By Gabriel Negrín
April 1, 2021
Ethereum is about five, almost six years old now. Yet, it seems like we’ve been talking about an Ethereum killer for nine years. Binance Smart Chain, Cardano, Polkadot, you name it — every new project seems to want to dethrone Ethereum.
While supporters of these projects are fervently betting on Ethereum’s fall, Ethereum has something up its sleeve.
It’s called EIP-1559. Haven’t heard of it? Well, you may know it by its alias:
What exactly is EIP-1559 (AKA The Cliffening)?
Everyone knows how big Ethereum 2.0 is going to be. Yet, we have a long way to go from where we are now.
Let’s start with the basics: EIP stands for “Ethereum Improvement Proposal.” EIP-1559 is a proposal to radically change the commission structure generated by the Ethereum network. Not only will it make commissions lower, but it also reduces the amount of ETH currently produced.
So why is EIP-1559 called “The Cliffening” or Ethereum’s scarcity engine? Why are people so hyped up about this ETH’s burn mechanism? Well, that’s what we are going to see.
The Cliffening In Action
Everyone knows the impact of Bitcoin’s halving, right? The rewards are divided in half, which means fewer bitcoins are mined. This also serves as fuel for bull runs.
Now… imagine the impact of three halvenings happening at the same time. That’s exactly what the EIP-1559 will do.
Ethereum’s annual issuance will drop from 4.5% to 1% and even less. It will divide the issuance from the initial 4.5% in half to 2.25% — from 2.25% to 1.125% and then once again from 1.125% to around 0.6%.
Bitcoin’s annual issuance sits currently at around 1.75%. This means we would have to wait until 2028 for bitcoin to have a lower issuance rate than Ethereum. This, paired with the shift towards proof of stake, could send Ethereum’s price to new heights.
Time to Unleash Ethereum
Ethereum has performed incredibly well in recent months. There’s no denying that. But, when we contextualize its situation, it seems its price might be… suppressed, one might say.
Let’s look at the facts. Ethereum is almost at an all-time low supply on exchanges. The issuance will drop — which means less ETH will be sold by miners. This increases ETH’s level of scarcity. And then staking comes in. More and more people will start to pool and stake their ETH. Unlike miners, Ethereum holders won’t have a reason to sell right away.
What about DeFi and dApps being the biggest gas users out there? Well, Uniswap recently announced its v3, which will make gas swaps cheaper.
And we aren’t taking into account Optimism and Arbitrum, the two biggest upcoming scalability solutions. With these two, more transactions will happen on an L2 — thus decongesting the network.
Soon we will see “Ethereum Killer” disappear from the radar space as it will establish itself as second-in-command to Bitcoin — which will not be dethroned. This does not mean that projects such as Polkadot or Cardano will disappear. Quite the opposite — it will create new opportunities from every angle.
The future ahead seems bright. Not only for Ethereum but for all the crypto market. Will you be a part of it?