Upgrade to Ethereum could drive price of ETH

Just recently, Ethereum (ETH) reached a new all-time high of more than $1,750 – and now people are discussing a proposal on Ethereum that could become another price driver due to its inner logic.

Ethereum (ETH) has confidently defended its position as the second most important cryptocurrency behind Bitcoin in the crypto year 2020 and has consequently climbed to several new all-time highs since the end of January. Behind the positive developments are the first important steps towards Ethereum 2.0 and the growing importance of DeFi in the crypto industry, where Ethereum is the linchpin. But the intensive use of Ethereum’s blockchain is also leading to rising transaction fees, which currently often exceed the equivalent of $20 per transfer. Against this backdrop, a proposal on how the topic of transaction fees (gas fees) could be newly regulated for ETH also sounds relevant and attractive for investors.

Because behind the acronym EIP-1559 for the far-reaching reform proposal for gas fees on Ethereum stands, among others, Ethereum inventor Vitalik Buterin and an exciting concept. Until now, transaction fees have gone into the pockets of Ethereum miners as extra income. In addition, the amount of the transaction fees is decided in a kind of real-time auction and the miners therefore have an interest in high gas fees. Buterin and fellow miners propose an elegant solution: Transaction fees should be set in an automated way, guaranteeing a more efficient use of capacity in ETH’s blockchain. In addition, the gas fees should no longer go to the miners, but should also be used in an automated way to buy ETH on the open market and then burn it.

EIP-1559 at Ethereum – a win-win situation?

Experts estimate that the implementation of EIP-1559 would lead to an annual reduction of ETH in circulation of at least 1 percent. This should then provoke rising prices in ETH, they argue, and thus satisfy even the miners. The proposal is compared to share buyback programs of publicly traded companies. However, the developers at Ethereum apparently have to solve some security-critical details at EIP-1559 before this change can be implemented in the protocol. The summer of 2021 is being circulated as a possible date for this, and only then would it be decided whether EIP-1559 will actually find a majority among the network participants.

Conclusion: If Ethereum revolutionizes its gas fees …

You get the idea: EIP-1559 – if implemented – marks a turnaround in Ethereum’s handling of transaction fees and is far more than a minor technological upgrade. In theory, the idea of EIP-1559 is captivating; it goes beyond an inflation brake. But technological issues and the need for miners to compromise do not really allow us to predict the prospects of EIP-1559 on Ethereum yet.

It is also worth remembering that the problem of scalability in Ethereum combined with high transaction fees is nothing new and should actually be solved sustainably by Ethereum 2.0 in 2022 at the latest. An earlier proposal by Buterin to temporarily use the blockchain of Bitcoin Cash for ETH caused head-shaking and later petered out.

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