Fundamental Change to Ethereum Will Place ‘Substantial Upward Pressure’ on Price of Second-Largest Crypto Asset: Analyst

A highly anticipated update that overhauls the controversial Ethereum fee market has launched on a testnet, and analysts are speculating on how the subsequent hard fork will impact ETH’s price.

The update, EIP-1559, is designed to drastically restructure the fee mechanism of the ETH blockchain. It will introduce a standard fee that will be the same for all users, called a “basefee.”

 

EIP-1559 will also make Ethereum a deflationary asset as ETH transaction fees will either be burnt or deposited into a long-term mining pool. The update will be rolled out on a series of testnets and then the hard fork will officially happen on the Ethereum mainnet next month.

Evan Van Ness, analyst and owner and executive editor of This Week in Ethereum, tells his 38,900 Twitter followers that EIP1559 “will very likely lead to negative issuance which will likely put substantial upward pressure on the fiat price of ETH.”

Van Ness, is also focused on the technical benefits the upgrade will provide Ethereum.

“The gas fee and gas limit are too complicated for new users. EIP1559 mostly abstracts gas fees away from the user. Much of the complexity will be pushed to wallets away from users. All users have to do is pay the basefee. This should also help app devs not deal with so many frustrated users when their transactions get stuck.”

EIP-1559 should also bolster Ethereum’s security and help prevent DOS attacks, the analyst explains.

 

Additionally, the upgrade will incentivize Layer 2 adoption, according to Van Ness.

“Right now mining pools include their payouts to miners at ~zero gas price. With 1559 they have to burn half the basefee, so they won’t do this.

Instead mining pools (and soon, staking pools) will be incentivized to use layer2 (hopefully) or a sidechain. Either way, 1559 frees up block space AND helps spur the adoption of layer2. No more out-of-band miner bribes are possible without burning half the basefee.”

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