Ethereum “London” Change of Protocol: Big Deal or Much Ado About Nothing?

Ethereum (ETH) continued to rally today approaching the $2,800 level while Bitcoin (BTC) is trading above the key $40,000 level as the global cryptocurrency market cap rose almost 2.5% to $1.7 trillion.

According to the official release, the current Ethereum main net will merge with the proof-of-stake (PoS) chain, marking the end of proof-of-work for Ethereum. This is unlikely to happen this year, but the developers are working to speed up the process.

Creator of Ethereum Vitalik Buterin believes that the successful launch of the so-called London update "is proof that the Ethereum ecosystem is capable of making significant changes." General words, but still. He also said during one of his numerous video interviews that EIP-1559 is "definitely the most important part of London."

The update involves burning part of the transaction fees depending on the network load and reducing the volatility of the “gas” price. In our view, anything and everything that increases predictability and numeric expectations of various components of the crypto market automatically improve the quality of this market. On top of that, there is more evidence of the feasibility of the upcoming merger with ETH 2.0.

Buterin also added: "The update definitely makes me more confident about the merger with ETH 2.0." After the merger, the new network will be able to run smart contracts on PoS, eliminating energy-intensive mining operations and potentially reducing network power consumption by 99%.

Vitalik Buterin mentioned that the update also resulted in greater variability of block sizes, which means users are less likely to have to wait that long to process transactions in fixed blocks under heavy load. Blocks can now dynamically expand or contract according to the number of incoming transactions.

“Burning”, as we know, in the crypto industry just means removing the coin from circulation. Typically, this is very simple in technical terms. To burn a cryptocurrency, you send it to an address that nobody has control over. Accordingly, nobody will ever be able to spend the coins. In this case, however, the tokens are actually destroyed by the protocol – which means they no longer exist on the network.

This happens by removing the ETH from the owner making the transaction (and paying the base fee) but not giving it to the miner. This is unlike transaction fees that are paid directly to miners. As a result, nobody is able to spend it on the network from that moment on.

Reduced issuance and/or free float (availability) has been one of the strongest investing points of crypto tokens. Certainly, this is not a foolproof method of boosting their exchange prices forever, however, traders perceive them as a very tangible short- to medium-term incentive to buy a particular token – something like equity investors view companies’ share buybacks.