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Ethereum upgrade set to alter supply, fix transaction fees

Ethereum, the second-largest blockchain network, is going to go through a technological change that would substantially affect how transactions are handled, as well as lower the supply of the ether token and sharply increase its price.

Analysts compared the Ethereum Improvement Proposal (EIP) 1559 update to a bitcoin "halving" incident, in which periodic tweaks lowered the quantity of bitcoin. Each halving contributed to bitcoin's price reaching new highs. While bitcoin is the preferred digital currency, Ethereum has emerged as the top financial infrastructure, settling over $12 billion in daily transactions, according to a Grayscale analysis published in February of this year.

According to Andrew Keys, managing partner at DARMA Capital, the present price of ether does not account for the impending software upgrade. He believes that the scheduled software upgrade next week, together with another in the first quarter of 2022, will "easily quintuple the price of ether" by next year. Ether went up 0.6 percent to $2,312 on Thursday.

What is EIP 1559?

EIP-1559 is a software upgrade that substantially changes the way Ethereum transactions are performed by offering transparent pricing on transaction fees in ether paid to miners to validate transactions and "burning" a tiny amount of those tokens. The tokens that have been burned will be permanently removed from circulation.

Token burning often involves miners sending tokens to specific addresses with unobtainable private keys. No one can use the tokens unless they have access to a private key, putting them outside of the circulating supply. By lowering the quantity of tokens in circulation, the currencies that remain in circulation become more scarce and precious.


Currently, anybody or business attempting to submit a transaction on the Ethereum network must pay a so-called "gas fee" in ether to miners in order for their transactions to be processed.

However, the exact transaction cost is unknown, and market participants claim there is no way to know the price ahead of time. This creates two issues, said Matt Hougan, chief investment officer at Bitwise Asset Management.
"First, it introduces a major uncertainty around whether you'll get your transaction processed in a timely fashion," he said. "Second, people overpay because they don't know the clearing price and they bid too much to make sure the transaction is processed."


EIP-1559 modifies this method by imposing a "base charge" on miners for each transaction, a portion of which is burned. If requested, participants can provide an optional "tip" with their standard cost to expedite the procedure.

Another change, according to market participants, is tripling the amount of area available in each block. Blockchains, such as Ethereum, process transactions in batches or blocks. Each block can only contain a certain number of transactions.

Blocks on Ethereum are propagated every 17 seconds, and EIP 1599 will be deployed on Block 12,965,000, which is expected to happen on August 4, according to DARMA'S Keys.

There was a bug bounty programme that paid people who discovered bugs. That procedure has been performed.


According to Bitwise's Hougan, EIP-1599 will cut ether's total inflation rate from about 4% to 3% per year. According to him, this is around half the proportionate decline witnessed in bitcoin "halving" instances.


The modification should make it easier for investors to understand the value of ether holdings. According to Hougan, EIP 1559 should enhance Ethereum network transactions and ether usage, which will likely assist attract a wave of institutional investors into the market.

Source: Reuters

1 comment

Rizwan said...

Nice piece of information as halving is must to control the circulation and supply of tokens to increase its price and reduce the fees, which is the most effective part of Ethereum and ERC-20 Tokens.