Ethereum is getting rarer: Why this ETH upgrade is an absolute game changer
On 10 December, the Ethereum github code repository went live with the application for the technical proposal EIP 1559. According to analysts, this proposal may make ETH more rare in the long term.
Github is a repository where developers can propose changes or additions to a codebase. Proposal EIP 1559 has been uploaded to GitHub as a pull request – which means that nothing is set in stone yet.
But if the proposal is approved (which may take longer than expected), it would have a major impact on the Ethereum block chain.
How can EIP 1559 make Ethereum more valuable?
On the Ethereum block chain, users have to pay a fee to the miners when they send a transaction or use a decentralised application. The fee is called „gas“ and as user activity on the Bitcoin Compass block chain increases, so can the cost of gas.
For example, suppose a user wants to buy a new decentralised financial token (DeFi) on Uniswap. On a normal day, 10 to 20 GWEI would be enough to complete the transaction quickly.
But if the Ethereum block chain network is congested and user activity is high, GWEI, the measure of gas costs, could temporarily rise to 50 to 100. In this case, a transaction could cost between $10 and $100, and possibly even more depending on the size of the transaction.
The EIP 1559 proposal provides for a fixed fee for transactions. This would mean that users would no longer have to pay high fees even if the block chain were to be overcrowded.
In return, miners would receive a small tip as compensation for the lower fees they might receive in the future.
According to crypto-currency analyst Alex Saunders, this proposal makes ETH more rare. Saunders:
„EIP-1559 Fee Market Change pull request is now live on @github . $ETH will be scarcer, harder money & with negative net issuance, stock to flow will literally be off the charts“.
There are two reasons how EIP 1559 could make ETH scarcer over time. Firstly, the level of fees that Miner will receive will become more predictable, reducing the pressure to sell in the market. Second, a fixed fee and remuneration system for Miner means that ETH’s expenditure is also more predictable.
The price of Ethereum since March. Source: ETHUSD on TradingView
Would optimally complement ETH 2.0
The timing of the EIP 1559 application coincides with the publication of Ethereum 2.0, or Eth2.
Eth2 is a critical network upgrade for Ethereum that exponentially improves the scalability of the block chain. Instead of relying on miners, users „stake“ or deposit their ETH in Eth2 to process transactions together.
In return, users receive an annual compensation, estimated to be around 15%. And the combination of Eth2 and EIP 1559 makes Ethereum even more attractive in the medium to long term.