2.2 EIP 1559

Introduction

EIP-1559 aims to reduce the inflation of the Ethereum ecosystem. Inflation has incentivized users to make transactions and create volume on chain for over 5 years. Issuance per block started at 5 Ether, was reduced to 3, and then further reduced to 2 for the current rate. This gradual decrease has made the supply of Ethereum disinflationary (similar to bitcoin) as the supply is still increasing, but slower than it previously was. EIP-1559 aims to further this disinflationary system and potentially even make it deflationary. Currently, all fees that are used in a transaction are paid to miners to validate the block. This will change in mid July as the fee structure is updated.

Learning Objectives

  • What is the goal of EIP-1559?

  • What are some predictions for how much Eth will be burnt?

  • Discuss the differences between Eth’s revised monetary policy vs bitcoin

  • Know the difference between the base fee and “tip”

Reading List

Key Points

  • Miners vs Holders

    • Miners want to extract as much value from the system and need USD to pay for equipment costs

    • Holders simply want the price to go up and want cheap transactions

  • EIP 1559

    • London Hard Fork

    • Burns transaction fees instead of paying them out to the miners

Review Questions

  • What is Ethereum’s current volume per day and how much eth would be burned based on it?

  • What determines which transaction is ordered first in a block?

  • What will Ethereum’s maximum supply be?