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Crypto Report - Ethereum’s EIP-1559 Launch Update

Market Lab Report / Dr. K's Crypto-Corner

by Dr. Chris Kacher

Nation-state command-and-control will transform into a self-organized digital society: Viva la Evolution™  


Ethereum’s EIP-1559 Launch Update 

As EIP-1559 launched on August 5, there were concerns that the miners would not be happy about making less due to the upgrade, but so far, not an issue. While fees will still remain high depending on network congestion until ETH 2.0 (PoS) is launched, EIP-1559 will reduce Ethereum’s inflation from 4% to roughly 3%. Notably, Vitalik Buterin recently moved up the launch date of ETH 2.0 from January-2022 to December-2021. There have also been deflationary spikes since the launch when the amount of ETH burned well exceeds the number of ETH minted. 

Decentralized computer technologies such as Ethereum and Cardano are in competition with each other, not with Bitcoin. Over time, such technologies should continue to co-exist with Bitcoin. Some have suggested that once Bitcoin's scaling issues are solved, companies may easily port over to Bitcoin since it is the most secure network. But Ethereum leads in network effect when it comes to providing a platform that enables companies on which to build. Both can co-exist, serving different purposes. 

Ethereum (ETH) has one of the top development teams. They have come out with Berlin which helps increase transaction times while slightly reducing fees and now EIP-1559 which is making Ethereum less inflationary and even at times, deflationary, when the amount of ETH burned exceeds the amount minted, thus making its supply even more scarce. Ethereum already has a supply shortage based on the migration of Ethereum out of exchanges into long term storage. Two of its primary technologies, DeFi and NFTs, continue to lock up a substantial amount of ETH. Institutions are starting to recognize Ethereum in addition to Bitcoin, while German funds can now allocate 20% of their capital into Ethereum. The launch of Ethereum ETFs further push demand even higher for ETH. 

Meanwhile, direct layer 1 competitors such as Cardano (ADA), Solana (SOL), and Binance (BNB) may co-exist if their fees and transaction times remain well ahead of Ethereum's. Ethereum is expensive but offers the greatest network effect thus its level of security would appeal to larger companies who can afford the high fees. Smaller companies may opt for Cardano and Binance even though security and decentralization are not as robust.

Layer 2 companies such as Fantom (FTM), Polygon (MATIC), and Harmony (ONE) which co-exist alongside ETH offer superior scalability thus their transaction times are a huge help to ETH as both platforms can be used together. A multi-chain world is likely. 

All of the above are a few of the reasons why ETH has outperformed BTC and many alt coins since the recent lows.

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