The Ethereum Improvement Proposal 1559, set to be bundled together with the “London” upgrade in July, has caused as much excitement as fear and panic. On the surface, EIP-1559 is nothing more than a change in Ethereum’s gas fee structure. And to spice it up, it has also been labeled as Ethereum’s scarcity engine, or burn mechanism, as it will destroy Ether (ETH) used in transaction fees, making the cryptocurrency deflationary, and perhaps more valuable down the line.
Curbing Ether’s inflation will make the digital asset as deflationary as Bitcoin (BTC), meaning that its buying power will only increase over time. However, the relevance of the EIP-1559 proposal is based on fixing the runaway gas fees. The upgrade has been in the works for some time, but its timing couldn’t have come at a better time. Ethereum’s sky-high transaction fees are a result of the network being the most used blockchain in the world. This is partly due to its smart contract functionality, something that Bitcoin’s blockchain is limited in.
Ethereum’s functionality has seen it being used as the backbone of several booms in the sector. First, it was initial coin offerings, then came decentralized finance and now nonfungible tokens. To have a better understanding of the relevance of EIP-1559, we need to step back and take a look at the current gas fee model and why it needs to be changed for the good of the ecosystem, although it will leave some miners with a sour taste in their mouths.
Transactions on the Ethereum blockchain
Any form of activity done on Ethereum is recorded on the blockchain, and the accompanying change is considered to be a transaction. Each transaction comes with a cost, which serves two purposes. Firstly, the transaction costs are meant to discourage bad actors from spamming the network. And secondly, they are meant to incentivize miners who maintain the network by confirming transactions.
The Ethereum network currently uses an auction system to determine the gas fee. This basically means that there is no specific transaction fee, and the actual amount paid depends on factors that include network traffic. In theory, users who offer to pay more will have their transactions prioritized and confirmed early. But just like any auction system, the price could go really high. In February, Ethereum’s transaction fee surpassed $39 for the first time.
This spike has benefited miners, who for obvious reasons want the status quo to remain unchanged. It is argued that the EIP-1559 upgrade would reduce transaction costs by as much as 90%, but this can only be confirmed if and when it goes live.
For the broader Ethereum community, EIP-1559 is a welcome upgrade, perhaps long-overdue.
More on the EIP-1559 upgrade
The EIP-1559 upgrade proposes to use flexible block sizes instead of fixed block sizes as has been the norm in proof-of-work systems. To do this, EIP-1559 uses a two-tier system consisting of a base fee and tips.
The base fee will be payable in Ether, and its price will constantly change depending on the network congestion. The new proposal aims to keep the network utilization at 50% or below. If the network usage surpasses this threshold, the base fee will increase as well. This predictable pricing model is meant to remove the burden of setting the price from users and pass it on to be set automatically by wallet providers. The base fee would then be burned after collection, meaning that miners won’t be pocketing transaction fees anymore. This will make Ether a deflationary asset, propping up its price over time.
Tips are slightly different from the base in the sense they are not mandatory. And unlike base fees that have to be destroyed, tips are kept by miners. Under EIP-1559, blocks will not be completely full, providing miners the space to allocate transactions to users who would be willing to pay a premium to have their transactions included in the next blocks. However, miners do not have control of the fee structure and feel let down by the proposal.
Miners are not amused by the EIP-1559 proposal
No one in life is ready to let go of their meal — same goes for Ethereum miners. In February alone, miners’ revenue reached a record of $1.3 billion, half of which coming from transaction fees. Miners have been campaigning against the EIP-155 proposal because it is estimated that it will cost them as much as 50% of their revenue. The issue has gone as far as some pools threatening to band together as a show of force. While it may not incentivize them to effect a 51% attack on the network, the possibility that they can do it will likely give developers sleepless nights.
This also shows that blockchain networks are at the mercy of large mining pools. And if it is only ethical and economic reasons preventing them from harnessing their hash rate for their own nefarious benefits, then blockchains may be far from being secure. At some point, they may have enough reasons to take over the network.
On the other side, the miners’ loss is a win for DeFi projects.
The new fee structure will allow DeFi projects to pay less for their transactions on the Ethereum network. And in the long run, this will reduce the number of projects migrating to other blockchains.
But making Ethereum transition into a more scalable network is doing so at the expense of miners who have not hidden their displeasure about the proposed changes. There is still a long way to go before Ethereum gets where it wants to be, and some stakeholders will be burned along the way.
The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Michael J. Garbade is a co-founder and the CEO of Education Ecosystem. He is a serial tech entrepreneur who formerly worked at Amazon, General Electric, Rebate Networks, Photobucket and UniCredit Group. Garbade has experience working in the United States, Europe, Asia and South America.
Reef Finance’s Schedules Mainnet Release for May, Promises Polkadot Integration
Reef Finance has announced that its Substrate-based mainnet will see the light of day in May 2021. Called Reef Chain, it promises to “make DeFi easy” by enabling developers to use a highly scalable and fully EVM-compatible network that’s integrated into the Polkadot ecosystem.
Reef Chain Coming in May
Reef Finance is a cross-chain DeFi operating system allowing traders to access liquidity from centralized and decentralized exchanges through its smart liquidity aggregator and yield machine. The project outlined the date for its long-anticipated mainnet launch in a press release shared with CryptoPotato.
According to it, Reef Chain will be launched next month after finishing the final checks of the current Maldives testnet. The precise date will “depend on the result of the rigorous tests being conducted right now, though the team is confident that they will be completed soon.”
Upon its release, Reef Chain will enable DeFi developers to produce scalable and EVM-compatible systems integrated into the Polkadot ecosystem. Reef’s new product will be rolled out as a standalone blockchain based on the Substrate framework. This feature will simplify the integration to the Polkadot parachain network.
The mainnet’s compatibility with EVM, meaning developers can write contracts in Solidity or Vyper and deploy them on the chain, and its ability to bridge with other blockchains, including Ethereum, should enhance its interoperability features.
No Better Timing
Denko Mancheski, CEO of Reef Finance, outlined Reef Chain’s launch as perfect timing because of the “insatiable” demand for DeFi and the issues he sees with the current ecosystem. More specifically, those are the record-high transaction costs on the Ethereum network and even the struggling lately Binance Smart Chain.
Apart from promising scalability and deeper liquidity integration, Reef Chain is also “committed to helping out developers in their quest to bring their DeFi idea to life.” It plans to do so by enabling them access to Reef’s user base, network partners, investors, exchanges, and media.
“We know the struggles of up and coming developers all too well, and a lot of the time, technical skills are only a part of the equation. By tapping into Reef’s business network, DeFi builders will multiply their chances of success.” – concluded Mancheski.
CEO of a Turkish Crypto Exchange Thodex Reportedly Runs Off With $2 Billion
Nearly 400,000 users of a Turkish cryptocurrency exchange were left out of their accounts without being able to withdraw their funds. The platform’s website has been down for several days, while reports suggest its CEO has already fled the country with up to $2 billion.
Turkish Exchange Does a Rug Pull?
Bloomberg reported yesterday that Thodex, a Turkey-based crypto exchange, has ceased trading, citing an “unspecified partnership transaction.” The founded in 2017 trading platform issued a statement explaining that all services will remain shut down for about five working days. However, the message reassured customers that they shouldn’t worry about their funds.
Approximately at the same time, though, users started to complain about their inability to access their own assets. Some took it to Twitter to exemplify the absurdity of the situation.
A local #Crypto exchange where I’d ~20% of my entire trading capital got rug pulled
-20 days no withdrawal (fiat & crypto)
-Then the website went offline
-Then the CEO run abroad
I’m not broke, but it hurts… Alot
It sucks, Even when u deal with regulated exchanges#Thodex
— Feras_Crypto (will Never DM you First) (@FeraSY1) April 21, 2021
More recent coverages asserted that the exchange’s chief executive officer and founder, Faruk Fatih Ozer, who refrained answering comments before, had fled the country.
Users Alleging of Fraud
Upon the news of Ozer’s alleged escape from Turkey, users of the local exchange hired a law firm to file a complaint against Thodex. Oguz Evren Kilic, representing an unspecified number of Thodex customers, confirmed the development, saying, “we have filed a legal complaint on Wednesday.”
He speculated that the funds on the Turkish exchange could be worth “hundreds of millions of dollars,” keeping in mind that the user base is just shy of 400,000. A prosecutor in Istanbul has reportedly launched an investigation.
According to another report, Thodex’s CEO and founder has run away in Thailand with an estimated amount of roughly $2 billion.
It’s worth noting that Turkish authorities have already taken a steep approach towards the cryptocurrency industry. CryptoPotato informed last week of the country’s latest rule on digital assets, banning users from using them as payment instruments from April 30th.
Chainlink is uniquely placed to play this out in the market
2021 has been a good year for Chainlink, the project growing leaps and bounds over the past few months. What’s more, LINK has continued to build on its foundations from last year, with the altcoin surging up the charts over the past few months. In fact, on the back of the wider market’s bullishness, LINK touched a new ATH on the charts just a few days ago.
At the time of writing, however, the aforementioned bullishness had given way to a wave of corrections, with the altcoin trading at a price level that was 18% away from its ATH.
What does this mean then? Has LINK’s price rally finally exhausted itself? On the contrary, a closer look at factors such as ecosystem-centric developments, metrics, and technical fundamentals would suggest quite the opposite.
The most crucial of these ecosystem-centric developments came to the fore a few days ago when the project released the whitepaper for its next protocol upgrade – Chainlink 2.0. As the DeFi sector’s leading decentralized oracle provider, this is a significant development, especially in light of the inflows that have been moving into DeFi over the past few months.
The whitepaper in question proposed a roadmap of Chainlink’s future, one which sought to address the limitations that were part of the initial whitepaper. Smart contracts with limited functionality, for instance. According to a recent report by OKEx Insights,
“Chainlink 2.0 addresses these limitations by enabling hybrid smart contracts in DONs — allowing blockchain protocols to access off-chain data sources and perform off-chain computations.”
What’s more, 2.0 also seeks to make oracles much more scalable, with the addition of the ability to perform off-chain calculations and the introduction of a “transaction-execution framework for Decentralized Oracle Networks which processes off-chain transactions and oracle reporting.”
Finally, Chainlink 2.0 will also be a step towards strengthening privacy protections on the blockchain network with the addition of confidentiality-preserving adapters and support for confidential layer-2 systems.
Needless to say, this a major update, one that could have major repercussions on the value of LINK on the price charts. However, contrary to expectations, when the paper was first made public on the 15th of April, the altcoin’s market failed to react. In fact, it corrected instead.
Why? Well, because the rest of the market corrected too on the back of Bitcoin’s depreciation and fall below the $60,000-level. In doing so, what can be argued is that LINK’s price is yet to price in the aforementioned development. This means that when the bearish phase passes and consolidation ensues, there is potential for a lot more upside in the Chainlink market.
In fact, it can be hypothesized that LINK, more than most altcoins in the space, is better placed to see more upside in its price action in the near term. This, because despite how it has performed over the past week, LINK’s fundamentals remain pretty strong.
Consider this – According to Glassnode, the top 1% of LINK addresses now hold over 84.44% of the altcoin’s supply, a 3-year high. This finding is a testament to the accumulation trend in the Chainlink market, one that underlines the confidence the market’s whales have in the alt’s long-term credentials.
Further, LINK’s Exchange Outflow Volume (7d MA) also touched an ATH of $3,753,855.00 recently, with the same suggesting that more and more people are now moving their crypto-assets off exchanges to HODL, with these unlikely to be sold anytime soon.
Here, it’s worth noting that in the past, whenever this metric has risen, the altcoin’s value has fallen on the charts immediately after. However, LINK’s price has also touched higher highs whenever recovery has ensued, meaning, this could be a sign to buy in.
Finally, the number of active LINK addresses also surged to a 1-month high in the last 48 hours, despite the general market bearishness another sign of there being a lot of optimism associated with the alt’s price performance.
It’s no wonder then that many in the community expect the cryptocurrency to reignite its rally in the near term, especially since traditionally, the cryptocurrency has maintained a lower correlation with the king coin, when compared to the likes of Ethereum and Litecoin. This, coupled with its strong fundamentals, might allow LINK to surge again, independent of the rest of the market.
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