Will Ether be deflationary? What is EIP-1559?
At watchtheburn.com you can see the time left until EIP-1559 will be live. It's said that on August 5, 2021 at 12:31:12 PM UTC this progress is done. Recent news are full of unrealistic price predictions for the new future. I will show you what is most likely to happen after August 5.
What is EIP-1559?
EIP-1559 is a proposal to make Ethereum transactions more efficient by using a hybrid system of base fees and tips to more evenly incentivize miners in periods of high and low network congestion. In the proposal, a base fee is the algorithmically determined price you pay for a transaction on Ethereum. Tips are defined as optional fees that you may include to speed up transactions. If implemented, EIP-1559 could greatly reduce transaction costs and improve Ethereum’s overall user experience.
With EIP-1559 the current protocol for Ethereum gas fees would be replaced with a new system. This system consists of a so called base fee and tips. The proposal aims to keep the blocks, so network usage rate, at 50%. If the block usage is under those 50%, the algorithm will adjust the base fee - it will be lower. If the block usage is over 50% the base fees will be slightly higher. In conclusion the new proposal could process more transaction due to flexible block sizes. If you want to get your transaction done as fast as possible you need to add an tip on top of the base fee. This transaction with tip will be prioritized by miners because miners will get the whole tip while base fees will be burnt.
Will Ether be deflationary?
Right now, with Proof of Work the Ethereum system can't get deflationary at all. Under the current PoW model ETH's issuance is quite high (~4% of the total ETH supply annually). To get deflationary it needs more than 150 gwei every transaction to achieve.
With ETH2, the change from Proof of Work to Proof of Stake, the rate drops to ~0.4%. This progress is called "triple halving" because it's comparable with three block reward halvings of the bitcoin system. The issuance rate drops 90%. At ultrasound.money you can calculate the deflation rate by your own.
If you have any questions feel free to ask me :)
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