Understanding Ethereum’s biggest upgrade in years

From: Coinbase Bytes

Understanding Ethereum’s biggest upgrade in years

This week, Ethereum is rolling out the “London” mainnet upgrade, the largest update to Ethereum’s core protocol in years. One change — Ethereum Improvement Proposal 1559 (EIP-1559) — has generated the lion’s share of attention. Why? Because it constitutes a major shift in the economics of Ether (ETH), the network’s native cryptocurrency. Here’s how the upgrade works:

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• When you make a transaction on the Ethereum network, you pay a "gas" fee to the miner that validates the transaction. As activity on the network has surged due to a growing world of DeFi applications and NFT markets, fees have often spiked to the point that smaller or more frequent transactions are unfeasible.
• EIP-1559 changes this system with two main aims: making fees more predictable and reducing the circulating supply of ETH over time. You’ll now pay a simplified “base fee” that’s typically set automatically by your wallet (you can also add a “tip” to speed up transactions).
• But instead of going to miners, the base fee is “burned” by the network — which means it’s permanently removed from circulation. In theory, reducing supply could potentially cause prices to go up, assuming demand remains constant.
• The London mainnet upgrade is happening via a "hard fork" — which requires the approval of a majority of the community (users, miners, developers, and investors). It’s scheduled to go live sometime between today and tomorrow at Ethereum block 12,965,000.
• Not everyone is on board, though. Some miners are concerned that their income will drop as a result of EIP-1559, raising the possibility of a contentious fork and reduced miner activity — or even two competing Ethereum chains (similar to what happened in 2016 when Ethereum Classic was created).

Why it matters… Burning some ETH with every transaction could eventually make the cryptocurrency a more deflationary asset and help it evolve into a "store of wealth"-style investment similar to Bitcoin — perhaps leading to more institutional adoption. And the London mainnet upgrade is just one of many planned changes to Ethereum. An even bigger shift, to Ethereum 2.0 (ETH2), will move Ethereum away from mining entirely.