Ethereum developers: “We’re going to destroy a lot of ETH”

Ethereum core developer Eric Conner said today that the long-awaited implementation of Ethereum Improvement Proposal EIP-1559 will finally be executed, which will result in “a large amount of ETH” being destroyed.

“EIP-1559 will happen. Then we’ll destroy massive amounts of ETH,” Conner tweeted, adding that the move would bring the issuance of new ETH tokens “from zero to negative.”

Once implemented, EIP-1559 will bring a better user experience, tighter security features, larger transaction blocks (when necessary), and see the original ETH burned after each transaction is processed by the Ethereum blockchain. This is different from the current mechanism.

In its current form, Ethereum users can manually set their own "GAS" fees - tokens paid to miners for including their transactions in an instant block. However, this allows opportunists and wealthy users to bid higher GAS fee prices and leads to two major problems: network congestion and high fees for Ethereum usage.

These shortcomings have limited the adoption and growth of the network. But EIP-1559 brings significant changes. Under the proposal, the network will automatically propose a "BASEFEE" price that adjusts based on network activity, providing a set price for all transactions and preventing speculative use from clogging the entire network.

It also introduces a deflationary element. As GAS is consumed, a large amount of Ethereum will be burned, reducing the supply of tokens. Such a move also addresses one of the most widespread criticisms of the Ethereum network, which is that the total supply of the Ethereum network is (currently) uncapped.

EIP-1559’s supply reduction proposal is arguably one of the most attractive features for investors. Ari Paul, CIO of investment firm BlockTower Capital, said earlier this year: “Reducing supply from usage is a simple and compelling narrative that explains why various activities on the platform will benefit investors in the long run.”

He added at the time, “This narrative will be necessary for the next order of magnitude of growth for the diverse set of Ethereum holders.”

Reducing supply in proportion to usage is a simple and compelling narrative for why diverse activity on the platform will benefit Tier 1 investors in the long term. This narrative will be necessary for the next order of magnitude of growth in diverse Ethereum holders.

— Ari Paul (@AriDavidPaul) June 27, 2020

Despite its promising prospects, EIP-1559 will not ultimately drain all of the ETH in existence. The proposal applies to Ethereum’s current proof-of-work design, which is itself transitioning to a proof-of-stake network. This multi-stage transition will see miners gradually unbond themselves, with “stakers” instead running their own Ethereum nodes to verify transactions on the network.

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