How EIP-1559 and ETH 2.0 Will Change Ethereum Forever

Will these upgrades define Ethereum as the ultimate settlement layer?

0x_idkCrypto

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Coinmonks

6 min readJan 10, 2022

Looking back in the past where it all started.

You need to hear it here first — Ethereum is sound money and currently burning at a rate of 4.5 ETH/min (USD 18,500) and a total burn of 203,000 ETH (USD 796,300,000) taken out of circulation (at the time of writing) since the EIP-1559 London Hard fork.

Since its launch in 2015, the number two blockchain by market capitalization has been a force to be reckoned with. Of course, it took a while for the second-largest cryptocurrency by market cap to be where it is today. The crypto-universe recognizes it as a distributed world computer enabled by blockchain, connecting an ecosystem of smart contracts powering applications, and integrating digital assets through its blockchain-enabled smart contracts which allow self-executing code to take place when conditions to instructions are met.

Today, the Ethereum network has grown tremendously with over 3000 decentralized applications known as dApps are running on the network’s blockchain and smart contracts. As more dApps continue to build on the network’s blockchain; there will be an increase of new users using these applications. Hence, applying pressure on the constraints from the increased volume of new users resulting in higher gas prices and delayed transaction settlements due to network congestion.

Although Ethereum’s transaction times are quicker than Bitcoin’s, the issue of high gas prices overshadows that of Bitcoin’s network. To change this and make the network a more viable ecosystem for decentralized applications to continue building, and innovating on the blockchain — developers of the Ethereum community and the foundation have come together to put all their efforts into designing, discussing, and finding consensus to best resolve scalability issues on the current architecture.

Ethereum’s battle with scalability

Prior to the recent launch of EIP-1559 on Ethereum, the network has been challenged in many ways. Currently, it’s running on a Proof of Work (PoW) consensus algorithm, In order to get a supply of Ether into circulation, Ethereum miners need to mine Ether. Due to the fundamental properties of Ethereum PoW mining — there is a limit on the number of transactions the network is able to achieve. At the moment that number is a minuscule 30 transactions per second for one block created.

Ethereum’s scalability limits pose a threat to become a settlement layer. A majority of dApps are built on the network’s blockchain, this would ultimately label Ethereum as a settlement layer. In order for dApps to receive funds and become interoperable with other dApps and Ethereum’s native token — Ether. In 2019 Ethereum co-founder and Consensys founder, Joe Lubin said:

“Ethereum is the largest blockchain ecosystem by a variety of measures and in order for it to continue to grow into the base settlement layer for the planet”

In order for Ethereum to become the global settlement layer; first, it has to undergo extensive upgrades to ensure high performances to prove flexibility, scalability, and interoperability of its network.

Post EIP-1559

The Ethereum network has literally been on fire (ha, no pun intended here) after the Ethereum Improvement Proposal (EIP)-1559 London hard fork that took place on August 5th, 2021 on block #12,965,000. The new improvements on the Ethereum code took a little over two years to complete and find consensus. The whole idea of this code change transpired over the increase in gas fees and network congestion to offset delays of Ethereum 2.0.

The upgrade essentially modifies the way transactions on the network are processed. Miners on the Ethereum network validating blocks will receive a portion of the rewards and burn the rest. Typically, when cryptocurrencies are burned, they will be sent to an unobtainable wallet address or, burn address. In this case, Ether is completely destroyed from the protocol and no longer exists on the network.

From the time this post was written, the current burn rate has changed to 4.65 ETH/min (USD 18,246) and a total burn of 203,454 ETH (USD 798,951,669).

Roadmap to Ethereum 2.0

Ethereum 2.0 is an ongoing extensive upgrade happening on Ethereum. The implementation is expected to result in improved scalability and security of the network. This means that Ethereum will truly showcase supercomputer capabilities for the world of finance through Proof of Stake (PoS) consensus algorithms.

When Ethereum upgrades to Ethereum 2.0, there’s very little or no action needed from current Ether holders as the new tokens of ETH 2.0 will be distributed to holders on the new genesis block. So if you have an ‘X’ amount of Ether in your wallet, don’t fret, because all you need to look forward to is becoming part of a historical moment in the present day.

In order to get from ‘Ethereum 1.0’ to ‘Ethereum 2.0’, it won’t be as easy as implementing EIP-1559 upgrades. There are phases that the foundation and developer community will need to implement. At the moment Ethereum is in Phase 1 after completing the launch of Phase 0 ‘Beacon Chain’.

The Beacon Chain essentially, in its initial stage is to introduce the Proof of Stake feature of Ethereum 2.0. Token holders of Ethereum can begin staking their Ether on the Beacon Chain and become validators on the network. However, to do so, you will need to stake 32 ETH or in multiples of 32, and if you don’t have 32 ETH but would still like to participate — join staking pools. Why 32?: Well, it’s used as a trust mechanism for a validator — to be honest and operational, and to validate transactions on the network.

According to beaconcha.in there has been a total of 6,999,164 ETH staked on the Beacon Chain, 836 ETH to 7 million in staking!

At the time of writing, Ethereum 2.0 is the third-largest cryptocurrency being staked, with a total value of USD 21.2 million.

Source: Ethereum 2.0 Beacon chain Explorer via beaconcha.in

Final thoughts

Ethereum has been at the forefront of allowing innovation of a new frontier. There are thousands of applications being built on top of the blockchain.

To offset issues of scalability on Ethereum, the foundation and developer community have set forth their ideas and efforts to ensure a better future for the network. Upgrades have been made and many more will come. Ethereum 2.0 is the near-term goal and hence improving scalability on the network on a whole new level.

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