EIP 1559 might create a positive feedback loop for the price of Ether. Ethereum and Bitcoin are living in a close relationship.
Ethereum’s valuation recently appeared in a report by Grayscale, a digital asset investment firm. The company highlights three aspects to value the asset: Ether (ETH) as money, ETH as a consumer good, and ETH as an interest-bearing asset.
The document, called Valuing Ethereum, signed by Phil Bonello, refers to the EIP-1559 proposal. This implementation, which raises the introduction of a commission burn mechanism, is about creating a positive feedback loop for the price of ETH.
It should be essential to note that EIP-1559 is looking for improvements regarding the user experience and other aspects that guard a close relationship to commissions in Ethereum. When the “gas” payment happens, it will split into two parts, one of which would reach the miner, and the other would burn.
Bonello argues that the proposal would burn Ether at a rate higher than creating a new supply. This move can change the dynamics of supply and demand at a large scale, which is the basis of markets.
Grayscale also evaluated the ether role as a consumer good in the Ethereum ecosystem, and analyzed the impact that EIP-1559 could have within the network economy.
In the context of Ethereum, the investment firm finds that EIP 1559 would mutate a currency like Ether from being an exchange asset to a consumer commodity by making it like fuel instead of working as money. If this transformation happens, Grayscale predicts that EIP 1559 could be extremely bullish for its price.
Grayscale also views Ethereum as an interest-earning asset. This description refers to the rewards that those who run a validator node will receive when the final transition to Ethereum 2.0 happens.
Bitcoin and Ethereum Keep Competing for the First Place as the Best Cryptocurrency
The report also highlights the sudden rise in the price of ETH last year from less than $ 100 to more than $ 1,600 today.
Grayscale claims that Ethereum is way younger than bitcoin and the protocol keeps suffering significant transformations. Therefore, Ether, the procedures of the underlying asset, keep changing, view Ether as money, as a commodity, or as interest-bearing support allows investors to view several possible outcomes when assigning a fair value to the asset.
In its introduction, the paper highlights that, since its launch in 2015, Ethereum acquired significant interest as the second-largest blockchain network. Ethereum is now a leading financial structure that shows the complete capability to move more than $ 12 billion in daily transactions.
The report also says that this does not mean that Ethereum is better than Bitcoin, but it aims to improve various borders and, consequently, make concessions. Bitcoin has become more challenging and relatively inflexible, instilling confidence that its accounting system will not change arbitrarily. Ethereum then shows adaptability and flexibility, on which interaction, innovation, and improvement become the confident roots that sustain such currency in the crypto-environment.
By Jenson Nuñez
