Will Ethereum Finally Become Deflationary By Default After EIP-1559 Comes To Life? Here’s What We Know

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Will Ethereum Finally Become Deflationary By Default After EIP-1559 Comes To Life? Here's What We Know
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The Ethereum network is undergoing a series of upgrades that will ultimately migrate it from the energy-intensive proof-of-work (PoW) mechanism to being a proof-of-stake (PoS) network. The latest in the series is the London hard fork which as planned is supposed to launch on the mainnet on August 5.

It is also hoped that the upgrade will usher in a deflationary economy on the Ethereum network. These hopes are tied to one of the Ethereum Improvement Proposals (EIPs) bundled in this upgrade is EIP-1559 which has raised a lot of controversy in recent times.

Currently, under the PoW model, Ethereum issuance is quite high – with approximately 4% of the total ETH supply issued annually – and has no hard cap. It is hoped that EIP-1559 will correct this inflationary trend by reducing the issuance rate as it burns about 70% of the fees that previously went to miners for adding transactions to blocks. What this would mean for the network is that the number of new Ether coins coming into the market and getting sold will be drastically reduced in the long run.

However, this outlook has been questioned. One observer, “Korpi87,” in a Twitter thread has detailed how that though it is valid, it is unlikely to be due to just the London hardfork upgrade adding that EIP-1559 “doesn’t make Ethereum deflationary by default.” Explaining further, it is noted that while EIP-1559 will help improve user experience by greatly reducing the often decried high transaction cost on the network, it will not sustainably make Ethereum deflationary until the network fully migrates to the PoS model, noting that under the PoW model, only high gas fees for transactions can offset high issuance.

However, it is still a fine prospect to hope on. No mean feat, the upgrade, which has been likened to changing the engine in a moving vehicle, is close to launching. Market participants are anticipating that the changes the upgrade brings will push the value of the cryptocurrency to new highs. Lined up to follow the London hardfork upgrade that will complete the PoS migration, ETH 2.0. 

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ETH 2.0 will improve the scalability of the Ethereum blockchain and increase the efficiency of transactions, and will not need energy-intensive miners to run the network, thereby reducing Ethereum’s energy usage by an estimated 99.5%. 

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Already, Ethereum users have staked over $17 billion of their ETH to participate in the upgrade. Though Ethereum’s price along with the rest of the cryptocurrency market corrected about 50% downwards, the cryptocurrency seems to be replying in recent times and is currently trading at about $2,635 up 15% in the past seven days.