a month ago

Burn, baby, burn

One of the most anticipated upgrades for Ethereum has happened on August the 5th, 2021. London brought the implementation of EIP-1559, which is supposed to reduce volatility in network fees and make it overall more transparent and easier to set the correct fees in order to transact on the Ethereum blockchain.

Now that the hard fork commenced, the results are in, and the question is what to expect from the implementation in the near and the far future of Ethereum.

Ether is getting burned

One of the most notable changes with London is the introduction of a base fee. Unlike other fees, this particular fee is not passed onto the miners who receive a reward per successfully mined block. Instead, the base is burned, meaning that the Ether is effectively destroyed and is not available to the market anymore.
Many analysts have argued that with this change, Ethereum would become significantly scarcer. Unlike Bitcoin, Ethereum was never meant to have a supply cap. Instead of a supply cap, there is an inflation with a maximum of 18 million Ether per year.

At the time of writing, over 17.000 ETH have been already burned. Given the fact that there is a circulating supply of about 117.034.126 Ether, this is not very impressive. If the burn mechanism will impact the price, then it is most likely to show in the long term. Meaning that the total inflation will be reduced but not eliminated.

Are Ethereum transactions now cheaper?

In short: No. The upgrade is meant to create less volatility in transactions fees and make them more transparent. But there are a couple of solutions coming that will effectively reduce the fees to a bare minimum.

All of these solutions are second-layer technologies. Two examples are the so-called optimistic rollups and ZK-rollups, which are the most promising technologies in this field so far. Both are scaling solutions that aim to increase the transaction throughput and reduce the gas fees for the users.

With the scaling problem not yet solved and Ethereum 2.0 still in development, other cryptocurrencies have yet a chance to convince more users to adopt other products and dapps that run on top of their blockchains. Notable examples in this field are Cardano (ADA), Solana (SOL), and Algorand (ALGO). Still, most of these competing blockchains will have a hard time because Ethereum has such a vast user base.

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