Ethereum has been stealing the show on the charts and in the larger market over the last few months. In fact, EIP-1559’s implementation in the first week of August this year was responsible for much of ETH’s market-wide hype. This, combined with the resurgence of the broader market, has allowed many in the mainstream to move beyond Bitcoin.
While this has been revolutionary for the network and its users, concerns about scalability and high gas prices have been raised on several occasions. The emergence of ETH-killers like Solana, as well as the rapid rise of layer-2 scaling solutions, has thrown a spanner in the works, confirming these fears.
Is EIP-1559 a so-called “parasitic tax”?
Analyst Willy Woo recently sparked a lively debate with his thoughts on EIP-1559 and capital flight from the Ethereum network. He polled his followers on whether they think EIP-1559 is a “parasitic tax” that drives decentralized applications (dApps) to other networks for short-term deflationary effects. The response was mixed, but it’s a unique perspective on the situation.
The increased use of the ETH network in dApps, NFT surges, and yield farming has caused network fees to hit 100-200 Gwei several times in the last few months. EIP-1559, according to ETH developers, is focused on addressing rising gas fees and making them predictable.
Notably, the amount of ETH burned in the 40 days since EIP-1559 was first implemented has surpassed 296,000 ETH. Furthermore, the burn value has surpassed $1 billion, with OpenSea burning the most ETH, over 40000.
So, who was helped by EIP-1559?
While the post-London phase was a mixed bag for the Ethereum network, with both criticism and praise coming in equal measure, other networks benefited from it. In fact, the recent spike in gas prices has been a blessing in disguise for layer-2 scaling solutions. Over 3.6 billion dollars were locked in layer 2 solutions on Ethereum at the time of writing.
Additionally, Solana’s exponential growth can be attributed to its low transaction costs and high speed. To increase speed and lower gas fees, Ethereum has relied on Optimistic Ethereum, rollups, and zero-knowledge technology. Solana, on the other hand, is in a better market position.
In fact, the claim that Solana is the world’s “fastest blockchain network” could be ETH’s doing, with a post-EIP-1559 effect.
For the time being, it appears that the second-largest blockchain has two options for the future. High gas fees will either continue to drive capital out of Ethereum (to L-2 solutions) or aid the post-ETH 2.0 transition to a scalable and relatively low-fee blockchain.
For the time being, however, it appears that dApps are moving away from the ETH network as the NFT hype fades. As a result, it appears that EIP-1559’s short-term effects are debatable.