‘Ethereum Improvement Proposal’ all set to bring major change to crypto world
Ethereum 2.0’s latest upgrade could make it outperform Bitcoins. Known as Ethereum Improvement Proposal (EIP)-1559, which went live on Thursday, is touted to be the most significant update since the launch of the cryptocurrency.
The upgrade will not only help reduce cost of transaction fees involved on Ethereum network but introduce several other fundamental changes to how Ethereum is perceived. Industry players said with the current updates, Ether stands a chance to outperform Bitcoins.
Known as the second most valued cryptocurrency, two of the key changes the update will bring include settling on a fixed base fee instead of an uncertain ‘gas fee’ users pay in ether to miners to process their transactions over the Ethereum network.
This transaction fee tends to increase and change and there is no way the user will know the price before hand. This will be replaced with a fixed ‘base fee’. Over this base fee, the user can choose to pay a tip to speed up the process.
The other key update is introducing the “burning” feature wherein after each transaction with the miner, a small amount of those tokens would be burned or taken away permanently out of circulation. This will lead to creating a shortage of ether supply in the network leading to increasing value and demand as it becomes rarer.
Additionally, the number of transactions allowed on one block has been doubled. Ethereum’s blockchain settles transactions in blocks or batches. Each block needs to have a certain fixed number of transactions registered to be completed and taken for settlement.
Siddharth Menon, COO WazirX told BusinessLine, “This EIP-1559 is a major overhaul in the fee model. One of the biggest challenges in the current fee model, which is bid based. There was high volatility in gas fees to be paid, which often resulted in transactions taking long to get confirmed or not even getting confirmed. With this new model, the increase or decrease of fee will be more linear and predictable and less volatile thereby enhancing user experience.”
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“Ethereum so far has been an inflationary economy which inflated at the rate of approx 2 per cent per year. With this new fee model, Ethereum theoretically can become both inflationary and deflationary, however, practically I believe as there is more adoption in this network, it will be primarily a deflationary economy where supply will always be burned to remain lesser than demand. This could be a great opportunity for long term investors. If more people understand this economics, we could see more volume and price movement for Ethereum,” he added.
Ethereum to outperform Bitcoin
“The upgrade to Ethereum 2.0 will certainly make it more environmentally friendly than the current leader, Bitcoin. Also, the use of block in decentralised finance and its applications will hopefully support Ether’s price movements in the years to come,” Neeraj Khandelwal, co-founder, CoinDCX told BusinessLine.
“Bitcoin is seen as a store of value just like Gold. However, Ethereum has a lot more use cases and adoption led by DeFi, NFT and other Dapps being built on top of Ethereum. This adoption essentially means more demand for Ethereum which will eventually lead Ethereum to outperform Bitcoin. Ethereum Network also called EVM (Ethereum Virtual Machine) is like cloud computing using the Blockchain, and can be compared to Unix servers powering Facebook, Google and other platforms. This is the potential of where Ethereum can go and what the future tech businesses built on Ethereum could look like,” Menon said.