Ethereum (ETH) will become a deflationary asset in near future as the crypto market awaits for the latest upgrade on Ethereum network. This upgrade will take place in July, wrapped with Ethereum’s London hard fork.
This improvement proposal is named EIP 1559 will arrive together with the London hard fork. Eventhough the users and investors are pretty much enthrilled with this upgrade, miner’s are not that pleased about it. It is said that at least five other EIPs are likely to join EIP 1559 in London.
All Core Developers on the Ethereum platform call this upgrade on last Friday without any verbal objections. Tim Bieko Ethereum lead developer stated that, “We’re in a spot where the EIP is sound. (…) We’re in a spot, I think, where it’s ready to be included in an upgrade,” on call.
What is EIP 1559?
This latest upgrade, EIP 1559 transforms a typical blockchain transaction on its head in order to fix numerous issues with Ethereum’s user experience. On a contemporary basis, a user sends a gas fee to a miner for a transaction to be included in a block, but with EIP 1559 it is reverted.
The gas fee will now be sent to the network itself as a sort of ‘burn’ called basefee with only an optional tip paid to miners. This burnt fee is also set algorithmically, ostensibly making it easier for users to pay a fair fee for a blockchain transaction.
The new proposal will move Ethereum’s fee structure away from a bidding system that allows miners to prioritize the highest bids, to a new fee structure that will dynamically and programmatically adjust fees so users only pay the lowest bid for each block.
Why users and investors support this proposal?
EIP 1559 has been a proposal which was widely anticipated by nearly all participants of the Ethereum community, including investors, speculators, application creators, and regular users of the network.
According to CoinTelegraph, An analysis of network transactions last year found that EIP-1559 would have burned 1 million Ether over the course of 365 days, which is equivalent to almost 1% of the network.
Earlier this month research from ETF issuer Grayscale concluded that a deflationary mechanic will be a boon for Ether’s price, creating a positive price feedback loop. This will be a solution for complains by Ethereum users, on high gas fees.
Why miner’s aren’t happy about EIP 1559?
Miners and mining pools, on the other hand, have been gathering in opposition against the proposal as it progressed toward mainnet. There have been threats of a hard fork and alternative proposal put forth, and some estimates pegged the loss in revenue for miners at 50%.
Ethereum mining has been a particularly lucrative business of late. Total mining revenue surpassed a record $1.3 billion in February. An increase in both the price of ether and transaction fees has introduced a wave of new hash power to the network
On the call, Ethereum developers decided to pair EIP 1559 with a delay to the difficulty bomb. Also called the “Ice Age,” the bomb incrementally increases the difficulty of mining on the Ethereum network.
Impact on Ethereum price
Like most other cryptos Ethereum continues to make new highs, as it broke above $ 2,000, reaching $ 2,130 in January, but has retreated to around $1,500s now, after having fallen just below $ 1,300 on the last day of February.
According to FXLeaders Ethereum has found itself in the middle of a massive bullish run in cryptocurrencies. The announcement of the launch of EIP 1559, have fueled this bullish run. Further, with Ethereum 2.0 in the process of being fully launched, which will make the Ethereum network more reliable as the DeFi transactions surge, will improve this price rally.