EIP-1559 Would Incorporate Fee Burning Which Effectively Returns ETH To Holders

Ethereum’s community has been suffering from the altcoin being economically unviable for small-scale transactions due to increased gas fees. The DeFi community is also affected by the gas fees reaching over $20 for a transaction on Ethereum’s network, as the majority of protocols run on Ethereum. Furthermore, experts like Predictions Global founder Ryan Berckmans noted that if Ethereum keeps its current gas fees, the situation should reflect on the price of the altcoin leader and drive it to around $2,500.

However, Ethereum could see bright light with the anticipated Ethereum Improvement Proposal, dubbed EIP-1559, which aims to reduce the high transaction fees. According to Berckmans, when EIP-1559 comes into action later in 2021, some of the fees would be sent back to ETH holders via a burning mechanism. If EIP-1559 comes into play, Ethereum could see its price explode to levels around $20,000. 

EIP-1559 is a proposal to alter the current fee auction system so that transactions could be weighted on the lowest bid that was included in the block. The gas fees would have a dynamic adjustment mechanism, which modifies the transaction costs based on network load and demand. The fee adjustments would allow DeFi protocols on Ethereum’s network to automatically set lower and more accurate gas prices.

The proposal is also going to burn some of the fees, which would limit Ethereum’s supply. Ethereum issuance would be reduced over time, in the wake of transitioning to ETH 2.0’s proof-of-stake consensus algorithm. 

Furthermore, the current Ethereum situation means that the second-largest cryptocurrency to date may be affected by a scarcity-related price increase due to effectively limiting the supply of Ethereum. Also, the high gas fees are making miners in the position to sell their mined ETH to cover costs. Without the selling pressure by miners, Ethereum has the potential to further grow in value, according to Berckmans.

“As fees continue to grow, EIP-1559 launches later this year, and Ethereum transitions to proof of stake in two years, the fees accruing to ETH holders seems likely, IMO, to propel ETH to $20k,” Berckmans concluded. 

Meanwhile, the testing for EIP-1559 already commenced, as ConsenSys developer Tim Beiko affirmed that large-scale testing was underway.

“We set up a testnet with 100 million accounts and 100 million storage slots and synced 4 Besu + 4 Geth nodes on it, along with a Besu mining node,” Beiko noted.

During the initial testing stage, the new testnet was bombarded for almost two hours with transactions, consisting of 1-second blocks, utilizing between 20 and 80 million gas per block. For now, the system looks stable, but a lot of further testing is needed before a rollout on Ethereum’s main network. Experts are estimating a launch window for EIP-1559 before the end of 2021.

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