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- ETH Tokenomics with Long Term Impact
- Wallets without Private Tokens
- ETH becomes Scarce Valuable and Rare
- Gas Fees
- Proof of Burn (PoB)
Ethereum updating their tokenomics will have a long-term impact to supply and demand. This becomes particularly important as more projects and users come to ETH.
On August 05, 2021, the EIP-1559 will happen. This change is exciting to several users. This technical upgrade will be included in the London Hard Fork. This upgrade will burn Ethereum.
For those who do not understand burning: It is the process by which the burned tokens will be permanently taken out of circulation. The burning process will involve the act of miners sending their tokens to specialized addresses, which will have private keys that are not obtainable. Without private keys, it will not be possible for anyone to use the token. Thus, these tokens go out of circulation.
Burning reduces the numbers of tokens in circulation, thus increases the scarcity of the token, making the coins rare and valuable.
Those who want to send ETH or make a transaction on the Ethereum Network should pay “Gas Fee.” This gas fee is paid to miners to process transactions.
The problem with the gas fee or the transaction fee is that market participants do not get a clear idea of the exact price beforehand.
There is uncertainty around the gas price, and people are not sure if they have paid enough to have the transaction processed. In some cases, people overpay because they are not sure of the clearing price. They land up paying more to ensure that the transaction is processed.
EIP-1559 sets the “Base Fee,” which should be paid to the miners for every transaction. A part of this will be burned. If market participants are willing, they can include a tip. The tip paid with the base fee will speed up the process.
The Ethereum blockchain settles transactions in blocks or batches. Each block can contain only a certain number of transactions.
Reportedly, EIP-1599 will reduce ether’s overall inflation rate from roughly 4% a year to 3%. This change will make it easier for investors to understand the value of holding Ether. EIP 1559 is expected to increase transactions on the Ethereum network, eventually raising the use of ether, which will likely help bring a wave of institutional investors into the market.
Proof-of-burn (PoB) is the consensus mechanism that is used to secure and validate the blockchain system, which relies on the concept of burning. It is seen as a more cost-effective method when compared to other popular alternatives.
