At the time of writing, block 12,939,102 has been mined on Ethereum. 12,965,000 waves in less than 25,000 blocks and with that EIP-1559 is finally activated. Now the anticipation for this upgrade was palpable, with several discussions about its implications for the future of Ethereum. In fact, one of the most popular tales from Ethereum proponents is the idolization of ETH as “ultra-sound money”. But what is it?
This idea was first voiced in 2020 as a theoretical expectation that integrates Ethereum’s new monetary policy into context. But how far is Ethereum from meeting those expectations?
An analysis of the prevailing market scenario can show whether Ethereum is on the way to becoming “better money”.
The current Gwei state
One of the main goals of EIP-1559 is to control the amount of transaction fees paid by users. It hit exorbitant levels in 2021, but during the recent declining runs, ETH’s total spending dropped significantly.
At press time, the total amount of ETH spent on fees had doubled in the last 30 days as the market rallied. For now, however, it is still more than 75% below its May level. That was a time when users had to pay anywhere from $ 60 to $ 70 per transaction.
The recent surge in demand has also resulted in an increase in Gwei or gas charges, which is both an advantage and a disadvantage. Higher gas charges are pricing out to users looking for small transactions. However, they are also accepted by hodlers as the amount of ETH burned increases depending on the fees charged. Therefore, under the EIP-1559 protocol, their withheld assets become more valuable.
So will Ethereum become ultra-solid money after EIP-1559?
If we now incorporate the current Gwei fee status into a simulator, we can deduce whether the new issue and transaction fee status of Ethereum could lead to the ultra-monetary value of ETH. (Some of these dates may change over the next few months, so the forecast supply and condition are variable.)
Assuming that the Gwei fee of 60 remains constant after the EIP-1559 implementation, the industry will expect 6000 ETH burns per day. The staking amount is expected to reach at least 10 million per year from now until the PoS switch is complete. With that in mind, supply for Ethereum will only increase to 120 million over the course of the next year, peaking before it finally declines.
This leads to the conclusion that Ethereum will not act deflationary right away. A slow process will begin that will lower the pre-merger inflation rate. However, current allocations and Hodlers will see little gains in their total assets immediately after EIP-1559.
However, with the implementation of EIP-1559, the incentives will be coordinated between owners and users as more ETH will be burned as demand increases. Ergo, the ultra-money narrative is still far from becoming a reality.