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EIP 1559 is a substantial change to the handling of gas fees on the network. In addition to making gas fees be 2 parts (base and "priority" fees), this includes

EIP 1559 is a substantial change to the handling of gas fees on the network. In addition to making gas fees be 2 parts (base and "priority" fees), this includes a provision for "burning" the base fee, reducing the overall ETH supply. From the code itself: # miner only receives the priority fee; note that the base fee is not given to anyone (it is burned) Models i have seen suggest this will not make ETH deflationary, as the expected burn rates are outpaced by expected mining rates, but the proposal does specifically make note of this[1]. 1: https://eips.ethereum.org/EIPS/eip-1559#eth-burn-precludes-fixed-supply https://eips.ethereum.org/EIPS/eip-1559#eth-burn-precludes-f...

hanniabu 5y ago
The deflationary aspect isn't speculated to kick in until after the merge to PoS when the issuance drops significantly. Regardless, I don't believe it will be deflationary long term. It will likely just last a year before it reaches an equilibrium.
- arcticbull 5y ago
  The loss of coins means it will likely be massively deflationary over time. I don't have the numbers for ETH but off hand I believe 20% of all BTC has been lost already, since just 2009. That's an annualized 1.55% effective supply deflation rate during a period where new supply was quickly generated. Basically every random walk down the timeline leads to 100% of coins lost in the course of time. This is of course separate from the decrease in rate of supply creation.
  - dcolkitt 5y ago
    Arguably, Ethereum's even more prone to this of loss than BTC, because of the complexity of broken smart contracts with permanently locked funds.
    - bogota 5y ago
      I think it evens out though because of a lot of early people with lots of bitcoin just lost interest and lost the wallet. This was sadly the case for me as well as a few other people i know. By time eth came out though everyone was much better about backing up wallets you thought would be worth nothing.
      - mcherm 5y ago
        But that was a one-time effect. It affects the current money supply, but does not affect inflation/deflation over time.
  - sonograph 5y ago
    > Basically every random walk down the timeline leads to 100% of coins lost in the course of time. Rather, I believe it will result in the remaining 20% being held by a few exchanges, whose endgame will be to still charge the fees but just balance them internally without actually costing anything.
    - arcticbull 5y ago
      The best, safest, fastest way to use the blockchain is to not.
  - lvs 5y ago
    Dogecoin, on the other hand, has a static issue rate in the reward schedule. I believe it was totally accidental and not at all by design, but it is plausible that it will reach an equilibrium with coin loss in the next few years.
  - JumpCrisscross 5y ago
    > loss of coins means it will likely be massively deflationary Friendly note that money supply is only correlated to whether a currency is inflationary or deflationary. Over the past weeks, for instance, Bitcoin has been inflationary--its purchasing power dropped.
    - lottin 5y ago
      Bitcoin proponents argue that bitcoin is deflationary based on a misinterpretation of the Quantity Theory of Money. At any rate, QTM is a theory of money, and as such it only applies to money. It doesn't apply to random assets, such as bitcoin. And, no, the fact that bitcoin has been declared "legal tender" in this or that country doesn't mean bitcoin is money in the context of QTM.
    - arcticbull 5y ago
      Thank you for calling that out, I agree, which is why I mentioned "supply inflation" and "supply deflation." To your point, that's only 'inflation' in the Austrian sense which I personally couldn't disagree with more. After all the M2 supply grew 15X since the 1970s but inflation only decreased the buying power to 1/7th so the fact they're equal seems trivially disprovable.
dcolkitt 5y ago
One really underrated component of EIP-1559 is how much more usable it makes the system. The complexity and uncertainty of how to set gas fees, stuck transactions, and the like is a major turnoff for new users. Experienced users tend to gloss over this, because they've already taken the time to mentally model all the complexities related to the gas market. I predict that post-London, we'll see a huge wave of new users into a wide variety of applications in the ecosystem. I wouldn't be surprised if we see another order of magnitude increase in DeFi volume.
- deleted 5y ago
  [deleted]
- jl2718 5y ago
  All of that complexity is still in the priority fee. There is still zero incentive to include base-fee-only transactions.
  - RoboTeddy 5y ago
    Not quite: under typical Ethereum chain conditions, you can include a small constant-sized priority fee to encourage miners to include your transaction. (This is really simple, and can be a default which most users are never even aware of.) This priority fee is free money for the miner; the only reason they would not include your tx is because it would make their block slightly larger, which would make it propagate over the network slightly more slowly, and slightly increases the chance that the race is won by a different miner who discovered a block nearly simultaneously. So, the priority fee just needs to be big enough to make up for this tiny extra risk.
    - tobltobs 5y ago
      High gas prices are often caused by bidding wars between front-running bots. This upgrade will not stop this dynamic.
      - T0Bi 5y ago
ur-whale 5y ago
ETH supply equation was already hard (some would say impossbile) to predict. It looks like this is making things worse. Will anyone ever be able to answer the question "what will be the max number of ETH in circulation on date X?" ?
- casi18 5y ago
  The answer is easy and has always been the same: The amount will be what we have all collectively decided is the right amount to keep the system alive and secure. Minimum Viable Issuance. The only certainty in life is change. Saying "we will have x amount on date y" isn't helpful for developing coordination tools that will actually last into the future. Isn't it much better to have a system where we can say "this is how issuance will respond to these different possible futures".
  - ur-whale 5y ago
    >The only certainty in life is change. Thank you for the platitude. And then, there's Bitcoin with its perfectly predictable supply curve, which flatly derails your argument.
    - bhaak 5y ago
      A condescending answer that totally ignores everything else that is in the comment you are replying to. You have with no word said why one would want a predictable supply curve. Ethereum's supply curve is lower than it was promised in the ICO. Just because Bitcoin has now a "perfectly predictable supply curve" that is no guarantee that it will be in the future? In a few years the block reward will be so small that the security of the chain will be reliant on the fees. A fee market has lots of negative implications, one of the worst is that you can pay miners directly to include transactions without using Bitcoin for the fees.
    - nootropicat 5y ago
      Bitcoin supply curve is a lie because security from fees is too low and unstable. Bitcoin only had $548k in fees yesterday, and the trend is downwards. A fundamentally insecure chain has a negative feedback loop: no reason to pay any fees to use it, which makes it even more insecure. Bitcoin in the future is going to either be forced to introduce tail inflation in a hard fork, or start depending on secure external consensus (most likely ethereum) in a soft fork. Either option completely destroys any narrative bitcoin ever had. https://cryptofees.info/ https://cryptofees.info/

hanniabu 5y ago

The deflationary aspect isn't speculated to kick in until after the merge to PoS when the issuance drops significantly. Regardless, I don't believe it will be deflationary long term. It will likely just last a year before it reaches an equilibrium.

arcticbull 5y ago
The loss of coins means it will likely be massively deflationary over time. I don't have the numbers for ETH but off hand I believe 20% of all BTC has been lost already, since just 2009. That's an annualized 1.55% effective supply deflation rate during a period where new supply was quickly generated. Basically every random walk down the timeline leads to 100% of coins lost in the course of time. This is of course separate from the decrease in rate of supply creation.
- dcolkitt 5y ago
  Arguably, Ethereum's even more prone to this of loss than BTC, because of the complexity of broken smart contracts with permanently locked funds.
  - bogota 5y ago
    I think it evens out though because of a lot of early people with lots of bitcoin just lost interest and lost the wallet. This was sadly the case for me as well as a few other people i know. By time eth came out though everyone was much better about backing up wallets you thought would be worth nothing.
    - mcherm 5y ago
      But that was a one-time effect. It affects the current money supply, but does not affect inflation/deflation over time.
- sonograph 5y ago
  > Basically every random walk down the timeline leads to 100% of coins lost in the course of time. Rather, I believe it will result in the remaining 20% being held by a few exchanges, whose endgame will be to still charge the fees but just balance them internally without actually costing anything.
  - arcticbull 5y ago
    The best, safest, fastest way to use the blockchain is to not.
- lvs 5y ago
  Dogecoin, on the other hand, has a static issue rate in the reward schedule. I believe it was totally accidental and not at all by design, but it is plausible that it will reach an equilibrium with coin loss in the next few years.
- JumpCrisscross 5y ago
  > loss of coins means it will likely be massively deflationary Friendly note that money supply is only correlated to whether a currency is inflationary or deflationary. Over the past weeks, for instance, Bitcoin has been inflationary--its purchasing power dropped.
  - lottin 5y ago
    Bitcoin proponents argue that bitcoin is deflationary based on a misinterpretation of the Quantity Theory of Money. At any rate, QTM is a theory of money, and as such it only applies to money. It doesn't apply to random assets, such as bitcoin. And, no, the fact that bitcoin has been declared "legal tender" in this or that country doesn't mean bitcoin is money in the context of QTM.
  - arcticbull 5y ago
    Thank you for calling that out, I agree, which is why I mentioned "supply inflation" and "supply deflation." To your point, that's only 'inflation' in the Austrian sense which I personally couldn't disagree with more. After all the M2 supply grew 15X since the 1970s but inflation only decreased the buying power to 1/7th so the fact they're equal seems trivially disprovable.

dcolkitt 5y ago

One really underrated component of EIP-1559 is how much more usable it makes the system. The complexity and uncertainty of how to set gas fees, stuck transactions, and the like is a major turnoff for new users. Experienced users tend to gloss over this, because they've already taken the time to mentally model all the complexities related to the gas market. I predict that post-London, we'll see a huge wave of new users into a wide variety of applications in the ecosystem. I wouldn't be surprised if we see another order of magnitude increase in DeFi volume.

deleted 5y ago
[deleted]
jl2718 5y ago
All of that complexity is still in the priority fee. There is still zero incentive to include base-fee-only transactions.
- RoboTeddy 5y ago
  Not quite: under typical Ethereum chain conditions, you can include a small constant-sized priority fee to encourage miners to include your transaction. (This is really simple, and can be a default which most users are never even aware of.) This priority fee is free money for the miner; the only reason they would not include your tx is because it would make their block slightly larger, which would make it propagate over the network slightly more slowly, and slightly increases the chance that the race is won by a different miner who discovered a block nearly simultaneously. So, the priority fee just needs to be big enough to make up for this tiny extra risk.
  - tobltobs 5y ago
    High gas prices are often caused by bidding wars between front-running bots. This upgrade will not stop this dynamic.
    - T0Bi 5y ago

ur-whale 5y ago

ETH supply equation was already hard (some would say impossbile) to predict. It looks like this is making things worse. Will anyone ever be able to answer the question "what will be the max number of ETH in circulation on date X?" ?

casi18 5y ago
The answer is easy and has always been the same: The amount will be what we have all collectively decided is the right amount to keep the system alive and secure. Minimum Viable Issuance. The only certainty in life is change. Saying "we will have x amount on date y" isn't helpful for developing coordination tools that will actually last into the future. Isn't it much better to have a system where we can say "this is how issuance will respond to these different possible futures".
- ur-whale 5y ago
  >The only certainty in life is change. Thank you for the platitude. And then, there's Bitcoin with its perfectly predictable supply curve, which flatly derails your argument.
  - bhaak 5y ago
    A condescending answer that totally ignores everything else that is in the comment you are replying to. You have with no word said why one would want a predictable supply curve. Ethereum's supply curve is lower than it was promised in the ICO. Just because Bitcoin has now a "perfectly predictable supply curve" that is no guarantee that it will be in the future? In a few years the block reward will be so small that the security of the chain will be reliant on the fees. A fee market has lots of negative implications, one of the worst is that you can pay miners directly to include transactions without using Bitcoin for the fees.
  - nootropicat 5y ago
    Bitcoin supply curve is a lie because security from fees is too low and unstable. Bitcoin only had $548k in fees yesterday, and the trend is downwards. A fundamentally insecure chain has a negative feedback loop: no reason to pay any fees to use it, which makes it even more insecure. Bitcoin in the future is going to either be forced to introduce tail inflation in a hard fork, or start depending on secure external consensus (most likely ethereum) in a soft fork. Either option completely destroys any narrative bitcoin ever had. https://cryptofees.info/ https://cryptofees.info/