EIP-1559 upgrade introduces fee burn, potentially shifting Ethereum to a deflationary model and impacting transaction costs.
The Ethereum network has recently undergone a significant change with the implementation of an upgrade known as EIP-1559, which has had a dramatic impact on the way transaction fees are handled on the blockchain. As a result of this upgrade, a substantial amount of Ether (ETH)—the native cryptocurrency of the Ethereum network—has been "burned," which means it has been permanently removed from circulation.
EIP-1559 introduced a new transaction fee model that includes a variable base fee for each transaction. This base fee fluctuates with network demand and is destroyed rather than being awarded to miners as it was previously. The recent burn event saw 11,640.44 ETH, valued at approximately $26 million, removed from the supply. This significant burn event is not an isolated occurrence but part of an ongoing process designed to stabilize transaction fees and potentially reduce the overall supply of ETH over time.
The burning of ETH is a noteworthy development in Ethereum's economic model. Before EIP-1559, the supply of ETH was inflationary, with the total number of coins in circulation continuously increasing. However, with the new burn mechanism, there's a possibility that Ethereum could become a deflationary currency if the rate of ETH being burned exceeds the rate of new ETH issuance. This potential shift to a deflationary model has sparked discussions among investors and users about the long-term implications for the value of ETH.
For users of the Ethereum network, the implementation of EIP-1559 and the associated ETH burns could lead to a more predictable fee market, making it easier to estimate the cost of transactions. Additionally, if Ethereum does become deflationary, the scarcity of ETH could lead to an increase in its value, benefiting long-term holders. However, it's important to note that the cryptocurrency market is highly volatile, and various factors can influence the price of ETH.