Ethereum, the second largest blockchain in the world by market cap, is expecting to make an upgrade of its protocol and witness its London hard fork today 4th of August, its core feature directly affects the way the transactions are processed on the chain.
EIP stands for Ethereum Improvement Proposals and it is aiming to change the mechanism related to transaction fees.
What will happen with transactions?
Currently, the Ethereum blockchain uses an auction approach for the gas fee calculation (gas is the cost of execution of any transaction on the Ethereum blockchain) in which the highest bidder transacts faster than average bidders.
For example, to make sure a transaction gets processed, some users may opt to pay a higher gas fee in order to guarantee the execution of the transaction. Other users will end up in a situation where it is unknown how long a transaction will take, sometimes averaging more than 24 hours.
With the explosion of DeFi and gaming Dapps, the first-price auction mechanism was creating huge delays in the network as well as disadvantages to small balance wallets as large wallets had no problem paying that “extra” fee to ensure their transactions are confirmed faster.
The EIP-1559 drastically changes the approach towards gas fees and adds a new feature.
Validating a transaction generates a reward for the miners and this reward is composed of:
Before London fork: block reward + gas fee
After London fork: block reward, base fee and miner tip (optional).
Why is this so important?
It is important in two aspects: first, every user will know in advance how much the fee paid will be for every transaction thanks to the base fee in contrast to the always changing price-auction gas fee. Second and most important, all the ETH collected through the base fee will be burned and therefore taken out of circulation.
How does this benefit FortKnoxster users?
Low transaction fees are always good for cryptocurrency users. It removes the friction towards using tools and platforms available on the blockchain and is the main reason other alternatives to Ethereum have become so popular.
FortKnoxster Crypto Suite aims to be the go-to place to start up in the crypto space, allowing newcomers to purchase and manage their crypto assets in a seamless way.
Considering Ethereum is one of the biggest and the leading innovation ecosystem, the reduction of transaction fees in the network will open the doors again for the vast majority of crypto users.