Ethereum To Become a Deflationary Asset and See Its Supply Reduced with Proposed EIP 1559 Upgrade

Godfrey Benjamin   Mar 08, 2021 09:01 2 Min Read

The Ethereum Foundation is set to implement the Ethereum Improvement Protocol (EIP 1559), an upgrade that will see the network’s native cryptocurrency Ether get burned everytime it is used for transactions. The proposal may be implemented as early as July.

The Beauty of the EIP 1559

The Ethereum Blockchain is unarguably the world’s most used public blockchain, with numerous decentralized finance applications building on it. There have been incessant calls for an alternative to the congestion the network faces, which significantly increases Ethereum gas fees, a fee each user needs to pay for transacting on the blockchain.

With the EIP 1559, the network sets a base fee for every transaction that is carried out on the Ethereum network giving fair opportunity to all. Users who may wish to conduct their transactions faster than the standard provisions of the network can add a tip to validators, to fast-track their transactions. A part of this tip is burnt, helping to improve the monetary policy of the Ethereum network as a whole.

Additionally, the EIP 1559 upgrade will eliminate the use of other digital tokens for payment of fees in the Ethereum Network. Only Ethereum will be used, thus restoring the unique relevance of the Ethereum (ETH) cryptocurrency.

Implications for Ethereum’s Price

Scarcity is introduced each time Ethereum is burnt after being used in transactions, a feature that helps prevent the inflationary tendencies the network has been exposed to since its launch back in 2015. With this deflationary model, the price of Ethereum is bound to take an upward swing.

Reduced supply and scarcity are characteristics that Bitcoin has wielded to present itself attractive to investors over the years. There are only 21 million BTC that can ever be mined, and with the scheduled reduction in Ethereum’s supply, the demand for Ether may go up. Therefore, with the announcement that EIP 1559 will be implemented, Ether has resumed an uptrend.

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