Upcoming Ethereum upgrades and their Price Effects, explained in simple terms.

This post will be about explaining EIP-1559, Proof of Stake and Sharding in simplest terms possible without losing the technicalities. Also with Price Effects at the end of each section.

EIP-1559 (Expected August 2021) : EIP means "Ethereum Improvement Proposal". The permanent solution for high gas fees is "Sharding"(explained below), but EIP-1559 is proposed as a temporary fix till then.

• Why are gas fees high? Because, Ethereum uses an "auction mechanism", users offer miners more gas fees for miners to include their transaction in the block(next batch of transactions). So when more users want to be included in the next block, their only option is to increase their gas fees. If you offer low gas fees, your transaction will never win the "auction" and will forever wait in the mempool(waiting stage). Consequently, some users often pay more than other users whose transactions have been included in the same block just because they arrived late.
• What does EIP-1559 do to fix this? Well it brings a two tiered system called Base Fee and Tips. The proposal aims to keep blocks at a 50% utilisation rate(Blocks are only 50% filled). The Base Fee is automatically determined by algorithm based on congestion. Once block is more than 50% filled, base fee rises. It falls below 50%, base fee decreases. Tips can be included as extra, an incentive for miners to include your transaction.
• So what happens is the tipped transactions get cleared faster, Once all the urgent transactions are cleared, non-urgent transactions would be executed as the base fee decreases — and block space would return to its 50% target. This way instead of beating each other to pass, we all pay accordingly with congestion.
• Effect on Price : The base fee is BURNED! All that Base Fee Ether isn't given to miners, it's burned and lost forever. Only tips are kept by miners. This is an amazing way of keeping ETH Inflation in check. May even push it to negative when network is congested, Bitcoin Halving becomes a child's play. Supply crunch, aka to the MOON!

Proof of Stake (Expected 2021) :

• Firstly, there is the narrative of environment concerns over Proof of Work. Next, the entry barrier is very high for PoW. You have to get highly priced hardware and it is "not so decentralised". We already have companies having mining pools that dominate over individual miners like you with your laptop. So, Proof of Stake takes away the miners and replaces them with "Validators".
• People can individually or together pool in > 32 ETH to become a validator and start validating transactions and securing the network instead of mining via hardware. As a reward, a generous ~7% of staked ETH is given to said validators. Also, Proof of Stake makes it easier to implement Sharding(explained below) later in 2022 than Proof of Work.
• Effect on Price : This incentivises validators to hold their ETH and not sell to get the said 7% of their pile, This along with EIP-1559's ETH burn is clearly suggesting a Supply crunch, aka to the MOON!

Sharding (Sometime in 2022) :

• This is the real deal. Sharding is the permanent solution to gas fees. It is the most complex upgrade to Ethereum and for that reason, I'll use a real boiled down version of what it aims to do.
• Imagine the whole Ethereum Blockchain as the whole world. Imagine your transaction as a letter, When you want to send the letter to someone from America to Australia, you have to announce to the whole world(all nodes in blockchain) that your letter is a valid one and wait for their approvals.
• This is what makes the blockchain not scalable. Sharding divides the whole blockchain into 64 Nodes(for now). Like their own individual countries. Now the letter from America can be approved by American Shard instead of waiting for whole world to approve.
• A Notary(validating authority like an ambassador) is randomly picked periodically in each shard to vote on the validity on transactions. These votes are then reviewed by a committee on the main Ethereum chain (A global validator) and merged to entire world's ledger via what’s called a sharding manager contract. This protocol is still being worked on. It solves a problem of all blockchains (Google blockchain trilemma).
• Price Effect : This can't be said right now. But from a tech perspective, the dApps built on Ethereum can be scalable which means there are going to be revolutionary ideas built which would've never been thought of possible. Maybe we'll see the next UniSwap, or NFTs or maybe even multiplayer games? Endless Possibilities.

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Note to the elite tech people : If you guys think I made a mistake somewhere in the explanation or lost an important detail to generality..then please comment so that I can update it. It's already late here, I'll update as soon as I wake up tomorrow. Thanks for reading!