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Investor excitement as Ethereum’s London Hard Fork looms

04.08.2021

The forthcoming London Hard Fork, which is due on Thursday August 4 under the  codename EIP-1559, EIP standing for Ethereum Improvement Protocol.

This is an exciting upgrade, largely because it will begin to ‘burn’ Ethereum coins, but mainly because it will change the way in which miners are remunerated, which is a very interesting point, and one that could see prices of Ethereum, as well as the community that mine it, go either way.

Whilst the idea of the upgrade is centered around making transaction fees more manageable, which in turn creates greater levels of user-friendliness for the Ethereum network, the method by wich Ethereum miners are paid is more than just a commission or incentive for attempting to mine more coins and keep them as an investment or sell them as is the case with Bitcoin.

Ethereum is largely a network which is participated in by software engineers and fintech enthusiasts who view their commitment to mining as taking their part in the formation of the financial services infrastructure of the future, ranging from highly sophisticated smart contracts to incredibly complex protocols such as Uniswap which uses liquidity pools rather than serving as market maker in contrast to centralized exchanges, with an aim to create more efficient markets.

There is a very dedicated community of miners which have a different ethos compared to those who have dedicated their resources toward Bitcoin mining, which is highly competitive and is focused on the reward in the form of actual Bitcoin, whereas the tech innovation-orientated methodology of the Ethereum community is more of a motivator.

Now, as the Hard Fork approaches, the anticipation as to whether dedicated miners will continue their zeal for mining Ethereum under different remuneration terms, viewing the upgrade as a necessary evolution to smooth out transaction fees, or whether there will be a number of miners who will consider it not worth their while and concentrate their efforts elsewhere is yet to be seen.

As it stands, fees are the subject of volatility, mainly due to the system of bidding against other users to have transactions verified by other miners.

This means that currently, fees rise to substantially higher levels when the network is busy, however aside from transaction costs, gas fees are also a subject of concern. Gas refers to the computational efforts required to execute specific operations on the Ethereum network. A fee, paid in ether (ETH, +4.38%), is required to successfully conduct a transaction on Ethereum.

At the moment, Curve has the lowest gas fees at $13.76 (ETH/USD), with the second being Uniswap V2 at $18.24 (ETH/USD). Third is Mooniswap with prices at $18.26 (ETH/USD), followed by SushiSwap at $18.60 (ETH/USD).

In percentage terms, fees vary tremendously, for example Curve’s fee is 0.004%, whereas Uniswap is much higher at 0.3%.

It is anticipated that the imminent Hard Fork is intending to lower the gas fees, but will also increase pricing, which is being estimated by some analysts to potentially go up to anywhere from $5,000 to $10,000. These are of course wild predictions and should not be taken as given.

Technology aimed at supporting this is already well in place. For example, the ‘Layer 2’ gas fee friendly payment protocol that has been built on the Ethereum topography is well underway and there is a significant and exciting use case for Coinmetro in this area.

This is because centralized exchanges also perform similar functionality to L2s, and on this basis are an ideal venue to be used to expand the scope of accessing L2 decentralized ecosystem via routes such as being able to exchange fiat currency in order to then participate at L2 level, therefore performing the function of a ‘fiat on-ramp’.

For example, one of the most common places for new users to get their first coin is an exchange. Not all exchanges allow direct fiat purchases, however CoinMetro is able to provide this function very comprehensively.

Given that this level of advancement is already powering the DeFi world, the drive toward lower gas fees for Ethereum which have been made possible by the same protocol that is allowing comprehensive venues such as Coinmetro to be the most efficient fiat on-ramp is a two-in-one plus.

As of today, Wednesday August 3, investors have shown confidence in Ethereum’s value in the day before the Hard Fork, as it has been trading near to $2,600 with a market cap that has increased by 1.6% over the course of the day.

This has been viewed as a 12-day winning streak, which, if it can be measured as such, is Ethereum’s longest ever since inception.

Tomorrow’s Hard Fork is set to activate a system which will look toward burning a proportion of the fees paid to miners, which will result in increased network usage, in turn leading to a higher amount of Ethereum being burned giving a limitation to the growth of its supply over time.

It is perhaps therefore inevitable that there would be a rally in the advent of such a deployment, however there are some who think that the upgrade could invoke a deflationary-asset appeal, so either way, all eyes are on Ethereum at the moment.

It’s a clever move, when all is considered. Right now, Ethereum is basking in a limelight of sophistication. It is held out by many enthusiasts as the potential revolutionizing force for the entire financial system, its decentralized protocols having many applications favored by the entire financial world as it enables the deployment of smart contracts and decentralized applications (dapps) to be built and run without any downtime, fraud, control or interference from a third party.

These are all areas which major investment banks are interested in exploring, yet are already here hence the DeFi world is being led by miners, and the institutions are all eyes and ears.

Either way, tomorrow’s Hard Fork will be an historic moment for Ethereum, and a milestone in the creation of a decentralized financial ecosystem.