Ethereum Major Upgrade to Alter the Supply and Fix the Transaction Fees of ETH

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Ethereum Major Upgrade to Alter the Supply and Fix the Transaction Fees of ETH
Ethereum Major Upgrade to Alter the Supply and Fix the Transaction Fees of ETH

The second-largest blockchain network, Ethereum, is about to make technical adjustments that will significantly change the way transactions are processed, reduce the supply of Ethereum and significantly increase its price.

The planned coding transformation will start on August 4th.

Analysts said the Ethereum Improvement Proposal (EIP) upgrade in 1559 is similar to Bitcoin’s “halving” event, with regular adjustments reducing the supply of Bitcoin. Each halving helps push the price of Bitcoin to a higher record.

Although Bitcoin is the preferred store of value in the digital ecosystem, Ethereum has become a leading financial infrastructure with a daily transaction volume of more than $12 billion, according to the Grayscale Report published in February of this year.

Andrew Keys, managing partner of DARMA Capital, said the current price of Ethereum did not take into account the upcoming software upgrade.

He estimated that the software adjustments expected for next week, along with a further upgrade in the first quarter of 2022, should “slightly quintuple the price of Ether” next year. On Thursday, ether rose 0.6% to $2,312.

What is EIP 1559?

EIP-1559 is a software upgrade that fundamentally changes the way transactions are processed on Ethereum by providing clear prices for the Ether transaction fees paid to miners to verify transactions and small amounts of them To “burn” tokens. The burned tokens will no longer circulate in the long term.

In token destruction, miners typically send tokens to a dedicated address that does not have access to private keys. Without access to the private keys, nobody can use the tokens and thus take them out of circulation. By reducing the number of tokens, the currency in circulation becomes rarer and more valuable.

What is the Exact Cost of Transaction on the Ethereum Blockchain?

Currently, individuals or companies attempting to send transactions over the Ethereum network must pay what are known as “gas fees” to miners in order to process their transactions.

However, the exact transaction costs are not yet known and market participants said they could not know the price in advance.

Matt Hougan, Bitwise Asset Management’s chief investment officer, said this creates two problems.

“First of all, there is a lot of uncertainty that you will be able to process your transaction in a timely manner,” he said. “Second, people pay more because they don’t know the liquidation price and are bidding too high to make sure the deal goes through.”

Will the Upgrade Make it Easier to Mine, Buy and Sell ether?

EIP-1559 changes this mechanism by imposing a “basic fee” that is paid to miners for every transaction of which a portion is destroyed. If required, participants can also include an optional “tip” in the basic fee to speed up the process.

Market participants said another adjustment is to double the available space in each block. Blockchains like Ethereum handle transactions in batches or blocks. Each block can only contain a certain number of transactions.

Blocks will be deployed on Ethereum every 17 seconds, and EIP 1599 will be deployed on block 12,965,000, which is estimated to take place on August 4th, DARMA’s Keys said.

There is a bug bounty and when people find a bug they get paid. This process is complete.

What does this mean for the ether supply?

Bitwise’s Hougan cited estimates that EIP-1599 will bring Ethereum’s headline inflation rate down from around 4% to 3% per year. He said that this was about half the proportional reduction in the Bitcoin halving event.

What does this mean for investors?

This change should make it easier for investors to understand the value of holding ether. Hougan stated that EIP 1559 should increase transactions on the Ethereum network and increase the use of Ether, which could help bring a wave of institutional investors to the market.