Tomorrow marks 900 days since Ether traded at its all time high of $1385.02. Today the cryptocurrency rests 80% down from this high, occasionally showing faint signs of life before stalling for the umpteenth time.

Despite all its optimism, the mantra, “ETH is money”, has done little to chivvy on a bull market that – for several months now – has seemed ready to burst out the gate “at any minute”. Nothing, not even the strongest growth in fundamentals, seems capable of awakening this idle beast.

ETH Recap

• Since the start of the year, we have seen decentralized finance on Ethereum increase from $800 million to $1.6 billion.
• The amount of Bitcoin bridged to Ethereum has grown from 1,000 BTC to nearly 12,000 BTC.
• Demand for block space and the volume of transactions on Ethereum are setting new records.
• Total active addresses are rocketing to 2018 levels while the price – in an unusual break from historical patterns – limps along aimlessly (see chart below).
• And perhaps most surprisingly of all, Phase 0 – the upcoming event that will see millions of ETH taken from circulation to earn interest in Ethereum’s V2 – has had little apparent impact on price.

Enshrining ETH With EIP-1559

EIP-1559 and the “enshrining” of ETH into Ethereum may be the straw that finally breaks the market’s back.

If you haven’t followed this particular “Ethereum Improvement Proposal”, EIP-1559 aims to fix the current uncertainty and inefficiency in the gas price (transaction fee) market by introducing a new “base fee”. This fee – paid in ETH – will be required on every transaction and burned from circulation, helping to reduce Ethereum’s net issuance (see Deribit’s excellent analysis for more details).

Currently, it would be possible for users to abstract ETH away from Ethereum transactions, paying fees in other tokens and ultimately ignoring the role that ETH has to play in the security of the system. Furthermore, the current gas price auction system makes estimating the “right” transaction fee very difficult, leading to users unnecessarily overpaying miners.

With EIP-1559, these overpayments are cut significantly and the burning mechanism increases the scarcity of Ether (in line with network usage). This increased scarcity places upwards pressure on its price and helps to improve the security of the network by increasing the value of the rewards paid to miners and validators (while reducing transaction fee waste). The proposal also gives users of the network a greater future stake in the system by reducing the amount by which their holdings are diluted each day under current issuance conditions.

It’s hard to predict exactly what the impact of EIP-1559 would be (should it be implemented), but current daily fees on Ethereum total at over 3,500 ETH. While the proposal’s base fee would not burn all of this ETH, the introduction of ETH 2’s Phase 2 is expected to drop daily ETH issuance from 13,500 ETH to ~1,400 (assuming 10 million ETH staked). Under these circumstances, a fee burn of 50% (1,750 ETH/day) would lead to issuance on Ethereum (net of burn) becoming negative.

When Can We Expect EIP-1559?

With all this said, EIP-1559 is not exactly around the corner. Such a major change needs thorough testing and the fee mechanism is not currently live on any of Ethereum’s testnets. However, the proposal is making significant progress and last week a community fund was created for the EIP on Gitcoin Grants. The grant, which will help to not only raise capital for its development and testing, but to also gauge community approval of the project, has raised $28,700 in community donations from 343 contributors.

If we’re lucky, we may see EIP-1559 being implemented on a testnet by the end of 2020 or early 2021. In the meantime, there’s plenty else to look forward to, not least the launch of Phase 0.