Péter Szilágyi, an Ethereum (ETH) developer, has recently expressed his admiration for EIP-1559 and its innovative ETH burning mechanism. He referred to it as “the great equalizer” and highlighted the significant role it plays in leveling the playing field between validators and regular users. EIP-1559 has transformed the way users bid gas fees on the Ethereum network by introducing a “base fee” that is either burned or sent to an irretrievable wallet. According to Ultrasound Money’s data, over 3.9 million ETH have been destroyed since the implementation of EIP-1559.
One of the key advantages that EIP-1559 brings to regular users is the elimination of the power previously held by validators (formerly miners) in arbitrarily adjusting gas limits and transaction fees. This privilege created an imbalance that made it difficult for regular users to compete. However, with the implementation of EIP-1559, everyone on the network, regardless of their status, must adhere to the same rules and protocols. This ensures a fairer and more balanced system for all participants.
At its core, EIP-1559 introduces a “base fee” adjustment at the protocol level, which is subsequently burned by the network. This gradual burning of ETH makes the cryptocurrency deflationary, as evidenced by the increasing number of coins taken out of circulation since EIP-1559’s launch in August 2021. Although validators no longer have the power to manipulate gas fees, senders can still incentivize them by adding a “tip” to prioritize their transactions. Szilágyi’s comments echo the growing consensus among Ethereum supporters regarding the positive impact of EIP-1559.
Beyond its effects on price and inflation reduction, EIP-1559 has significantly improved the user experience on the Ethereum network. Before its implementation, users often struggled to predict the amount they would need to pay for a transaction, particularly during times of network congestion. However, with EIP-1559, senders now have a clearer understanding of their transaction costs, making it easier to plan and manage their Ethereum transactions effectively. Moreover, the stabilization of the network has been another notable achievement of EIP-1559, despite Szilágyi’s initial skepticism.
The burning mechanism introduced by EIP-1559 plays a crucial role in reducing inflation on the Ethereum network. Unlike Bitcoin, which has a capped supply, Ethereum’s total supply is not restricted. Therefore, the burning of ETH over the long term may have a positive impact on its price. However, in the short to medium term, price upsides are expected to be limited, with the psychological round number of $3,000 acting as a significant resistance level. It is important to note that investing in cryptocurrencies carries inherent risks, and individuals should conduct their own research and analysis before making any investment decisions.
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