The code EIP-1559 hides a whole revolution in the cryptocurrency market. This is the update of the Ethereum network that will limit the supply of Ether coins, the second most relevant after Bitcoin, by slowing down its creation and destroy units in circulation as transactions occur. In this way, the system goes from being in inflationary to deflationary mode and turns, a priori, the ethers more valuable and endows it with the attractiveness of being a store of value for investors.
“Ethereum 1559 enhancement protocol should also make ether more attractive. Not least because the EIP will ‘burn’ a small amount of ether every time someone makes a transaction, effectively reducing the supply of ether and increasing its value over time. However, for now, ether remains a fairly speculative investment asset. For conventional investors, it is probably best used in (very) small doses as a hedge against the weak dollar and major disruptions in the global financial system, “he says. Amy arnott, a Morningstar analyst.
In fact, the price of this crypto has recovered vertically in recent weeks to stand at around $ 3,000 per unit compared to the 1,700 dollars in which it moved on July 20. It is still far from the more than $ 4,200 it reached in May, its all-time high, but the change made in how its technology works is attracting both investors and developers who rely on Ethereum for DeFi (decentralized finance) applications.
The Ethereum operating mode update Its objective is to avoid the increase in the cost of the so-called gas or transaction fee, one of the great problems of the blockchain to date, which has increased the costs of each operation to unsustainable levels. Ethereum gas it has nothing to do with fossil fuel, rather it is the name that receives the necessary commission in the transactions.
The London fork, EIP-1559, seeks to make transaction fees more predictable, thus improving the ease of use of the network and avoiding an auction system to start paying a standard fee determined by an algorithm. The other side of the coin is the destruction of Ethers in each transaction. According to data from Etherchain, the Ethereum network is now ‘burning’ around $ 400,000 worth of ethers every hour.
Towards lower energy consumption
The promoters of Ethereum had been working for years on a new protocol that would generate less environmental impact and energy consumption of the network. Now you have taken a big step there. It is the system ‘proof of stake’ (PoS) that replaces the one who ruled until now of ‘proof of work’ (PoW), which is the one that uses Bitcoin.
Under the new mining protocol, cryptocurrency Ether replaces hardware and electricity as cost of capital. Thus, with this system the probability of finding a block of transactions is proportional to the amount of coins that each user has accumulated. That is, the more ether a user has, the more likely they are to be chosen to secure the next batch of transactions.
Currently, bitcoin mining uses about 121.36 terawatt hours (TWh) of electricity per year, according to an analysis by the Center for Alternative Finance at the University of Cambridge, consuming more electricity per year than countries such as Finland, Switzerland or Argentina. However, it must be borne in mind that bitcoin is a global payment system. In the case of other cryptocurrencies have a lower impact due to their lower use, since bitcoin accounts for almost half of the market capitalization.