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EIP 1559 — ETH 2.0 and the Scarcity of Ethereum

Due to its scarcity, Bitcoin is fast being recognized as a hedge against the depreciating value of the United States dollar and the threat of impending inflation on the back of government stimulus spending. But so too is the second-largest cryptocurrency—Ethereum.

We all know that Bitcoin has a maximum supply capped at 21,000,000 BTC. In reality, the total amount of BTC may be significantly lower due to the loss of private keys and dormant addresses. But Ethereum (ETH) theoretically has an unlimited supply, so you may wonder how Ethereum is able to maintain its value. In fact, Ethereum does have inflation, but it is kept at a steady and slow rate.

Source: Bitmex

Source: Beaconscan/Ethereum Staking Calculator

Ethereum 2.0 Phase 0, also known as the blockchain’s Beacon chain, was launched on Dec. 1. The launch of Ethereum 2.0 has introduced a new consensus mechanism to the network—proof-of-stake. Ethereum 2.0 is expected to be one of the most important technical upgrades in Ethereum’s development and is also expected to cut the inflation rate of ETH by half.

With the introduction of ETH 2.0, the inflation rate will decrease drastically with the number of ETH staked in the validation pool. Currently, there are 1,698,696 ETH staked, and we can expect more and more ETH will be used to participate in the staking. If it continues to grow at the same rate, ETH inflation rate will be kept under 5% eventually.

Recently a new proposal called EIP-1559 has sparked wide discussion within the Ethereum community. With the implementation of EIP-1559. This Ethereum Improvement Proposal is proposed by Vitalik Buterin in 2019, aiming to introduce a base fee amount to Ethereum transactions. Most importantly, this will add a deflationary mechanism to the economics of Ethereum.

Transaction fees on the Ethereum network are referred to as “gas”, which is calculated in Ethereum’s native token ETH. Currently, Ethereum is using an auction-style mechanism for gas fees. The new proposal establishes “the market rate” for block inclusion instead. The base fees will be burnt to the network, making ETH supply decrease and ETH more scarce.

Whether the Ethereum improvement proposal will be approved by the miners remains to be seen. There is speculation that the majority of miners may likely vote against the proposal as they will no longer get a share of the base fees introduced in the new system, but merely a small tip on top of the base fees.

Ethereum 1.0 is still looking forward to Phase 1.5, where the Ethereum main net finally gets to join the Beacon chain as a shard chain, marking a full transition into a proof-of-stake network. This is scheduled to happen in 2021.

Following the launch of the Beacon chain, Ethereum founder Vitalik Buterin further urged the community to work hard for the Ethereum improvement proposal, EIP-1559, which aims to reduce transaction fees by introducing flat fees with a burn mechanism. EIP-1559 was the first serious proposal to suggest burning fees since Ethereum’s genesis block in 2015.

Ethereum to Overtake Bitcoin as the More Attractive Asset with ETH 2.0 and EIP 1559 Rollout – Messari

Messari lead crypto researcher Ryan Watkins seems to think that in the long-term, Ethereum may appreciate more than Bitcoin (BTC).

In a conversation on Fintech Today, Ryan Watkins, a senior research analyst at crypto analytics firm Messari, hypothesized that in the long run, Ether (ETH) may overtake Bitcoin in market capitalization. He pointed to Ethereum’s growth as an explanation. Currently, Ethereum is planning to roll out a new mainnet – Ethereum 2.0 – that will run on a proof-of-stake consensus mechanism.

Additionally, the blockchain network had announced its intentions to implement EIP-1559 this July. EIP-1559, an Ethereum Improvement Protocol, will essentially be a burning mechanism that will decrease the supply of Ether and solve the issue of rising gas fees on the network. It will result in the amount of Ether burned exceeding the supply of Ether being minted, making the cryptocurrency a deflationary asset. Watkins explained:

“Ethereum’s monetary policy will actually change in Eth2 so that it actually won’t just be less inflationary than Bitcoin, it would actually be deflationary. So then, every year, there is actually less and less Ether in existence because it’s being burnt.”

Comparing Bitcoin and Ethereum, Watkins weighed the pros and cons of both. In regards to Bitcoin’s advantages, he said:

“The selling point of Bitcoin over Ethereum as a store of value asset boils down to its monetary policy being very predictable and the Bitcoin blockchain being very secure.”

The crypto analyst said that with the launch of Ethereum 2.0 and a proof-of-stake consensus mechanism implemented on the new mainnet, Ethereum’s network might potentially become more secure than Bitcoin’s. He said:

“I think that with the shift to Eth2 and to proof-of-stake, […] Ethereum may actually potentially be more secure than Bitcoin.”

Watkins then reasoned, “If Ethereum is more secure and it has a stronger monetary policy, well then what is the bull case for Bitcoin in this scenario?”

To wrap it all up, the crypto analyst also indicated that Ethereum’s projects make it more attractive than Bitcoin, with “the GDP of Ethereum actually rivalling many large countries.” He pointed to the rise of the decentralized finance sector (DeFi) as an indication of Ethereum’s rising growth, as most decentralized applications (DApps) leverage the network to operate.

Institutional investors and Ethereum

What may have boosted Bitcoin’s growth is the increasing amount of institutional support the cryptocurrency has received. Lately, institutional investors’ rising thirst for Bitcoin has led to many eyeing Ethereum as well.

Meitu, who poured $40 million into Bitcoin and Ethereum, recently invested an additional $50 million. The Chinese firm behind the famous beauty app scooped up 16,000 units of Ether, and approximately 386 Bitcoins.

CoinShares digital asset company has also released its weekly fund flow report, which reveals that Ethereum is a very popular choice among institutional investors. The crypto asset firm revealed that nearly half of the inflows in the past week have been dedicated to Ethereum purchases. Ethereum inflows were estimated to be $113.5 million.

Retail Accumulation May Account for Why Ethereum Maintained Support at $2000

Ethereum (ETH), the world’s second-largest cryptocurrency by market cap is fighting to maintain support at the $2,000 psychological level as the market continues to see sell-offs after the digital currency soared to an all-time high (ATH) of $2,152.45 about 5 days ago.

At present, Ethereum is trading at $2,017.24, down 4.22% in the past 24 hours, and currently parring off its weekly gains which now comes in at 5.27% according to CoinMarketCap.

Ethereum’s high network fees are still relatively existent but the network’s backing from the payments giant, Visa Inc which is designing a system whereby clients can settle USD Coin (USDC) transactions through the blockchain has had a tremendous impact on the coin as investors push it to a new high.

Another defining factor in Ethereum’s reign as one of the world’s most valuable coins remains its use in decentralized finance (DeFi) applications, serving as one of the core foundations for smart contracts irrespective of the competition that abounds in the DeFi ecosystem.

Ethereum’s Retail Stack Up

Ethereum’s resilience to stay above the $2,000 price level may be influenced by the subtle accumulation of Ether by smallholder investors. On-chain data from Glassnode reveals that the Ethereum number of addresses holding at least 0.01 coins just reached an ATH of 13,820,425 earlier today. This is a prove that though there are sell-offs in the market, a corresponding accumulation is also ongoing, helping to maintain a relative equilibrium.

The factors aligning in Ethereum’s favour might be bearish in the short term, but when combined with the anticipated EIP 1559 upgrade that will introduce deflation and the eventual launch of the Ethereum 2.0 Proof-of-Stake (PoS) blockchain, the longer-term prospects are ultimately bullish. Seasoned investors including Mark Cuban have expressed that Ethereum has the possibility to dwarf Bitcoin in the near term.

ETH Price Sees Revival as Ethereum 2.0 Deposits Surpass $9 Billion

After seeing a major bearish correction in the past week, Ethereum (ETH) is now back on its feet.

The world’s second-largest digital currency by market capitalization traded as low as $2,060 amid the deep plunge the broader marketplace received. At the time of writing, Ethereum is trading at $2,449.66, representing an 11.20% gain over the past 24 hours atop an additional 8.93% in the past week.

Ethereum’s resurgence is fueled by the realization that competing chains in the Decentralized Finance (DeFi) ecosystem are actually unable to unseat the Ethereum network as the go-to chain for smart contracts and DApps. The supposed Ethereum killer, the Binance Smart Chain, is also reportedly having scalability issues, resetting the interest in Ethereum as a whole.

Additionally, Ethereum’s Berlin Upgrade went live on the network’s Mainnet shortly before the market crash. While the weight of the bear market in the past week prevented the bulls from reminiscing on the positive effects of the upgrade, the ongoing resurgence is a testament to the expected impact of the improvements to the protocol. Among many other things, the Berlin Upgrade will serve as a precursor to the EIP 1559 upgrade which will overhaul the fee structure, and make Ether a deflationary asset.

Ethereum 2.0 Growth Adding Fuel to the Run

On-chain data from Glassnode shows that the total deposits being made into Ethereum 2.0, the network’s Proof-of-Stake (PoS) model. Per the data, the valuation of deposits crossed over $9 billion, with a current value of $9,092,018,991.

The growing deposits are significant to the network health as a whole. It implies that stakeholders are bullish on the future of the Ethereum network, and they are investing duly in it. While the targeted improvements are likely to fuel a makeshift improvement in the crowded blockchain, Ethereum 2.0 has been seen to be the ultimate solution to all of the network’s woes.

With the ongoing resurgence, Ethereum is poised to top its all-time high of $2,600.

Ethereum's Average Gas Fees Hit a 3-Month Low

Ethereum’s transactions fees have been declining.

The average transaction or gas fees for the blockchain network have hit a 3-month low, below $10. According to data from on-chain analytics firm Santiment, the average Ethereum gas fees even touched a low of $8.14, an improved range when compared to fees of over $20 recorded in previous months. Per Santiment:

“Ethereum average gas fees are back at sub-$10 levels, and $8.14 is the lowest average cost in three months. This is obviously encouraging, with $ETH holders being able to confidently move their holdings without fear of such heavy incurred costs.”

Besides scalability issues, the challenge of high transaction costs has largely made the Ethereum blockchain unable for most people. In fact, some users have avoided Ethereum’s rising gas fees by moving some of their assets, for example, Tether (USDT) over to other blockchains like the Tron Network, as the average fees are relatively lower. Competing chains such as the Binance Smart Chain (BSC) have also emerged as a viable competitor to Ethereum’s network, and many decentralized finance developers and users alike are gravitating towards it to run their DeFi related products and applications.

Ethereum has a number of protocol improvements in place to address the gas fee issues. Recently, the Berlin upgrade went live on the Ethereum Mainnet, and duly paved the way for the EIP 1559 upgrade which will usher in changes to the network’s fee structure.

Additionally, the grand plan to rollout Ethereum 2.0 will mark a shift from the current Proof-of-Work (PoW) model to a more scalable Proof-of-Stake (PoS) model. Many in the digital currency ecosystem has favoured the PoS model, noting it will bring a more permanent solution to the scalability and high gas fee challenge that the network currently faces. The PoS model is gaining the right support as the deposits into the Ethereum 2.0 contract address recently topped an ATH above $9 billion.

Ethereum is Set to Become Deflationary after the London Hardfork Went Live

Ethereum (ETH) continues to be the talking point in the crypto community after the London Hardfork or EIP 1559 upgrade going live on August 5. As a result, the first-ever deflationary block on the Ethereum network happened.

The Ethereum network is anticipated to gain steam based on this development. ETH is set to become deflationary, given that its value is expected to continue increasing with time on the foundation of slashed supply.

Eradicating inflationary tendencies on the ETH network

With the London Hardfork going live, the ETH network will set a base fee for every transaction carried out, giving all a fair opportunity.

Users who may wish to conduct their transactions faster than the standard provisions of the network can add a tip to validators to fast-track their transactions. Part of this tip is burnt, helping to improve the monetary policy of the Ethereum network as a whole.

Furthermore, this upgrade will eliminate using other digital tokens for payment of fees in the Ethereum Network. Only Ether will be used, thus restoring the unique relevance of the ETH cryptocurrency.

Scarcity will be introduced every time Ether is burnt after being used in transactions. This feature will help in eliminating inflationary tendencies that the network was accustomed to before.

Ethereum shorts worth $211 million liquidated

According to Moskovski CIO, Lex Moskovski:

“ETH bears got burned. $211M of ETH shorts have been liquidated in 24h.”

Furthermore, a recent surge above $2,700 for the first time in 2 months triggered crowd euphoria in the Ethereum ecosystem. Therefore, social volume played a significant role in this spike.

The second-largest cryptocurrency based on market capitalisation was up by 5.51% in the last 24 hours to hit $2,780 during intraday trading, according to CoinMarketCap.

Ethereum is also emerging as one of the sought-after networks in the crypto space because it accounts for nearly half of the trading volume on top exchanges.

With the London Hardfork upgrade already in place, whether this will boost Ethereum’s upward momentum remains to be seen.

Burnt Ethereum Edges Closer to a Billion-Dollar Value

After the London Hardfork or EIP 1559 upgrade went live on August 5, the first-ever deflationary block on the Ethereum network occurred because scarcity was introduced every time Ether was burnt after being used in transactions.

Market analyst Lark Davis disclosed that burnt Ethereum was inching closer to the billion-dollar mark. He explained:

“We’re almost at a billion dollars of Ethereum burnt due to EIP 1559. Thus there has been a billion less in sell pressure from miners. The economics of Ethereum is rocket fuel, and it will only intensify when The merge happens, and we switch from mine and dump to stake and save.”

The London Hardfork upgrade set a base fee for every transaction undertaken. Furthermore, it eliminated the use of other digital tokens for the payment of Ethereum fees. Only Eth was utilised, thus restoring the unique relevance of the ETH cryptocurrency.

Short-term ETH holding increases

According to data analytic firm IntoTheBlock:

“The number of ETH holders holding for under 30 days (traders) is at its highest since May with over 3.8m addresses buying in October. This seems to be led by retail as the amount of volume held by traders is “only” 19m ETH as opposed to 26m in May.”

It shows more users have been entering the Ethereum network.

Meanwhile, ETH’s development team continues to innovate and improve, given that Github’s submission rate hit a 4-month high. Github is a web-based platform used for version control.

The total value locked in Ethereum layer two recently surged to $1 billion. Ethereum L2 is a scaling solution created to mitigate congestion on the network. As a result, decentralised applications (dapps) can avoid network congestion by utilising various technologies.

The Ethereum 2.0 deposit contract, which went live in December 2020, is expected to boost scalability by offering a transition to a proof of stake (POS) consensus mechanism from the current proof of work (POW) framework.

Burnt Ether Tops 1 Million ETH as Non-Zero Ethereum Addresses Break the Record

Despite Ethereum correcting from an all-time high (ATH) price of $4,860, the second-largest cryptocurrency has been making notable strides in terms of burnt Ether after crossing the 1 million ETH mark.

Some of the top protocols based on burnt Ether include OpenSea, Ethereum transfers, Uniswap V2, and Tether (USDT). OpenSea is a leading NFT marketplace.

Launched in August, the London Hardfork or EIP 1559 introduced a feature where Ether would be burnt every time it is used in transactions. This has been causing a supply deficit, which prompts a price increase whenever demand rises.

Non-zero Ethereum addresses scale the heights

According to crypto analytic firm Glassnode:

“The number of non-zero Ethereum addresses reached an ATH of 68,561,683.”

This could be translated to mean that more participants are joining the ETH network despite the current retracement. For instance, Ethereum was down by 5.86% to hit $4,037 during intraday trading, according to CoinMarketCap.

Is Ethereum’s momentum cooking?

According to crypto analyst Matthew Hyland, Ethereum is forming a massive symmetrical triangle of the 3-day RSI.

The symmetrical triangle is a chart pattern denoted by two converging trend lines that show lower highs and higher lows. It represents a period of consolidation before the price is forced to break out or break down.

On the other hand, market analyst Michael van de Poppe believes that ETH needs to break above $4,500 for a bull run to be resumed.

Meanwhile, the top 10 non-exchange Ethereum addresses have the highest holding ratio. Crypto insight provider Santiment noted:

“Ethereum’s top 10 largest addresses holding ETH off exchanges now hold a cumulative value of 24.87 ETH. Comparatively, the top largest exchange addresses now hold 4.75M ETH. This ratio of 4.69 is the largest all-time high between these whale addresses.”

London Hard Fork Saved Ethereum Users $844m in Transaction Fees via Base Fee Refunds

The London Hard Fork or EIP 1559 upgrade sought to make the Ethereum network deflationary by injecting a scarcity parameter since going live on August 5. This is because Ether was to be burnt every time it was used in transactions.

Furthermore, a base fee was introduced for every transaction undertaken to give all users a fair opportunity. The dividends of the EIP 1559 upgrade seem to be paying off because ETH users have experienced base fee refunds worth $844 million so far. Crypto insight provider unfolded confirmed:

“Since activation on August 5, 2021, Ethereum’s fee market upgrade, EIP 1559, has saved users a total of $844 million in transaction fees through base fee refunds.”

Burnt Ether has been going through the roof because it recently crossed the 1 million ETH mark, with base fee burns hitting a historical high of 360K ETH in November.

With scarcity being continuously introduced in the Ethereum network through burnt Ether, whether this will go on being the catalyst for a price increase remains to be seen.

Total value locked in Ethereum 2.0 continues to skyrocket

According to on-chain metrics provider Glassnode:

“The total value in the ETH 2.0 Deposit Contract just reached an ATH of 8,463,778 ETH.”

This shows that more investments are trickling into Ethereum 2.0 because it seeks to transit the current proof-of-work consensus mechanism to the proof-of-stake (POS) framework, deemed more cost-effective and environmentally friendly.

Given that the Ethereum network has been grappling with the challenge of high gas fees, ETH 2.0 is expected to address this issue amicably.

On the other hand, Ethereum layer 2 (L2) seeks to tackle the scalability issue because it’s a distinct network running on top of Ethereum Mainnet (layer 1).

Ethereum is Burning at the Rate of 6.29 ETH per Minute

Burnt Ether is edging closer to the 1.2 million ETH mark, given that it’s burning at a rate of 6.29 ETH, approximately $24,361, per minute.

Ever since the London Hard Fork or EIP 1559 upgrade went live on August 5, the burning feature was introduced every time Ethereum was used in transactions. One of the objectives was to eliminate the inflationary tendencies that the network was accustomed to because Ethereum would become scarce after being burnt.

Furthermore, users who wished to conduct their transactions faster than the standard provisions of the network were allowed to offer validators a tip to fast-track their transactions. Part of this tip would be burnt, helping to improve the monetary policy of the Ethereum network as a whole.

Burnt Ether, coupled with ETH’s leaving exchanges in droves, has been causing a supply deficit.

On the other hand, the tussle between the top ten largest exchange and non-exchange addresses continue to play out. Market insight provider Santiment explained:

“The 10 largest Ethereum addresses on exchanges hold a cumulative 3.82M ETH, which is the lowest level since the exodus. Meanwhile, the top 10 largest non-exchange addresses hold a cumulative 24.78 ETH, closing in on the all-time high of 26.63 ETH attained in June 2016.”

Meanwhile, the debate about Bitcoin versus Ethereum seems not to be going away anytime soon because ARK Invest CEO Cathie Wood recently stated that ETH was still undervalued compared to BTC.

She added that Ethereum was still in the infancy stage and had a long journey ahead compared to Bitcoin that had already established itself as a monetary system.

Wood also noted that more institutional investments would trickle into decentralized finance (DeFi) and non-fungible tokens (NFTs), aiding Ethereum’s growth.