is not perfect, and its flaws, such as slow transaction times and huge gas fees, became too big to ignore. Recently emerged Ethereum-based non-fungible tokens (NFTs) and games like CryptoKitties became so popular that they clogged the Ethereum network, delaying transactions and causing fees to skyrocket.
As well, the rise of decentralized finance (DeFi) is yet another use case that underlines the importance of an efficient network. While the DeFi market has seen its total-value-locked (TVL) balloon since catching on like wildfire in 2020, its growth has been stifled. Some developers have opted for other blockchains, while institutions have largely remained on the sidelines until the kinks are worked out. With greater scalability and more stable fees, Ethereum would likely disrupt traditional finance even more.
For developers to avoid such bottle-necks with their own innovation, they are building Ethereum 2.0. This is a massive upgrade of the existing network to one that is more scalable and could hasten the adoption of the blockchain among the mainstream.
The version of Ethereum 1.0 introduced in 2015 was groundbreaking, but unprecedented demand for the network exposed some key issues, such as a clogged network, insufficient disk space, and high energy consumption.
Ethereum 2.0 will deliver a host of key benefits that are likely to attract even more developers to the network. The three key improvements are including greater scalability, greater security, and greater energy sustainability.
According to Vitalik Buterin, Ethereum’s energy consumption will be diminished “by a factor of more than 1,000” with PoS.
But as experts told CNBC, the problem is that Ethereum miners are approaching a cliff that will make them obsolete.
Ethereum 2.0 would have the network switch from the energy-intensive PoW mining system, where miners solve difficult math equations to create new coins, to PoS, which just requires users to leverage their existing cache of ether as a means to verify transactions and mint new tokens. This change will be huge not just for Ethereum but for the wider crypto community at large.
When the proof-of-stake transition would essentially make Ethereum unmineable once activated, and in a few years from now, once the protocol has fully migrated to a proof-of-stake model, the entire industry around Ethereum mining as it exists today will no longer be relevant.