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The EIP-1559 Is Extremely Important To Ethereum’s Supply: Buterin

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The EIP-1559, or the Ethereum Improvement Proposal has been a huge topic recently if you have been following our Ethereum news. There’s been a lot of controversy over the ETH supply as the BTC proponents are criticizing how data sites track the second-largest cryptocurrency and how it cannot come to a consensus on the exact supply of the coins in circulation as we are reading more in the upcoming Ethereum news.

After a few days in discussions, the talks shifted to a criticism of the cryptocurrency’s lack of maximum supply. Bitcoin has a hard cap of 21 million coins which will be reached in the year 2140. Ethereum has no maximum supply that is integrated into the protocol as its rate of issuance is not based on an algorithm. Vitalik Buterin attempted to calm the fears that ETH will be printed ad nauseam when he said that a technical change will make the cryptocurrency deflationary.

ETH chart
Chart of daily Ethereum transaction fees with analysis by Vitalik Buterin

The term EIP-1559 has come up many times since. The improvement proposal says that the current transaction model is inefficient and expensive for users. Ethereum’s current model has transactors bidding in a two-sided market to get their transactions that are included in blocks first. In order to solve this problem, Buterin suggests implementing a market rate or flat rate for all transactions. David Hoffman wrote back in 2019:

 “The purpose of EIP 1559, according to Eric Conner, is to provide wallets and users a much-needed improvement to the user-experience of gas management. The way that EIP 1559 solves the gas-management problem also improves Ethereum’s monetary management system.”

eth 2.0 serenity, buterin, developer, ethereum
Vitalik Buterin, founder of Ethereum

Buterin invoked technical improvement as a solution to the criticism that Ethereum has no strict supply cap. He noted that when ETH2’s staking is activated, the Ethereum Improvement Proposal will be implemented and the cryptocurrency could become deflationary:

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 “I love how people have been so awkwardly trying to press ethereum on its lack of a preset “21 million”-like hard cap, when transaction fees the past 2 months have been high enough to more than fully cancel out PoS rewards post-EIP 1559.”

In theory, this can help ETH to obtain a much higher monetary premium as the crypto research firm Delphi Digital wrote:

 “Tying things together, EIP 1559 and staking [create a] symbiotic relationship where not only does increase usage drive value but the introduction of cash flows to a wider group of participants for securing the network creates a more effective long term value proposition [for ETH].”

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