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Will ETHEREUM Become Deflationary Asset? | Eth EIP-1559 update justified? - YouTube
Channel: CryptoMeister
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There is good news for Ethereum investors
and users, as its new update EIP 1559 is finally
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giving returns.
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This update has definitely made Ethereum lovers
happy as it will result in Ethereum becoming
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the deflationary asset of the decade.
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Many people are also claiming that this update
will also reduce congestions and exorbitant
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gas fees.
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So, is all of the hype around this new update
justified?
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What exactly is EIP 1559?
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And how will it impact everyone involved in
the process?
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Hey guys!
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Welcome back to our channel Crypto Meister
where we tell you all the latest news about
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your favorite crypto coins.
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In today s video we are going to talk about
how Ethereum will become a deflationary asset
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of the decade . If you want to find out more
about it then stay with us until the end of
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the video.
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Also, before we start the video don t forget
to hit like, subscribe to our channel and
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ring the bell icon for more amazing videos.
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And let s get started!
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Ethereum Improvement Proposal (EIP) 1559 is
one of the most discussed updates for the
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past couple of years as it will restructure
the transaction fee and make the Ethereum
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network both cheaper and faster.
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Ethereum s new update is more commonly called
EIP 1559, and it is aiming at making transactions
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more efficient by using a system which will
only use tips as gas fee and burn the base
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fee.
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The base fee is actually the price you pay
for transactions on the Ethereum network,
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and it is adjusted based on the demand for
block space and activity on the network.
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Tips on the other hand is an additional optional
fee you can pay miners to speed up your transactions.
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The new update will make transaction fees
more predictable and less volatile with the
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help of an algorithmic model which will automatically
adjust the costs 1.125 times per block.
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The basic purpose of the new update is to
limit the volatility of transaction fee.
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The high transaction cost of Ethereum has
been a huge problem for investors and users
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for a very long time, especially since the
Decentralized finance hype started in august
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2020.
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Before the new update the transactions were
executed through the bidding process , which
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means that the transaction with the highest
bid, was also the fastest to be executed.
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This had created a rise in gas prices and
slowed down the Ethereum network.
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With the introduction of a new update, the
gas fee set by Ethereum miners is replaced
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by base fee and a fixed algorithm carries
out all of the calculations which means there
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is no bidding process anymore.
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The transaction fee is normally set by users
and accepted in full by miners.
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However, under the new update the base fee
is set automatically by the Ethereum protocol
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and is burnt by the network instead of rewarding
it to the miners.
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Miners are not very happy about it since the
burning mechanism is one of the most controversial
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aspects of the EIP 1559 because of its potential
to reduce miner s revenue.
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The chief technology officer of Ethereum mining
pool Salva Karpenko told CoinDesk in an email
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that:
While we think [EIP 1559] will bring better
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predictability for transaction inclusion,
we think that fee burning is a bad idea, considering
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many transactions requiring extended computing
resources for smart contract execution will
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no longer be compensated,
Despite the major concern of reduced miner
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revenue, Ethereum miners and Karpenko have
accepted the launch of the new update last
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summer.
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The CEO of Ethereum mining pool Minerall Igor
Stadnyk has also come forward in support of
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the new update.
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He stated that he is very confident about
the future success of Ethereum with the help
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of network s constant improvement and iterative
development.
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Moreover, he is also exploring options to
continue participating in the Ethereum network
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even when mining is no longer an option.
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He stated:
[If] we tell the world we are not happy with
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this proposal and we will run on non-updated
software, we will run old Ethereum.
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This means one more Ethereum Classic will
be created It will be like a network split,
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and then the question is, will other big market
players support this network split?
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I don t think so.
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The Ethereum 2.0 update is also a big deal
for Ethereum since EIP 1559 is an important
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milestone on a roadmap towards ETH 2.0.
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With these new upcoming features, Ethereum
will shift its working strategy from proof
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of work to proof of stake protocol.
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This is considered one of the most significant
lifts in the cryptocurrency space from the
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deflationary aspect and it will help add to
the scarcity of Ethereum.
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As one hundred percent of the base fees will
be burned it will counterbalance Ethereum
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s inflation.
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The higher the demand the more Ethereum will
be burned resulting in a surge in Ethereum
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s price adding to the scarcity of the asset.
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Now, Let s also look at some of the misconceptions
occurring about the new update.
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The first thing to know is that the EIP 1559
update is not designed to decrease the cost
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of transaction fee, the people who are claiming
it are not looking at the big picture because
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the update will only reduce the volatility
of transaction fee and not the cost.
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Another point is that, even though the new
update will prevent miners from extracting
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value from the base fees, it will not entirely
stop them from extracting value from the users.
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There is no doubt that EIP 1559 is a big step
towards much hyped ETH 2.0, but it has also
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laid the foundation for Ethereum s next major
hit difficulty bomb which will be launched
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later in the year.
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The aim of this project is to increase mining
difficulty while reducing block rewards resulting
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in less profit for mining and eventually making
it less attractive for miners.
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The thought process behind it is to persuade
miners to migrate from the proof of work to
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proof of stake system.
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The burning mechanism is the first thing we
see in terms of counterbalancing the inflationary
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attributes by taking some power away from
the miners.
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The new update is paving the way for future
progress of Ethereum by making it the deflationary
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asset of the decade.
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So, Ether is benefiting from a process referred
to as burning where coins are taken out of
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circulation and that was instituted after
a network software update known as the London
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Hard Fork in August.
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Part of the upgrade was designed to give Ethereum
capacity to process more transactions, with
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a goal of lowering high user fees.
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Following the upgrade, each transaction on
the Ethereum network burns a small quantity
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of Ether.
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That means that bouts of intense transaction
activity, which can come along with price
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surges in so-called altcoins that run on the
Ethereum blockchain, can often lead to days
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where more coins are destroyed than minted.
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Now, let s deal with the elephant in the room
that nobody wants to talk about.
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Users can speed up their transaction fees
by tipping miners.
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Ethereum is the predominant smart contract
platform and will most likely continue to
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grow exponentially.
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With growth comes even more new users and
even more network congestion.
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So, what happens when a large number of users
are simultaneously willing to tip miners to
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speed up their transactions?
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Will that not cause a fees war among users
worse than we ve seen previous to EIP-1559?
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Nobody really knows the answer to this question
yet.
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However, users should be aware that the idea
of a transaction fee reduction could quite
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easily turn into a transaction fee increase.
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With the constant innovation and improvement,
one thing is certain that the future of Ethereum
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is bright.
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The EIP 1559 has already become a major success
and the difficulty bomb will surely blow people
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away later this year.
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As for ETH 2.0 well, it may just change the
game.
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The EIP-1559 update is further proof of this
progress.
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It s reducing the volatility of transaction
fees.
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It s empowering developers to make more sophisticated
contracts.
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It s making the whole ecosystem run more efficiently.
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It s turning an inflationary asset into what
could be one of the most sought-after deflationary
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assets this decade.
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There has been a dark cloud looming over the
crypto space for a while now, and EIP-1559
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may just be the light we need to break through
it.
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In conclusion, the changes of the EIP-1559
and the buzz that it caused had an immediate
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effect on the ETH price.
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The continuing evolution to Ethereum 2.0 will
likely have a similar impact and boost ETH
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s price.
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In the long term, the deflationary trend of
ETH could have a tremendous effect on the
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price, especially if actual inflation exceeds
the expected USD inflation which was in the
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range of 1.6 to 2.8% for 2021 and an average
of 2.3% through 2024.
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With that, an ETH of $6,000/ETH is easily
possible.
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And this is it for today guys!
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What are your thoughts on today s video?
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Share with us in the comments below.
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