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Users and investors rejoice as EIP-1559 is officially scheduled for July, though miners are less enthusiastic about the update.

In Brief

  • EIP-1559 will change the incentive structure for miners.
  • Parts of the network fee will be programatically burned with every transaction.
  • With the update, Ethereum will become deflationary.

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A highly anticipated upgrade to the Ethereum blockchain that is set to transition ETH into a deflationary asset is scheduled for the “London” hard fork in July.

Ethereum lead developer Tim Beiko suggested that the decision would be made shortly two weeks ago, and proposed the inclusion on the Core Developers call today. There were no verbal objections.

We’re in a spot where the EIP is sound,” said Beiko on the call. “[…] We’re in a spot, I think, where it’s ready to be included in an upgrade.”

The proposal, which was co-authored by Ethereum cofounder Vitalik Buterin, will change the ETH fee structure away from a bidding system that allows miners to prioritise highest bids. Instead, the fee structure will dynamically adjust fees so that users only pay the lowest bid for every block.

On top of that, the base network fee will be “burned” on every transaction, leading to deflationary tokeneconomics for ETH.

This will have the effect of reducing concerns of infinitely increasing supply by Ethereum skeptics, despite the fact that bitcoin and ethereum use-cases are not the same.

Impetus for market cap growth?

An analysis of network transactions last year found that EIP-1559 would have burned 1 million Ether in 365 days – nearly 1% of the network’s coins.

Research from ETF issuer Grayscale concluded that a deflationary mechanic will be a boon for Ether’s price too, creating a positive feedback loop.

Users have also been rightfully complaining about gas fees for months, with even simple transactions costing exorbitant amounts of ETH

Users have also been bellyaching about gas fees for months, and there have been some notable examples of sky-high fees for simple transactions, including a $36,000 Uniswap trade.

Not Everyone is in agreement

Notably, a group of miners is not excited about the proposal, having put forward an alternative proposal forward, EIP-2878. The idea is to bring ETH fees closer to bitcoin’s by reducing miner fees by 75%, from 2 ETH per block down to 0.5 ETH. However, this could result in ASICS miners effectively gaining a monopoly over Ethereum mining due to the changed incentive structure and stronger ASIC mining capabilities in comparison to normal GPUs.

The proposal is still relatively new and hasn’t gained much support. Now that the proposal is going forward, the chances of further significant changes to EIP-1559 are slim.


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