The hard fork of Ethereum finally went live on August 5 after mining a block of 12,965,000. The update, named “London,” made significant changes to Ethereum. In general, changes to the Ethereum code are aimed at improving the transaction fees market within the network. The “London” update includes five Ethereum Improvement Protocols, EIP-1559 attracting the most attention because it affects transaction fees from which miners generate revenue, which initially provoked resistance from miners, raising concerns about protocol consensus and potential circuit splitting.
EIP-1559 was proposed in April 2019 and was tested back in June. The most interesting part about EIP-1559 is that it is primarily aimed at improving Ethereum’s transaction payment system. As it’s becoming increasingly easy to build online marketplaces, more and more ETH trading platforms are emerging. Prior to the update, most of the Ethereum owners faced uncertainty as transaction fees on trading platforms and ETH networks can be volatile and can potentially reach hundreds of dollars per transaction. EIP-1559 is unlikely to significantly reduce transaction fees because it is a scalability issue. However, it aims to reduce volatility.Â
The update introduces a fixed-price selling mechanism with a base fee and tip instead of a flat fee. Miners get a total transaction fee minus the base fee, which is burned off. The base fee is the amount of commission that is calculated for each block and adjusted based on the size of the block. Users can also send additional tips to miners over and above the base fee.
Will EIP-1559 lead to Ethereum (ETH) becoming deflationary?
Given all the changes, one of the big questions in the community is whether EIP-1559 will lead to deflationary ETH? Ether does not have a fixed supply limit like Bitcoin, which is 21 million coins. However, no more than 18 million ETH can be reached in a year, which is used to remunerate miners. However, there are also deflationary forces acting on Ether’s supply. First, liquidity locked up in decentralized finance, amounting to about $155 billion at the time of writing, reduces supply in the market. Second, there is a constant level of Ether loss or non-return. Finally, there is the new EIP-1559.
According to CoinMarketCap, the price of ETH has risen by 16.52% in the last seven days to $3,269 during intraday trading. Whales continue to accumulate long positions on Ether, as addresses with more than 100,000 coins now hold 43.7% of the ETH supply, according to Santiment. The metrics provider explained, “Ethereum whale addresses don’t stop accumulating as long as prices hold above $3,100. Today, three years ago, addresses with 100,000 or more ETH possessed 35.8%. At this time, they own 7.9% more of the total supply of the second-largest asset in terms of market capitalization. There are 1,338 such addresses. Because the whales are very good at doing a risk assessment and because they are buying more and more Ether, it indicates that in the near future the market is most likely to be in a bullish trend.Â
This statistic shows that Ethereum whale’s accumulation is on an upward dynamic, as three years ago they owned 35.8% of the ETH supply compared to today’s 43.7%. The growth of Ethereum, as opposed to Litecoin and other currencies, came after the introduction of the London hard fork or EIP 1559. In addition, users wishing to conduct their transactions faster than the network’s standard provisions can add tips to validators to speed up transactions. A portion of that tip burns off, helping to improve trading conditions for holders in the long run.
