The much-awaited new Ethereum’s blockchain ‘hard fork’ will most likely launch on August 4, an update that has taken the Ethereum community eyeing the smart contracts platform with much eagerness.
The new Ethereum update, called London, consists of five Ethereum Improvement Proposals (EIPs). The main objective of these five EIPs is to introduce code changes that improve and optimize how Ethereum works.
The most controversial amongst these proposals is the EIP 1559 which is gaining traction due to its introduction of a new fee structure aimed to reduce Ether market inflation. Let us look at some of the benefits and risks of EIP 1559.
EIP 1559: Benefits
The most common dispute regarding the usage of Ethereum is its unlimited supply of Ether. Unlike Bitcoin, whose supply is restricted to just 21 million, Ether doesn’t have a fixed capped supply that makes it subjected to inflation.
The EIP 1559 has not suggested putting a market supply cap on Ether, however, the proposal recommends adjusting the fee calculation structure and destroying a part of the transaction fee, thereby taking a portion of coins out of circulation.
According to the latest statistics, the latest cumulative ETH that could’ve been burnt in one year is 2,914,297, reducing the amount of Ether supply in that period by 76%.
Apart from reducing the net production of Ether, the proposal plans to bring down transaction wait time and eliminate fee-market uncertainty that discourages adoption of Dapps by developers.
Last but not least, the EIP 1559 proposal requires the payment of transaction fees for using Ethereum’s computing power to interact with Dapp’s wide range of systems to be done solely through Ether. It would strengthen the currency’s role as a form of payment.
EIP 1559: Risks
The update might come with disadvantages, especially introducing dynamic changes in miner payouts and revenue streams. Usually, the transaction fee is set by users and miners get paid in full. However, this proposal requires destroying a portion of the transaction fee and miners to be paid via an ‘inclusion fee’, an option tip system paid by the users who seek speedy processing of their transactions.
The miners will most likely get reduced rewards for their efforts that can lead to unenthusiastic miners leaving the network or even start a competing chain.
The low number of miners will mean a higher block time required for generating blocks. Competitors like Cardano and Binance Smart Chain might take advantage of these facts and seize market share from Ethereum.
EIP 1559 saw several bugs disrupting the system during its trial process on the public and private test networks that might pose a risk for malware attacks and unexpected bugs.