Learn about the “EIP 1559” proposal to reduce the overall supply of Ethereum and how will it affect?
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Answer Learn about the “EIP 1559” proposal to reduce the overall supply of Ethereum and how will it affect?
A report issued by Grayscale, which provides a group of crypto funds last Thursday, predicted that the upcoming proposed upgrade to the Ethereum blockchain, which bears the name “EIP 1559”, if implemented, will positively affect the price of the Ethereum currency.
The upgrade, dubbed “EIP 1559,” is based on Ethereum transaction fees being collected together and buying Ethereum from the open market and then destroying it, reducing the overall supply of Ethereum.
Speaking about the EIP 1559 proposal, Tim Ogilive, CEO of Stacked, said:
It’s like a company that makes a profit and buys back shares.
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He added:
Burning billions of dollars in Ethereum could drive up the price of the Ethereum cryptocurrency.
The net effect is to increase the value of the remaining shares because the supply is getting smaller.
I am very optimistic.
According to the current market value of Ethereum, which is close to $200 billion, the network will burn 1-4% of supply each year.
Here Ethereum can rise in value due to the contraction of the total supply as we see in Bitcoin which has 21 million BTC in total supply.
Update “EIP-1559” will make fees less volatile:
The implementation of the “EIP-1559” update will introduce a specific fee for processing Ethereum transactions, replacing the current auction market that faces users with ever-changing transaction fees.
The hope with this update is that charging specific fees will prevent miners from manipulating transaction fees that take large sums from users, making fees less volatile.
This will be a real boon and plus for users who this week had to pay an average fee of over $20 per transaction.
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One of the most exciting features of the EIP1559 is the BASEFEE operating code
It will allow smart contracts to estimate congestion (by comparing historical underlying behavior) and programmatically adjust parameters such as conflict periods in optimistic cumulative
– Georgios Konstantopoulos (gakonst) January 25, 2021
Instead of fees for identifying buyers and sellers, the network will automatically generate a “BASE FEE” price in line with network activity.
If the network is busy, “BASE FEE” will rise.
If the network is quiet, BASE FEE will drop.
Users can still tip miners extra for processing transactions, if they wish.
The Ethereum network will use the funds raised from “BASE FEE” to buy Ethereum and then burn it.
Ogilive does not expect that the proposal will immediately solve the problem of high transaction fees.
But he said it would make it easier for financial analysts to evaluate Ethereum and its fees and ensure that the amount of money paid in fees is not manipulated or subject to fluctuations, which encourages investors to enter the network.
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Eric Wall, CIO of Arcane Assets, believes that the EIP-1559 update will be very useful, and stated in this regard:
I think this is one of the most important proposals for the long-term health of Ethereum, but would be on par with the move to Proof of Stakes.
Why has EIP-1559 not yet been implemented?
For one thing: it’s not ready yet.
Wall stated:
There is still one outstanding issue regarding cyber security risks with “EIP-1559” that needs to be addressed.
Once that is fixed and approved, it should be included in the next Ethereum fork, which will be later this year possibly next summer.
I think it should be “ready to be considered for mainnet” in the next few weeks. Check out this checklist for what’s left to do:
We want to implement Client Level Open Issues before submitting them to AllCoreDevs.
– Tim Biko | timbeiko.eth (timbeiko) February 6, 2021
The proposal faces stiff resistance from Ethereum miners, as Ogilive said:
Miners naturally resist as this will shift a portion of the fee revenue from miners to Ethereum holders.
Many are still excited about the implementation of the upcoming “EIP-1559” proposal.
Tell Wall:
This excitement alone will increase the price.
Read also:
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