There are new updates to the Ethereum system that could cause some problems to be fixed and the adoption of ETH to start to increase. Although it has not been implemented yet, it is already known that it was approved by the developers of the Ethereum blockchain. This is one of the biggest changes to the network since its inception in 2015: we introduce you to EIP 1559.
Ethereum (ETH) has seen an already incredible price surge in the last 12 months, along with Bitcoin and other digital assets. The cryptocurrency has risen around 560% last year, while Bitcoin is up around 430%, according to data compiled by Bloomberg.
Unlike ETH, Bitcoin has had since its inception in 2009 a fixed supply of 21 million coins that will ever be created. That difference has led Ethereum critics to say that it shouldn’t be seen as a cryptocurrency similar to Bitcoin.
What is EIP 1559? What does it mean for ETH?
Known as EIP 1559, the change solves a current problem: Ethereum users can only estimate how much ETH will be needed to process transactions, a guessing game that has spawned sites like ETH Gas Station to help people figure out how much to pay.
EIP 1559, which will become part of an update in July or August, will incorporate an average price on the network itself making the guessing game obsolete. The move will reduce the amount of ETH, by destroying some of the tokens each time it is used on the blockchain.
Consequently, the reduced supply of ETH will likely lead to an increase in prices as the demand for cryptocurrencies increases. Eric Turner, research director at cryptocurrency analytics firm Messari supports this idea. “This is probably one of the most important milestones we have seen recently,” he said.
Some details about it
Until EIP 1559 came into effect, the supply of ETH was theoretically infinite. For a long time this led to criticism that its underlying monetary policy was weak and inflationary. “Now they are actually controlling inflation on Ethereum and in some cases, you are seeing negative inflation, so it is definitely important,” Turner said.
Tim Beiko, a ConsenSys senior product manager who leads the protocol team implementing EIP 1559, spoke about it. Beiko commented that in the future, “we will measure the demand for the network and put that average price as part of the network itself.” EIP 1559 “fixes a bug in the Ethereum economics that we knew about from the beginning.”
ETH may have more prominence in the Ethereum ecosystem
The proposal will also change a strange feature in Ethereum that no one really saw coming. Users for now can pay an Ethereum miner to process their transaction with a credit card or other cryptocurrency. This somewhat undermines Ether’s role in its own blockchain, Beiko said. However, EIP 1559 cements the role of ETH in the Ethereum ecosystem by making cryptocurrency the only way to pay for transactions on the network.