A recent paper authored by members of several universities, including Sydney and Macquarie, argues that recent changes in Ethereum monetary policy are making it a better store of value than bitcoin. The deflationary effect that the EIP-1559 proposal has caused in the issuance of the currency is said to be the main cause of this.
Ethereum in the spotlight
A new document released by members of Australian universities last month sheds light on Ethereum and its possible future as a store of value. The document, titled “Better Than Bitcoin? Can cryptocurrencies beat inflation? Is the author of Ester Félez-Viñas of the University of Technology Sydney and other academics, and compares the issuance of Bitcoin with the new model of issuance of Ethereum, which makes the currency deflationary.
The paper states:
We show that following the recent change in its transaction protocol, the digital currency Ethereum displays a net issuance rate of tokens significantly lower than that of Bitcoin, obtained by destroying the fees. associated with each transaction.
It has to do with activating EIP-1559, a proposal that burns Ethereum in proportion to network usage. While there was some opposition to this proposal when it was presented – mainly from miners and mining pools – it is now contributing to this new appreciation of Ethereum as a potentially deflationary currency going forward.
Burning Fees
The implementation of EIP-1559 has caused the network to burn a significant amount of Ethereum in fees. This change has led to more than one million ETH being put out of circulation after just three months of its implementation on mainnet. Regarding this, the study remarks:
In many cases, the amount of Ethereum burned exceeds the creation of new tokens by the network, potentially making Ethereum the world’s first deflationary currency. We argue that this offers better inflation hedging properties than Bitcoin, and therefore Ether may offer superior long-term value storage than Bitcoin.
Other cryptocurrency projects are adopting similar burning schemes hoping to recreate the same effect. Binance coin recently activated an update to its network that also implemented fee burning. However, Binance coin and Ethereum are fundamentally different: The latter has no cap on its issuance, while Binance coin does have a hard issuance cap.
