On 5 August, Ethereum developers made a modification to the network, which burns up gas charges rather than giving them over to miners. ETH worth $221 million has already been burned since that modification. Staking on ETH 2.0 today exceeded 7 million ETH.
Since the transaction fee-burning upgrade, EIP-1559, came into effect on 5 August, the Ethereum network was on fire. The total number of burnt coins – withdrawn from circulation in the network — has exceeded 71,000 ETH, or 221.5 million dollars.
EIP-1559 burns ETH used to pay for Ethereum network transactions such as a currency swap on the decentralized exchange or NFT transfer. EIP-1559 was one of the five upgrades released on August 5 as part of the London split of Ethereum.
The Ethereum network did not burn tokens before EIP-1559 – but some Ethereum-based tokens, such as Shiba Inu, were burned under their monetary policy. Instead, gas fees go to mining companies from Ethereum, a decentralized network of strong computers that kept the network moving. However, unless users “specify” miners, miners will no longer get the fees that are burnt instead.
The network used to calculate the price of gas in accordance with supply and demand rules. In addition to unusual times of congestion, EIP-1559 replaced it with a flat charge. It takes 32 gwei ($2.1) to complete a basic transaction at the time of writing.
How Does EIP-1559 Work?
Ethereum Improvement Proposal (EIP) is a method of proposing improvements to the Ethereum Network that was inspired by Bitcoin Improvement Proposals (BIPs). An EIP is a design document that includes the proposed change’s technical details as well as the reasoning for the change.
The bulk of EIPs are focused on enhancing Ethereum’s technical features, and they are seldom addressed outside of the Ethereum development community.
The proposal EIP 1559, known as the “burning fees” proposal, reverses the sequence of a typical blockchain transaction in order to address a number of problems with Ethereum’s user experience. A user traditionally pays a miner a gas charge for a transaction to be included in a block.
The gas charge will now be transmitted to the network as a kind of “burn” called base fee, with miners receiving an optional tip. The burning charge is also determined by an algorithm, purportedly to make it simpler for users to pay a reasonable price.
The EIP’s aim is to make transaction costs more predictable, not reduce them. EIP-1559 may result in a decrease in gas costs as a side effect of a more predictable base charge, assuming that fee predictability implies consumers would overpay for gas less often.
After blocks are more than 50% filled, the basic cost will rise and drop by 12.5 percent with EIP-1559. For example, if a block is 100% filled, the basic cost will rise by 12.5%; if it is 50% full, the base price will remain the same; and if it is 0% full, the base fee will drop by 12.5%.
A Huge Change to ETH Wallets
The continuing migration of apps to rollups and Layer 2s will be the primary factor in lowering costs. Because the protocol manages the basic fee, wallets like MetaMask will be able to make better predictions and will not have to depend as much on external oracles.
Predefined parameters will be provided by wallets depending on how urgent the transaction is for the user. Users will still be able to adjust the priority of their transaction in MetaMask to “low,” “medium,” or “high,” depending on the anticipated use of the preceding block and the kind of transaction.
When EIP 1559 is adopted, network costs may be smoothed out. Another way to think about this approach is to consider that it essentially trades high fee volatility for block size volatility.
The change in the base charge from block to block can be readily computed since the increments and decrements are limited. This enables wallets to adjust the basic fee automatically depending on the information from previous blocks.
To prevent miners from collaborating and intentionally inflating the base cost for their own gain, the whole base charge is burned. Because the basic fee is always completely burned, the miner receives the “miner tip”.
How do you feel about all the ETH being taken out of circulation?