The long-awaited London Upgrade has finally arrived. At 20:33 UTC on August 5, 2021, as the Ethereum blockchain reached block height 12,965,000, the London hard fork was officially completed. This marks one of the most significant system updates for the Ethereum network in recent years and represents a crucial step in its transition toward Ethereum 2.0. The upgrade successfully deployed five Ethereum Improvement Proposals (EIPs): EIP-1559, EIP-3198, EIP-3554, EIP-3541, and EIP-3529. According to Ethernodes, 6.9% of nodes had not yet completed the upgrade at the time of activation.
EIP-1559, the centerpiece of this upgrade, has been a topic of intense debate since its proposal. It fundamentally changes the fee mechanism that Ethereum has used since its inception. Under the new system, the transaction fee—previously paid directly to miners—is now split into a base fee and a tip. The base fee is burned (destroyed), which initially reduces miner revenue. This led some miners to protest by attempting to coordinate hashing power, though these efforts ultimately proved unsuccessful.
The road to the London Upgrade was anything but smooth. The original July launch was postponed to August, and a last-minute vulnerability related to EIP-1559 had to be patched on testnets. A satirical tweet from Ethereum community member Jimmy Ragosa suggesting a further delay to 2022 was even used to fuel short-selling pressure. Fortunately, the upgrade proceeded as planned.
Within the first 20 hours of EIP-1559 going live, OKLink data shows that 4,225.04 ETH had already been burned. At Ethereum’s price of $2,771 at the time, this amounted to roughly $11.7 million worth of ETH. Ryan Watkins, a senior research analyst at Messari, had previously stated that Ethereum’s burn mechanism could eventually outpace new supply issuance. This would not only make Ethereum less inflationary than Bitcoin but could even make it deflationary—especially after the full transition to Ethereum 2.0.
The next major milestone will be the Shanghai Upgrade, tentatively scheduled for October 2021. This is expected to be the final upgrade before Ethereum shifts fully to Ethereum 2.0. With the growing momentum in DeFi, NFTs, and other on-chain ecosystems, many in the Ethereum community are optimistic about its future.
How EIP-1559 Changes Ethereum’s Fee Model
Prior to EIP-1559, Ethereum used a first-price auction model for transaction fees. Users submitted bids indicating how much they were willing to pay to have their transactions included in a block. Miners, incentivized by profit, would typically prioritize transactions with the highest fees. While this model helped secure the network and prevent spam, it became problematic during periods of high demand—such as the DeFi boom in 2020. Users often had to engage in costly fee auctions, leading to unpredictable and sometimes exorbitant gas costs.
EIP-1559 introduces a new structure:
- A base fee that is algorithmically adjusted based on network congestion. This fee is burned.
- An optional tip that users can pay to miners to prioritize their transactions.
This update aims to make fee estimation more predictable and reduce extreme volatility during peak usage times.
Economic Impact: Is Ethereum Becoming Deflationary?
The burning of the base fee introduces a deflationary mechanism to Ethereum’s monetary policy. If the amount of ETH burned exceeds the new ETH issued through block rewards, the net supply of Ethereum decreases—making it deflationary.
According to QKL123 data, Ethereum’s annual inflation rate before the upgrade was around 5.21%. With a total supply of approximately 117 million ETH, this meant about 16,700 new ETH were issued daily.
Data from the first 20 hours after the London Upgrade showed an average burn rate of 211.25 ETH per hour. If this rate were sustained, it would amount to about 5,070 ETH burned per day. This would offset nearly 30% of daily new issuance, potentially reducing annual ETH supply growth by 3.5% to 4%.
After Ethereum transitions to proof-of-stake (PoS) with Ethereum 2.0, issuance rates are expected to drop further. If on-chain activity—driven by DeFi, NFTs, and other applications—continues to grow, Ethereum could indeed become a deflationary asset.
Market Response and Price Action
The market reacted positively to the successful implementation of the London Upgrade. Within just four hours of activation, the price of Ethereum increased by 6.67%. After hitting a low of around $1,718 in late July, ETH rallied by more than 65%, briefly testing resistance at the $2,800 level.
Ethereum co-founder Vitalik Buterin expressed increased confidence in the eventual merger of Ethereum 1.0 and 2.0. He also emphasized the environmental benefits of moving to PoS, which is expected to reduce Ethereum’s energy consumption by over 99%.
The Broader Ethereum Ecosystem
The London Upgrade comes at a time of renewed growth across the Ethereum ecosystem.
DeFi Recovery
The total value locked (TVL) in Ethereum-based DeFi protocols has rebounded strongly. According to DeFiPulse, TVL had recovered to over $73 billion by early August—about 82% of its May peak. Similarly, the total market capitalization of DeFi tokens surpassed $100 billion, a 65% increase from its recent lows.
NFT Boom
Non-fungible tokens (NFTs) have emerged as a major growth driver for Ethereum in 2021. Major brands like NBA, Coca-Cola, Louis Vuitton, and Porsche have entered the NFT space, bringing mainstream attention and new participants.
Data from CoinGecko shows the total NFT market cap exceeding $20.5 billion—roughly 20% of the total DeFi market cap. Most of this growth has occurred in 2021.
Trading volume data from Nonfungible confirms this explosive growth. After a strong start in early 2021, NFT sales dipped in mid-year but surged again in late July, surpassing previous records.
Network Activity and Gas Fees
Despite increased activity, average gas fees have remained reasonable compared to the peaks seen during earlier DeFi booms. Data from Glassnode shows that between late May and early August, gas prices predominantly stayed below 50 Gwei—similar to levels seen before DeFi Summer.
Prominent investors like Cathie Wood of ARK Invest have publicly expressed support for Ethereum and DeFi innovation. ConsenSys founder Joseph Lubin has argued that Ethereum’s ecosystem has already surpassed Bitcoin’s in terms of development activity and future potential.
Frequently Asked Questions
What is the London Upgrade?
The London Upgrade is a major hard fork implemented on the Ethereum network. It includes several EIPs, with EIP-1559 being the most significant. This proposal changes how transaction fees are handled and introduces a burn mechanism for part of the fee.
How does EIP-1559 make Ethereum deflationary?
EIP-1559 burns the base fee paid for transactions. If the amount of ETH burned exceeds the new ETH created through block rewards, the total supply of ETH decreases. This deflationary pressure can increase scarcity and potentially support the value of ETH over time.
What impact does EIP-1559 have on miners?
Miners no longer receive the entire transaction fee. Instead, they receive only the tip portion, while the base fee is burned. This reduces their revenue from fees, especially during times of high network activity. However, miners continue to earn block rewards.
Will gas fees become cheaper after EIP-1559?
EIP-1559 aims to make gas fees more predictable, but it does not necessarily make them cheaper during periods of high demand. The base fee adjusts dynamically based on network congestion, so users may still pay higher fees when the network is busy.
What comes after the London Upgrade?
The next major upgrade is expected to be the Shanghai Upgrade, currently planned for late 2021. This will be another step toward the full transition to Ethereum 2.0, which will shift the network from proof-of-work to proof-of-stake.
How can I track the amount of ETH being burned?
Several blockchain explorers and data platforms, including OKLink, provide real-time data on the amount of ETH burned through EIP-1559. This allows users to monitor the deflationary effect of the upgrade 👉 Track Ethereum burn rate metrics.
Looking Ahead
The successful activation of the London Upgrade represents a major achievement for Ethereum. It sets the stage for further improvements in scalability, security, and sustainability. With Ethereum 2.0 on the horizon, the community is optimistic about the network’s ability to support more users and more complex applications 👉 Explore Ethereum's development roadmap.
The combination of a deflationary mechanism, growing DeFi adoption, and a booming NFT market suggests a bright future for Ethereum. While challenges remain—including regulatory uncertainty and competition from other blockchains—Ethereum’s strong developer community and ongoing upgrades position it well for continued leadership in the crypto space.