Ethereum EIP-1559 Will Be A Make Or Break Moment For ETH

As the co-founder of BlockTower Capital Ari Paul recently said, the Ethereum EIP-1559 protocol will be a “make or break” moment for Ethereum. In the ETH news earlier this week, we saw Vitalik Buterin (co-founder of Ethereum) saying that the proposal is inferior to Proof of Stake as an anti-inflationary mechanism.

However, Ari Paul defined that the possible implementation of the Ethereum EIP-1559 will be a “do or die” moment for the cryptocurrency. He had a series of tweets where he said the argument in favor of the EIP-1559 is relatively simple: to make ETH grow by diversifying the investors entering the platform.

EIP 1559 is make or break for ethereum.

— Ari Paul ⛓️ (@AriDavidPaul) June 26, 2020

As reported in our crypto news before, the Ethereum EIP-1559 proposal brings a change in the fee mechanism that is used to validate transactions on the ETH blockchain. That said, the current model is known as a “first price auction” in the Bitcoin’s blockchain, while in the Ethereum blockchain the model works by paying a fee that encourages miners to validate a transaction. Here, the higher the fee is – the faster it will be validated.

So, EIP-1559 would definitely change the model to implement a base rate parameter to be changed by the protocol. The proposal states that with each completed transaction, the fees will be split. One part of the fee will go to the miner who will receive the sort of a “tip” and the other one will be the “space fee” which will be burned. By removing the incentives to manipulate the fees, this model would be much more predictable.

Further, the BlockTower Capital’s CIO argues that the Ethereum EIP-1559 will be relevant especially after the DeFi sector has established itself as a secure value platform. At that time, ETH will need to grow faster and will need to diversify the investors who enter the platform.

At this point of “make or break it,” Paul is leaning towards the optimistic side because of the change in narrative that will attract new investors. Under the current narrative, cryptocurrencies are “digital gold” but the new one that will be achieved with EIP-1559 is that ETH is a solid currency with an anti-inflationary policy.

“Reducing supply as a function of usage is a simple and convincing narrative as to why all sorts of activity on the platform will long-term benefit investors in L1. That narrative will be necessary for the next order of magnitude of growth in diverse ethereum holders,” he concluded.