EIP-1559: Major Ethereum Code Change That Reduces Supply Set for July
A long anticipated change to the way Ethereum handles transaction fees has been set for July. The measure, known as Ethereum Improvement Proposal 1559, or EIP-1559, would take a portion of fees out of circulation permanently, thus reducing the total circulating supply of Ether.
The measure was scheduled for inclusion in the upcoming network upgrade, or hard fork, called “London” that will take place in July following an Ethereum developers’ call on March 5.
“This is probably one of the biggest milestones we’ve seen recently,” the director of research at data firm Messari, Eric Turner, told Bloomberg.
Ethereum users must pay a fee for every transaction they make on the network. This fee is set by an auction, with users submitting bids. The fee is paid to miners, who process the transactions.
The upcoming change would see a portion of fees “burned,” or permanently taken out of circulation, under normal network conditions. Miners would not receive this portion of the fee. Users can include a tip to prioritize transactions under the new model, which miners would receive.
The new model means Ethereum users would reliably estimate the fees paid for transactions, something which is currently not possible because of the auction system.
For Ether investors, the change could tighten the cryptocurrency’s supply, putting upward pressure on the price, Turner told Bloomberg.
The price of Ether has beaten Bitcoin by over 100 points in the past year, according to Messari data. Ether rose 640% compared to Bitcoin’s 470%. Ether does not have a fixed supply, unlike Bitcoin’s 21 million limit.
Ethereum miners have made supersized profits as usage of the network has boomed. They raked in more than $600 million in revenue from fees last month, a record, according to data provider Coin Metrics.
The planned change will likely sharply reduce miners’ fee revenues. Miners have signaled that they are against the proposal, with more than 60% of the network’s computing power, or hashrate, opposing it.
But miners are unlikely to be able to stop the proposal from being implemented, short of taking hostile measures against the Ethereum network, according to CoinDesk. This could include a so-called 51% attack where funds could be double-spent, or transactions censored. It is believed that miners’ long-term interests would prevent such behavior.
Ethereum has been gaining interest among institutional investors. Galaxy Digital has attracted $32 million to its Ethereum funds from a handful of large investors since February, according to regulatory filings. Ether futures also began trading on the Chicago Mercantile Exchange last month.