EIP-1559 is one of the most important and, above all, the most talked-about updates to come to the Ethereum network. It raises a lot of controversy and divides the community into its supporters (users) and opponents (miners).
What is EIP-1559 and when is it coming
One of the leading problems with Ethereum is its scalability. As the users of the network, and with that the number of transactions, increases, so do the gas fees. The increasing popularity of Ether, results in an almost proportional increase in transfer fees. The problem progresses to such an extent that at one point, due to the fee, the Binance exchange stopped the possibility of withdrawing funds deposited in ETH to cold wallets. Of course, this was only a temporary occurrence. In addition, initiated by an exchange that is creating its own Ethereum-competing smart chain. One can have different feelings about the intentions themselves here, but one thing is certain – gas rates were a problem.
Ethereum Improvement Proposal (EIP) 1559 aims to address this issue. The update, along with several others, is expected to be released in July 2021 and will be part of the London Hard Fork. For investors and users of Ethereum-based smart contracts, this is excellent news. The significant reduction in network fees will make the Ethereum platform friendlier. However, miners for whom EIP-1559 is an assault on their earnings are of a different opinion. According to CoinMetrics estimates, in February 2021, transaction fees on the network of the strongest of altcoins accounted for as much as 50% of miners’ income. The vision of depriving them of such a large part of their earnings caused a stir and partial opposition from the community.
Consequences of EIP-1559
EIP-1559 brings interesting changes. Implementation will increase the burning of Ether, which in turn will lower its inflation. This is more precisely illustrated by the words of Ethereum creator Vitalik Buterin, who suggested:
“If the demand for the use of Ethereum is high enough, there will actually be more ETH destroyed than created”.
These words make it clear that transaction fees on the network will be automatically burned in the mining process.
Reducing the supply of Ethereum, while lowering transaction costs, could be the key inflammatory factor for Ether’s price action here. In addition, improving the scalability of the project will make it more competitive. Ethereum is already the undisputed leader among altcoins, with a number of ERC-20 tokens and smart contracts being developed on it. The update of EIP-1559 will positively affect the entire ecosystem, which will increase its attractiveness both in the eyes of investors and users of the network.
Ethereum is a project that is fighting an unwritten battle for the first place in the capitalization rankings. You can read more about it in the article under the title “Will Ethereum surpass Bitcoin“. To achieve this, it must adapt to market needs while being as scalable as possible. The latter feature is particularly important in the context of the competition that is forming around the project. On the one hand, we observe the dynamic development of Binance Smart Chain, on the other hand Cardano, which will soon launch smart contracts. Both chains declare their intention to take over some of the projects occurring in the Ethereum network. Therefore, constant development and updates like EIP-1559 are essential for Ether to remain the undisputed leader in its sector.