The founder of ConsenSys and co-founder of Ethereum, Joseph Lubin, on the eve of yesterday‘s activation of the London update, in an interview with Bloomberg reporters called the cryptocurrency «ultrasound money» .
According to him, ETH will become the basis of a new financial system of the future, the goal of which will be «democratization of the Earth», that is, providing equal access to financial products in every region of the planet. Accordingly, the project has more than enough advantages.
Ethereum fans love to use the term «ultra-hard currency», as if making fun of Bitcoin fans. Recall that the latter call the main cryptocurrency «sound money» or «hard currency», since the maximum amount of BTC in circulation is limited to 21 million coins.
However, after yesterday’s London update, Ethereum has a new commission-burning mechanism, thanks to which the cryptocurrency can become deflationary at all. In other words, in each block of the network, in some situations, more ETH will be burned than miners receive as a reward for their activities – and this is much cooler than just a limited maximum supply of coins. This is what Lubin focuses on as the key advantage of the cryptocurrency.
We checked the actual data: the London update was activated with block 12,965,000 yesterday at 15:33 Moscow time. It was this block that activated the so-called EIP-1559, which has not yet solved the problem of high fees, but has already created inconveniences for miners.
After activating the update, the so-called base commission that users pay for the transaction is burned, that is, it is permanently out of circulation. The blockchain explorer Etherscan and other similar platforms display the volume of the «destroyed» cryptocurrency. In this case, we are talking about the line «Burnt fees».
The volume of burned ethers in the update block
The base commission changes with the congestion of the network. The more users make transactions, the higher the base fee becomes – and the more ETH is burned. And vice versa.
Note that the developers’ forecast did come true, and ETH has already managed to play the role of a deflationary asset. Specifically, in block 12965274, 2.09 ETH was burned, while the block reward was the standard 2 ETH that is just created. This means that with a high network load, the amount of air in circulation will indeed decrease.
First deflationary block in Ethereum history
Finally, the total volume of burned ethers is already in the thousands. At the time of writing, it exceeded the equivalent of $ 12 million.
Total amount of burned ethers
In the first five hours of EIP-1559’s operation, the network burned a thousand airs.
1,000 ETH has been burned in the first 5 hours of EIP-1559.
– eric.eth (@econoar) August 5, 2021
As a result, ethers are successfully dropped out of circulation, which is what the developers wanted. Judging by the comments, they are happy with what is happening.
What will happen to Ethereum in the future?
According to the expert, very soon the demand for ETH will be several times higher than the demand for BTC. In the quote below, Lubin cited some parallels with gold and Bitcoin, and also explained why Ethereum would be a welcome investment for everyone. Here is his line, quoted by Cointelegraph.
We have a limited amount of gold on the planet. Bitcoin’s fixed emission is enough for some people to call it “hard currency”. Meanwhile, the Ethereum 2.0 contract has already blocked $ 13 billion of coins, about 70 billion more are involved in decentralized protocols, we already have a huge demand for Ether. Now, with the London update, we have started burning coins.
A rough comparison of the terms sound and ultrasound money
It is worth noting that after the recent upgrade, Ethereum as a whole may not become a deflationary asset, that is, this is not the main goal of the hard fork. Some note that this will only be possible after the final transition of cryptocurrencies to the Proof-of-Stake algorithm, when validators replace the miners on the ETH network.
Head of ConsenSys Joseph Lubin
In any case, the successful integration of the update has already aroused optimism among market participants. Over the past week, the price of ETH has risen by almost 17 percent, today the coin is trading in the $ 2,778 zone .
Ethereum price change in the last 7 days
Will the transition to Ethereum 2.0 be a key trigger for large investments in the project from the side of large market players? Even so, Bridgewater Associates founder and billionaire Ray Dalio will clearly not be among them. In a recent interview, he stated that he is guarding a bullish attitude towards the crypto market – namely, towards Bitcoin – but for now he would prefer to invest in gold.
He sees the precious metal as a salvation for capital from inflation, as evidenced by the strategy of his hedge fund Bridgewater. In the second quarter of this year alone, he invested over $ 400 million in gold.
We think that the idea of dealing with gold against the background of such a development of cryptocurrencies seems a little strange. Still, thanks to the code, digital assets can become deflationary – and this should be done on the first day after the updates. In this regard, the connection with the same Ethereum looks much more promising and logical than with gold. However, each investor must make investment decisions on their own and only after conducting their own research.
